‘Sh*t service’, expensive fares: Qantas fails to fly for investors

Qantas is likely to struggle to restore its tarnished reputation with investors after the departure of Alan Joyce as its shares lag what they were in 2007.

Qantas will struggle to restore its tarnished reputation with investors as poor service and expensive fares helped push its shares lower than they were before the arrival of Alan Joyce 15 years ago, fund manager Angus Aitken said.

The Aitken Mount Capital Partners founder said new chief executive Vanessa Hudson was going to have to “massively clear the decks” and accept lower profits as she rebuilt the national carrier.

“We put a sell on Qantas at $6.40 for a simple reason, every time you fly them you see the service is sh*t and the airfares are expensive,” said Mr Aitken.

“Fund managers mega long Qantas for long periods of time could not see anything other than low capital expenditure and high profits due to high airfares and limited new capacity.

“They missed the fact businesses have to do more than just maximise profit to have a great long duration businesses.”

A long position means you hold the stock. Qantas shares closed on Wednesday at $5.70, trading below the $5.91 they were in October 2007.

Mr Aitken said if there was one key lesson from Qantas it was that boards should not let “super star chief executives have too much rope when the financial returns are strong”.

“We have seen it hundreds of times around the world where the CEO thinks they are bigger than the brand and it all blows up for some reason because the board let them run the thing too much as an individual and then pulls in the rope after it is all too late,” Mr Aitken said.

Alan Joyce has left Qantas.

Viridian Financial Group chief investment officer Piers Bolger said the current board, starting with the chair and senior management, needed to take a greater level of accountability.

“Not only does the company need to restore its ‘service’ brand, which will involve a further advertising blitz and potential cost to the bottom line via discounted airfares, it also needs to spend heavily on its ageing fleet,” Mr Bolger said.

The Qantas loyalty program, which continues to be the company’s shining light given the diverse range of partners and its strong cashflow, would be as important as ever as the company moves forward.

Mr Bolger said Qantas had enjoyed the protection of federal governments of both persuasions for a long period of time and had been able to aggressively position itself as the prime aviation business in Australia.

But the recent Senate hearings had clearly demonstrated some basic failings around the business, particularly in relation to transparency across a range of issues, most notably the value of unclaimed flight credits.

“Declining service levels and exorbitant ticket prices out of the pandemic, coupled with record profits and bonuses paid to senior executives, including ex CEO Alan Joyce, after the airline received in excess of A$2.5bn in government subsidies through Covid reflects a business that is simply out of touch with the broader market,” Mr Bolger said.

Hunter Green Institutional Broking director Charlie Green said that even a new leadership team at Qantas would struggle against its history as a “terrible long term investment”.

Qantas’ new CEO Vanessa Hudson.

“The people who are perhaps crowing are the ones who bought it pre-Covid around $3 but over the long term it has been a very frustrating investment,” Mr Green said.

Qantas has only paid a total of 69 cents in dividends since 2009 but has done several large share buybacks. He said that without buybacks, the share price might be a lot lower than it is, adding the airline was a complicated business with complicated capital management.

“That is even more reason to avoid,” he said.

Moody’s Investors Service vice president Ian Chitterer said that despite the negative publicity he expected Qantas to remain well positioned from a credit perspective.

“With strong performance across the business, a robust demand outlook and total sources of liquidity of around $10 billion, the credit metrics and factors supporting the company’s credit profile have never looked stronger,” Mr Chitterer said.

He added the decision for Alan Joyce to step down two months early would help the airline to start afresh with Ms Hudson as the new CEO.