A welcome Qantas turnaround

ALAN Joyce’s tough medicine on costs is delivering results.

IN August, Qantas Airways posted a $2.8 billion loss for the 2013-14 financial year, prompting some intemperate commentary from attention seekers in the business press. In a front-page take-down, Fairfax Media’s Adele Ferguson called for the head of chief executive Alan Joyce. Sure, there is a sizeable fan base for Virgin Australia’s boss John Borghetti — a former Qantas veteran who missed out on the top gig in 2008 — but the hunting pack against Mr Joyce was extreme. Since that dark day in August, however, the signs are building that the Flying Kangaroo has turned the corner. In a market update on Monday, the carrier indicated it was expecting a first-half underlying profit of up to $350 million. Naturally, the Qantas share price has jumped and is trading near a four-year high.

There are many factors at play here, including lower fuel prices and an end to the brutal war for market share with Virgin. But the key has been good management, particularly in reducing operating costs. In February, after reporting a $252m half-year loss, Qantas embarked on a comprehensive $2bn restructure that involves cutting 5000 jobs across three years. As well, the airline announced a range of fleet and route changes, a wage freeze and the restructuring of maintenance and catering operations. There is still a long way to go, but the news for investors is pleasing, especially as fuel price falls are likely to boost the carrier’s bottom line over the rest of the financial year and beyond. The critics should take a sip of water, put up their tray tables and prepare their readers for a safe landing.

Mr Joyce has been aggressive in pursuit of his broad strategy and has never shied away from putting the hard word on Canberra. A year ago, Qantas applied strong pressure on the new Abbott government for an unhealthy dose of corporate welfare to bail out the carrier. Admirably, the Coalition rejected the lobbying, a high point of its governing, while also holding the line against handout pleas from SPC Ardmona and GM Holden. Still, Mr Joyce pursued a better line of argument in seeking “a level playing field in aviation”. In July, the Abbott government partly unshackled the national carrier from the Qantas Sale Act, allowing it to be split into domestic and international divisions. As well, it changed ownership laws, allowing foreigners to buy up to 49 per cent of any new entity. This gives Qantas more flexibility to raise capital and compete against rivals such as Emirates and Etihad, backed by oil-rich states, where profit is not the driving force. A country at the end of global trunk routes like ours needs a viable national carrier; in retrospect, Australia is now better off than it would have been had an $11bn private equity bid in 2006 succeeded. Qantas shareholders may still disagree, but the outlook is brighter now.

The Qantas revival is also due to Mr Joyce’s grit and courage in trying to break the grip of unions in aviation. In October 2011 he grounded the carrier’s entire fleet, putting a spotlight on the Gillard government’s woeful workplace relations laws. This newspaper named him the most influential person in business the following year, “a leader among leaders”. The nation is still hampered by Labor’s Fair Work Act so more action is needed. One lesson here from Qantas for Tony Abbott — and his immediate predecessors — is this: never waste a crisis. Mr Joyce should be supported in his bold quest to restore the fortunes of the Flying Kangaroo.