Will Jayne Hrdlicka stick around and Virgin, Qantas fly high?

Vanessa Hudson last week released one of Qantas’ best ever results and Virgin is about to reveal record earnings. So what does the future hold for the boss of our second largest airline?

Qantas chief executive Vanessa Hudson.

Things are probably as good as they get in aviation.

Vanessa Hudson last week released one of Qantas’s best ever results and Virgin is about to reveal record earnings. Things are so rosy that outgoing Virgin chief executive Jayne Hrdlicka is understood to be looking to stick around.

Not at Virgin, but at Qatar Airlines – which last week received government approval to buy a quarter of Australia’s second biggest airline.

Hrdlicka is understood to have discussed taking an ambassador/consultant-style role at the Doha-based firm.

When asked specifically, Hrdlicka would neither confirm nor deny, saying instead she has “a great relationship with the team at Qatar Airways … I will continue to support the business as long as it is beneficial to the board and shareholders.”

It’s easy to see why she would want to experience the fruits of her labour. Virgin’s staff numbers have risen from 1000 when she took the firm out of administration three and a half years ago to 8000 now.

More importantly the airline is likely to post a margin of more than 12 per cent when it reveals its half year results.

“When you look at our EBIT (earnings before interest and tax) margin, our EBIT margin for the half, it will be very competitive,” says Hrdlicka, speaking specifically about the domestic aviation market. “Qantas is in a very different place in the market. Their load factors are not the same as ours, and their costs are much, much higher than ours, and they just play a different space.

“We’ve built our business around premium leisure, small, medium-sized enterprises and value-conscious corporate travellers, and that is exactly the right place for us to play. We do research on a regular basis on consumers, and we are very confident we’ve got that right,” Hrdlicka adds. Hudson and her team have clearly got it right too.

Both Virgin and Qantas have been helped by the demise of Rex and the shortage of aircraft. As a result, flights are full and neither can launch a full frontal challenge for customers.

On Thursday, Qantas reported its domestic margin for the half year to December 31 was a whopping 17 per cent. It’s likely to be better than Virgin’s ever-improving margin because it dominates the high-yielding corporate and government market through its Qantas and QantasLink branded airlines, and has a chokehold on the cheaper end of the market through its Jetstar unit.

“Their absolute profitability is just off the charts,” says one aviation expert. “It is just staggeringly profitable and I don’t think they want to draw attention to that.”

Case in point was the company’s all important return on invested capital (ROIC), a key financial measure for airlines because of the cost of aircraft. Qantas’s ROIC was 54.6 per cent for the half, which the company itself admitted was “unsustainably high”.

“Group ROIC is expected to continue to decline in the near term and revert to more sustainable levels as invested capital grows,” Qantas wrote in its consolidated financial report.

Virgin Australia’s departing chief executive, Jayne Hrdlicka. Picture: Sarah Marshall

To compare, a McKinsey & Co report on ROIC by airlines from 2005-15 (taking a period before Covid) showed the best of the major airlines was Emirates with a ROIC of 9.1 per cent. Low-cost European giants Ryanair and easyJet were the best of the other significantly sized airlines with 14.1 per cent and 12.5 per cent respectively.

Qantas’s ROIC will start to deteriorate as it and airlines around the globe start to receive overdue aircraft orders from Boeing and Airbus. That will lead to an increase in competition, particularly in the international market, and even more so with Qatar able to ramp up flights via its 25 per cent takeover of Virgin.

But while it continues to rain gold on the domestic market, Hudson has been able to work on regaining customer trust after the airline’s patronising, incompetent and sometimes illegal actions during and after the pandemic.

Hudson has had to spend $240m so far on fines and remediation for illegally firing its baggage handlers and selling tickets on cancelled flights, done under the watch of her predecessor Alan Joyce. It’s still to find out the fine for firing 1700 baggage handlers.

The Sydney-based CEO has committed to spend $230m each year on customer service initiatives and the airline has made improving the “burn proposition” on Qantas Frequent Flyer points a priority by adding a new type of reward seat known as Classic Plus. Latest figures show that 5000 bookings are made each day on Classic Plus seats, in addition to the 13000 per day made on Classic seats.

Hudson’s focus on customer service is particularly important now that it’s seeing consistently stronger competition from Virgin. This will only increase with wealthy co-investor Qatar aboard, an investment that’s likely to increase over time. Virgin beat Qantas on key on-time metrics for the last period.

Hudson sounds confident she is up to the significant task of restoring faith in her airline.

“Expectations are changing. The competitive environment is changing and we are going to be relentless and single-mindedly focused on making sure we are always driving the business as hard as we can to deliver for the ­customer.”

Hudson points to improvements in the company's net promoter score to 27 in the first half of the year from 14 in the previous corresponding period. “We’ve seen an improvement in our customer metrics … and I spend I lot of time talking to customers and I am getting a sense from these conversations that people are recognising that improvement,” Hudson says.

“It’s about time too,” may think many a Qantas customer.

Originally published as Will Jayne Hrdlicka stick around and Virgin, Qantas fly high?