Alan Joyce ‘Moving at Pace’ – Speech to the American Chamber of Commerce, Melbourne

Melbourne | Published on 14th August 2013 at 13:01

Alan Joyce (opens in new window)‘Moving at Pace’ – Speech to the American Chamber of Commerce, Melbourne

It’s a pleasure to be here at the American Chamber of Commerce in Melbourne.

AmCham does a great job promoting trade between Australia and the United States.

We very much appreciate that at Qantas, because the Pacific market is so vital to our network.

We’ve been flying to the U.S. since the dawn of the jet age in the 1950s.

Today we operate almost 40 services per week between our two countries, by far the most of any airline.

Our new hub in Dallas has been a great success.

In partnership with American Airlines, we now offer more than 200 destinations in North America.

And American Airlines itself is growing.

Its proposed merger with US Airways will create the world’s biggest airline, with a massive fleet renewal plan.

So we see our U.S. business going from strength to strength, with more choice and a better customer experience.

This afternoon I’d like to take you through the Qantas Group’s strategy at a challenging and exciting time for global aviation.

I should say that we announce our full year results on 29 August.

So there are limits on what I can say about our current performance.

But I will try to cover as much ground as possible within those limits.

As of this week, Qantas International is two years into a five year transformation program – the biggest transformation since we were privatised in 1995.

We are making rapid progress toward our target for Qantas International, while strengthening every part of our business.

And we are building a global network for our customers.

Today my aim is to put our strategy in context.

Talk about the actions we’ve taken over the past 12 months.

And look forward to the next year and beyond.

A Time of Transformation

Let me start with a few words about the international context.

Since those first Qantas jet flights to the United States in the 1950s, there has been profound change in the world economy.

Today this change is not just continuing – it is accelerating.

In aviation, we are experiencing four major trends.

  • First, a volatile market, with record fuel costs and fluctuating exchange rates.
  • Second, the ongoing rise of Asia.
  • Third, the changing shape of the airline sector, with powerful new players influencing global traffic flows and driving consolidation.
  • And fourth, new technology which is changing the way airlines do business and serve customers.

These challenges are common to all airlines.

And they are producing fierce competition between airlines for passengers and revenue.

The International Air Transport Association expects total industry profits of US$12.7 billion in calendar year 2013 – on total revenues of US$811 billion.

That equates to an average return of about US$4 per passenger.

Or as Tony Tyler of IATA says, about enough to buy a sandwich.

He obviously hasn’t bought a sandwich in Australia recently…

But Tony’s point is deadly serious – aviation operates on razor thin margins.

In this context, it is not surprising that airlines are seeking to become more productive and find a new point of difference in customer service.

Both are essential for airlines to stay competitive and win customer loyalty.

In economic terms, the relative stability of the early 2000s has given way to a much more uncertain outlook.

But while it is a challenging time, it is also an exciting time to be working in aviation.

New markets are opening up.

New technology is arriving.

New aircraft are entering service.

New partnerships are taking shape.

And in this fluid environment, the Qantas Group is not just responding to the changes – we are helping to shape them.

We have Australia’s leading airlines and loyalty business.

We have a global network that few airlines can match. And we have a clear plan to build a stronger Qantas that will continue to succeed into the future.

Moving at Pace

The past 12 months have been busy with activity in every part of the Qantas Group.

  • We continue to strengthen our domestic business, investing in aircraft, lounges and technology. And we have expanded our regional operation in support of the mining sector. Our regional fleet now numbers 62 aircraft in QantasLink, plus 19 in Network Aviation.
  • We have made good progress with the turnaround of <b”>Qantas International, including the Emirates partnership and a new global hub for Qantas in Dubai. At the same time, we have removed costs or gained benefits by exiting loss-making routes. Reconfiguring aircraft. Expanding alliances. And modernising operations.
  • We have launched Jetstar Japan, as we continue Jetstar’s expansion across the Asia Pacific. In the past 12 months Jetstar has reached the milestone of 100 million passengers and 100 aircraft. It is bigger than Ryanair or Easyjet at the same age.
  • We have reduced the average age of our passenger aircraft to less than eight years, its lowest level in two decades, after a period of intensive <b”>fleet renewal. Over the past five years, we have taken delivery of 126 new aircraft for Qantas and Jetstar.
  • We have added value for our frequent flyers, providing new options through Emirates, Jetstar and our other partners. Qantas Frequent Flyer now has more than 9 million members, one in every other Australian household. On average, we’ve seen about 2,000 new members join the program every day.
  • Finally and crucially, we have strengthened the Group’s financial position. Thanks to our intensive fleet renewal, we have been able to reduce capital expenditure greatly while continually investing for our customers.
  • And we are paying back debt to secure our balance sheet in what remains an uncertain global outlook. Again, we will be providing an update at our financial results on 29 August.

As we move forward, we are well placed.

We have some of the best brands in world aviation with Qantas and Jetstar.

We have a loyalty business that is the envy of the industry.

We have fantastic airline partners in every region of the world.

And we are deepening these partnerships as we build a global network for our customers.

I’d now like to talk about how that network is taking shape.

Building a Global Network

First, let’s look at the domestic market.

This is a source of strength for the Qantas Group.

Our dual brand strategy with Qantas and Jetstar allows us to maintain our profit-maximising 65 per cent market share.

We target 65 per cent to give our business and leisure customers the best mix of routes and frequencies, which means Qantas and Jetstar remain the airlines of choice.

And it means we maximise revenue in every market we serve.

In turn, that enables us to reinvest in our product – creating a virtuous circle that keeps customers flying with us.

It makes us a better business.

Where we see a gap, we fill it.

Our Network Aviation FIFO business is a great example.

A few years ago, we had five per cent of the FIFO charter market. Now we estimate that we have 25 per cent.

There’s no doubt that the domestic market has been very competitive, with excess capacity.

But our strong portfolio puts us in the perfect position.

If there is a domestic aviation ‘war’, then the Qantas Group is winning it on all fronts.

We have the best airline in every category.

Qantas Domestic for business and premium leisure travel.

Jetstar for the price-sensitive market.

QantasLink for regional travel.

And Network Aviation for the FIFO market.

On every measure we are winning.

Our customer service ratings are the highest they have ever been with a significant lead over our competition.

And we continue to improve, putting 14,000 employees through service training, opening new lounges and upgrading aircraft.

On on-time performance Qantas Domestic again beat the competition in financial year 2013 – our fourth annual win in a row.

We have won seven out of seven months so far in calendar year 2013, a fact that is not lost on our corporate customers.

Qantas Domestic has also retained its 85 per cent share of the corporate travel market by value, winning big new accounts such as Fortescue Metals Group and the Roy Hill charter contract.

This is on top of an ongoing drive to lower costs and increase efficiency.

The most important measure of all is profitability.  While we haven’t reported for 2013, in the 2012 financial year our domestic businesses combined were seven times as profitable as the competition.

Our strong domestic network is the foundation for our global network.

This network now includes almost 900 destinations across Qantas, Jetstar and our airline partners.

Qantas is one of the few airlines to fly to every continent, with a network of regional hubs or gateways:

  • LA and Dallas in North America
  • Santiago in South America
  • Singapore and Hong Kong in Asia
  • Johannesburg in South Africa
  • And now Dubai for Europe, the Middle East and North Africa.

The Emirates partnership has revitalised our position on the Kangaroo Route.

With 98 flights per week to Dubai and 65 onward destinations, no other airline partnership offers Australians the same choice.

Not to mention lounges, frequent flyer recognition and many other benefits.

This is the biggest partnership in Qantas’ history, and it has had a seismic impact on aviation in this region – as Tim Clark of Emirates predicted.

We have clearly seen other airlines change their planning in response to Qantas and Emirates, adding capacity into Australia.

As well as the Emirates partnership, the Qantas Group has its biggest ever presence in Asia – including our biggest ever presence in China.

With our partners we offer direct services from Australia to 11 Asian cities, which is a home ground advantage compared to the region’s hub carriers.

The Emirates partnership has removed the need for us to fly to Europe through Asia – meaning we can focus on our network to and within Asia.

We have increased dedicated capacity to Singapore by 40 per cent and to Hong Kong by 10 per cent already this year.

And we are maximising our partnerships in the region: with China Eastern, JAL, Jet Airways, and with Emirates itself.

Jetstar now has an Asia Pacific network that spans 16 countries and territories.

We talk about an Asian Century – and Jetstar has been there almost from the start.

In 2004, we launched Jetstar in Singapore, helping to drive the growth of low cost air travel in South East Asia.

We are well placed in Vietnam with Jetstar Pacific, a joint venture with Vietnam Airlines.

Vietnam’s domestic aviation market is expected to be one of the fastest growing in the world over the coming years.

Now we are turning our attention to North Asia.

Jetstar Japan began flying in July 2012, and this week it reached two million passengers.

The growth potential in Japan is huge – a market six times larger than Australia, yet with no domestic low cost carrier until last year.

Our latest venture, Jetstar Hong Kong, will meet latent demand for low fares in one of the region’s biggest aviation hubs.

Despite its powerful economy, Hong Kong is not well served by low cost carriers.

We want to fill that gap in the market.

Jetstar Hong Kong is working through the regulatory process and hopes to secure approval by the end of 2013.

This will strengthen Jetstar’s network into Greater China – where it already serves seven cities.

These are long term, strategic investments, with strong local partners.

As we build scale, and as the Asian market grows, Jetstar will reap the rewards of first mover advantage.

I have already mentioned our network across the Pacific to the United States.

And of course New Zealand remains a key market for Qantas.

This morning we switched on the Emirates partnership across the Tasman, opening up many benefits for travellers in both countries.

Delivering Smart Growth

We are constantly looking for ways to better serve our international customers.

So today I’m pleased to announce a number of improvements to our global network

We are able to make these changes because we have found ways to do maintenance more efficiently – and avoid aircraft sitting on the ground idle.

For example, we have A330s which spend the weekend on the ground in Perth.

By making a few small changes to the way we do maintenance, we can increase the utilisation of these aircraft – without increasing capital expenditure.

As a result, we can today announce a number of important developments for the Qantas International network.

  • From November, we will increase the number of A380 flights between Sydney and Hong Kong, from four per week to five per week – out of a total of seven flights per week on this route. That is a 5 per cent increase in weekly capacity.
  • Our A380 services to Hong Kong have been very popular with customers, so we’re pleased to be providing more opportunities to fly on this superb aircraft.
  • As a consequence of this change, a Boeing 747 that currently flies Sydney-Hong Kong will move to the Brisbane-Los Angeles route. The number of 747 flights we operate from Brisbane to Los Angeles will be increased from six times per week to daily – a 15 per cent increase in weekly capacity.
  • Between December and February, we will operate a new, seasonal Qantas route: from Perth to Auckland, twice a week using an Airbus A330.
  • And in more good news for our Tasman customers, we will re-time Qantas’ daily flights between Sydney and Christchurch to better complement Emirates’ services on this route. This change will take place in October.
  • As we said when we announced the partnership, we are working together to offer the best schedule and connections across the Tasman.
  • This is an ongoing process, but customers will see immediate improvements. For example, a passenger travelling from Wellington to London will save around six hours compared with Qantas’ previous network through Asia.

Together, these network changes provide more capacity and better connections for our Asian, Pacific and Tasman services.

They target important business and leisure markets.

They mean we continue to increase our network advantage over the competition.

And they are consistent with a prudent approach to capital expenditure.

We are making better use of our existing capital, rather than tipping in additional capital.

The Road Ahead

Looking forward, I’m realistic about market conditions – it is tough out there – but I’m optimistic about the Qantas Group’s prospects.

I’m delighted with the response we are getting from our customers, with record satisfaction for Qantas International, Qantas Domestic and Qantas Loyalty.

These outstanding scores are a tribute to the skill and hard work of our people.

And it is not just our customers who’ve welcomed this refreshed approach to service.

On engagement scores with our employees are up across the business, with record engagement scores for frontline staff.

There is a new energy at Qantas. And that makes it an exciting time to be leading this great company.

Over the next 12 months, we will continue to build our global network, bedding down the Emirates partnership and expanding in Asia.

We’ve accomplished a great deal with the Qantas International turnaround, but there is still much to do.

At the same time, we will maintain our profit-maximising 65 per cent share of the domestic market.

We are mindful of the need to manage capital prudently in a volatile environment.

However, we will keep investing in our people, fleet and technology to ensure we provide the best possible service.

There is no shortage of immediate challenges, from a weaker dollar to fuel costs and lingering excess capacity in the domestic market.

But we are focused on our business and what we can control.

We have an outstanding aviation business.

We have a clear strategy.

And as we approach our 100th year, we are laying the foundations for the Qantas Group to succeed and grow in the 21st century aviation industry.

Thank you very much.