Future Flying: Building the Airlines of Tomorrow, Today
Qantas CEO Alan Joyce addressed the Australia Pacific Aviation Outlook Summit on Wednesday 5 August 2009. We have an unusual situation unfolding in the Australian aviation market right now. We are in the biggest global economic downturn since the Great Depression. And the short term outlook for aviation is dire.
- With a dramatic drop in demand and yields, there has also been a massive global contraction in aviation capacity.
- IATA forecasts US$9 billion in industry net losses for 2009.
- About 50 airlines have collapsed since 2008 – the highest number of failures in aviation history.
- It is believed that a further 20 may collapse this year.
Yet here in Australia, aviation capacity is going against all rational trends and expanding. Even as demand is shrinking in the Asia-Pacific by 14 per cent, local competitor capacity has grown by 11 percent. Domestically, we have the Singapore Airlines subsidiary, Tiger. Internationally, we have V Australia plus Delta competing with United and Qantas on the trans-Pacific route. The Middle Eastern carriers Emirates, Etihad and Qatar are all expanding substantially. Pacific Blue and Air Asia X are growing. Perhaps my competitors know something I don’t. But history tells us that whenever there is over-capacity, sooner or later there will be a correction. In business, as in nature, only the fittest will survive. Now I can assure you that Qantas is not going anywhere. But of the new entrants to the marketplace, not all will make it. Some may exit, scarred. And it’s not just our competitors who may be affected by this current surfeit of capacity. Customers today are enjoying historically low prices. In 1945 a return airfare between Sydney and London took an average worker around 130 weeks to earn. In 1965, it took around 21 weeks. Until recently, a return ticket to Sydney London costs approximately $2,000-$2500. That’s around two weeks pay for the average worker. As we speak it is even lower, but how long that will last time will tell. But there are sometimes unintended consequences, even of good fortune. We should not forget the abrupt collapse of Ansett in 2001. Or in more recent times, the sudden collapse of travel companies in northern Europe, stranding hundreds of thousands of holidaymakers. Sometimes a rebalancing of the market – or a distribution of the fruits of intense competition – does not happen in a cost free way. That’s when consumers can suffer collateral damage. I have been asked a few times how I feel taking over as Qantas CEO in the midst of the biggest downturn in aviation history, with this very tough situation ahead. I always say this: there’s no other airline Group I’d rather be leading. The Qantas Group is based on two strong and complementary flying businesses. We have longevity, scale and strength. Qantas is Australia’s national carrier, a recognised global aviation leader in safety, long-haul travel and innovation. With unrivalled national and global network reach, Qantas remains the choice for premium and corporate travellers. Our Frequent Flyer program now has 6 million members and 400 plus partners. Improvements to the program have led to a 17 per cent jump in Frequent Flyer points redeemed since 2008. Jetstar is the Qantas Group’s low fares brand which has evolved into the world’s largest low-cost long-haul carrier. It has achieved exceptional growth over five years, and cemented its market position through its direct sales and user pays model, simplified fleet and a lean and accountable culture. We manage these complementary flying assets to achieve the best outcomes for customers and the highest returns for shareholders. The Qantas Group has reacted faster than almost any other airline to the economic downturn:
- We moved quickly to preserve revenue.
- We have reduced costs, cut capacity and grounded aircraft.
- We have cut or deferred capital expenditure.
- We have strengthened our balance sheet through a $500 million capital raising in February, and put in place finance facilities to secure our aircraft delivery program.
So we are very resilient today. And we are very well-placed to grow strongly when the recovery arrives. Our customers always know they can book their flights with us with assurance. Looking ahead, our goals are simple, if ambitious. It is to build the two airlines of the future. The world’s best premium and low cost airlines, delivering solid returns for our shareholders, whose support makes it possible for the Group to invest and grow. On the measure of passenger ratings, Qantas and Jetstar are already in, or just outside, the top five airlines in the world in their categories out of a pool of more than 160. That is not my call – it’s objectively judged by about 15 million global passengers annually in the Skytrax passenger survey. Or, if we measure our weight by revenue passenger kilometres, the Qantas Group today is around the 11th largest airline in the world, and the 5th largest non-US airline. For all of us in the leadership group at Qantas, building the airlines of tomorrow is about making sure our two brands deliver fully on their value propositions to customers. People talk a lot about the iconic nature of the Qantas brand. We certainly play a special role in national life. Just the other day we celebrated leading into the jet age with the 50th anniversary of first Boeing 707 flight. We take delivery of our 75th 737 aircraft shortly. In a few weeks time we will be releasing an updated version of our well-loved advertising campaign featuring I Still Call Australia Home. And next year we celebrate 90 years in business, stretching from the last century to this, and from Longreach to the world. But our strong sense of the past has never obstructed our clear view to the future. We will continue to offer a premium network – regional, domestic and international – that is focused on serving two core customer segments: corporate market and leisure travellers. Our comprehensive network will remain the centrepiece of meeting these customers’ travelling needs. Which is why, though we may adjust it, we will never undermine the integrity of the network offering. And despite the downturn we continue to invest in setting new standards of premium international travel. Just in this past year we have:
- Refurbished our International Business Lounges in Sydney, Melbourne, Perth and Auckland;
- Set up state-of-the-art Qantas Meeting Rooms in Sydney and Melbourne. They have been so successful we opened a new facility in Brisbane last year and in Adelaide earlier this month;
- Established or expanded international partnerships including with Etihad, Iberia, Japan Airlines and American Airlines to strengthen our network offering;
- Given our passengers greater control, with options like International Online Check-in or Advance Seat Selection for top tier Frequent Flyers; and
- The biggest leap, of course, has been the introduction of our A380 which has achieved staggering customer satisfaction ratings across all classes of travel.
In the domestic market we are determined to build on the strength of our 65 per cent market share and our leading corporate market position. We see a gap in the market servicing small to medium sized enterprises and believe we can deliver a great product to meet SME needs in a cost effective way. Last year industrial action lead to a maintenance backlog, which in turn affected our punctuality. Customers hated being late and let us know with their low satisfaction ratings. But we’ve worked very hard to get back to full reliability, and in the first six months of this year we achieved the highest levels of customer satisfaction since monthly surveys began in 2003. Let me turn now to Jetstar. The Jetstar brands, including Jetstar Asia and Jetstar Pacific, have grown strongly over the past year. Jetstar now services 50 destinations in Australia, New Zealand, Asia and Honolulu in the United States. In May this year Jetstar was the second biggest carrier on the Australian international market after Qantas. While Jetstar started out with an amazingly effective low-cost proposition from day one, it too continues to listen and evolve to meet the needs of its customers. We introduced allocated seating as a result of customer preferences, and Star Class to cater for those wanting extra features. Looking beyond this downturn, the biggest growth market in the world for aviation will be in Asia – and with operations in Singapore and Vietnam, Jetstar is positioning itself to capture a whole new generation of travellers when the time is right. The biggest asset we have in the Qantas Group is our people . We have 35,000 people who are passionate about our company and proud of its long heritage. Every day they assist our customers. They know better than anyone what’s working and what isn’t – and how we can do better. So I have made it a priority to ask our employees for their thoughts and opinions and we are progressively rolling out surveys across the business. We make sure that our people understand exactly what we are aiming to achieve and how we are going to be the world’s best premium and low cost airlines – based on world’s best safety, two strong and complementary flying brands, customer service excellence, the right aircraft for the right routes, and operational efficiency. I see my job and that of my leadership team as all about empowering our people to do what it takes to really look after our customers. We have created a flatter and leaner organisation so that communication and decision-making is made easier; frontline managers feel equipped to manage; and frontline staff feel supported to perform their jobs. A major program is underway to streamline business processes throughout the Group and to clarify accountabilities. The goal is to equip our people to move quickly, creating a more agile organisation. In December last year we opened our $10 million Centre of Service Excellence: a dedicated 5,000 square metre facility to host learning and development programs. Nearly 6,000 employees have already participated in our exceptional service training. Before I conclude I want to make this point. This past year or so has been an extraordinary one for the global economy, for Australia and for aviation. Meanwhile, at Qantas we’ve been hard at work. Over the past year, here’s a sample of the achievements shared by everyone in the Group:
- We completed 73,000 flights
- We carried 38 million passengers
- We handled 28 million Qantas bags
- We prepared 36 million meals
- We completed 490,000 engineering tasks- that’s on 700,000 individually numbered aircraft parts
- We handled 570,000 tonnes of freight
- With our passengers we raised more than $2 million for UNICEF through the Change for Good partnership.
Looking ahead, it’s easy to get caught up in deep gloom on the one hand, or premature exuberance about green shoots on the other. But I like to look at the facts. Qantas has been around for a very long time. We are a stayer. On the weekend I read an Australian Institute of Management Survey about corporate endurance. It turns out that Qantas ranks fourth among businesses that surveyed executives think of when asked to name listed companies that have been around for 50 years. Resources giant BHP ranks one, and the banks make up the rest of the top six. The global financial crisis that set off this severe economic downturn has highlighted the permanent importance of value. The Bernie Madoffs are out the door – or at least, behind bars. And there is now a flight to quality. Australia has benefited from its strong mining companies, and from a strong and stable banking system. And from the longevity and performance of the Qantas Group. Ours is a story of operational excellence underpinned by our scale, experience and exceptional people. In the future, some of our competitors will be floundering. But I can assure you the Qantas Group will be going strong. And we will be working steadily towards our goal of being the world’s best premium and low cost airlines.