The aviation world is changing
All of us who work in aviation, or follow it, know just how much the world has changed over the past five years.
The Eurozone crisis has turned into a slow grind with intermittent flare-ups; the United States is at a difficult crossroads in terms of its economic choices; and we look to China and our region for economic energy.
Here in Australia the strength of our resources sector and our solid economic profile has moved us from being a comparatively low to a high value currency.
This is having major structural effects, and putting pressure on some sectors of the economy.
Business and consumer confidence is not robust.
As Chairman of IATA, I get to hear first-hand the challenges faced by airlines around the world.
It is a difficult operating environment.
Airline industry profits for 2012 are likely to be half that of 2011, with a net profit margin of 0.6%.
Fuel has been a huge factor.
Just prior to the GFC the fuel price was at $65 – now it is at $112.
That has cost the Qantas Group a billion dollars a year.
Our profits would be at record levels if the fuel price had not doubled.
Qantas is changing too: a strategic inflection point
So in this context, let me try to sum up where we are now as a Qantas Group.
Nobody is pretending that these are easy times.
These are complex and demanding times.
Over this past year, as with the years prior, at the Qantas Group we have squarely confronted the realities, positive and negative.
We have made the tough decisions.
We have responded to change, anticipated it, and in some areas we have actively driven change.
That’s across all areas.
We are modernising all aspects of the business – from maintenance to catering, from IT to property management.
Restructuring our international network.
Reshaping our fleet profile, anticipating our present and future needs.
Positioning Jetstar in fast growing Asia.
Investing to support Australia’s resources sector.
Reinvigorating our approach to customer service.
Selling off non-core assets such as STE – at a good price.
Keeping a strong cash balance.
And most recently launching a new-era aviation partnership with Emirates.
We have our eyes on the future, and we are making the Qantas Group fit and ready for it.
With our strategy firmly established, the main game now is about implementation and step-by-step achievement.
That means creating great travel experiences for our customers all over Australia, including leisure and business, corporate and regional.
And for our customers beyond Australia, within and between many countries.
It means enriching those travel moments through a comparatively young fleet, great product, new technologies and tools like fast check-in and iPads, and of course, the world’s best aviation loyalty program.
It is a time for building on the powerhouse young Jetstar brand by forging some of the world’s most innovative partnerships – such as with JAL and China Eastern – to find new business opportunities in Asia.
A lot of the hardest work has been around transforming Qantas international through our four pillar turnaround plan, and now we need to get on with the game-changing partnership with Emirates, if and when we pass the anti-trust hurdles.
We have undertaken research into how this partnership is viewed among customers and our staff.
The numbers are overwhelmingly supportive.
And 98% of our shareholders support the partnership too.
We have been undertaking the hard but overdue and necessary internal transformation to lower our cost base. That work continues.
The announcement several weeks ago of a share buyback underlined the Board’s confidence in our strategy.
And with the early debt repayment, we began the process of deleveraging the balance sheet as we continue to turn around Qantas International within a profitable, sustainable Qantas Group.
We, and others, commonly use the shorthand term ‘portfolio’ for our Qantas Group but this is not quite sufficient or wholly accurate.
We are a set of operationally separate businesses that integrate at a strategic level.
That’s the level where customer aspirations for international travel support the Frequent Flyer proposition, or the two-brand strategy maximises profit for both Jetstar and Qantas, and so on.
It’s the level of very significant and sustained value creation.
With the new management structure I put in place earlier this year, we now have clear lines of accountability for each separate business.
There is a cohesive path to the future for each of them and, at a strategic level, for the Group as a whole.
It is well on track.
Hard at work to achieve success
I was at the National Press Club a few weeks ago where I talked about the effort of will it takes to effect major transformation, and especially to do so at speed.
It’s challenging stuff, and it takes a great commitment and energy from everyone concerned.
In the Qantas Group we have more than 30,000 fantastic people who are making transformation happen.
To take just one example.
As you know, we do not have regulatory approval for our partnership with Emirates, but we are doing everything permitted to us to get ready for an April launch.
This is frankly a stretch timetable: moving a hub is not something major airlines do very often.
Christmas is normally a busy time for us, but this year in particular a lot of my people will be hard at work over the break.
They will be negotiating airport slots, getting our IT infrastructure connected, developing joint systems and protocols for customer handling and experience, finalising codeshare, interline and frequent flyer agreements.
It’s a big agenda.
But we now have the new Dubai and Singapore schedules in place and it looks very exciting.
Our customers are going to love it.
Next year the agenda is also packed.
There is no doubt that for us the Emirates deal is critical.
We have put our case before the regulator and backed it with detailed evidence.
That task of advocacy will continue until the process is complete.
We’ll be bedding down Jetstar Japan, expanding its domestic footprint and commencing international services.
And we’ll be securing final approval and preparing for the operational launch
of Jetstar Hong Kong.
We’ll be continuing the Qantas transformation process.
It’s about investing in our people – with new training, new responsibilities, new customer service, new uniforms – and also about adapting the size and shape of our workforce to modern realities.
We’ll be vigorously protecting our domestic interests.
In February this year, a legal manoeuvre enabled Virgin’s international operations to be parked in a separate company to all intents and purposes ‘owned’ by the listed Virgin Australia.
Under the Air Navigation Act foreign ownership of an Australian international carrier is limited to 49%.
But today, Virgin Australia is more than 65% foreign owned.
So we’ll be talking to the relevant authorities about that issue.
In the news
In this busy, tough, competitive environment we have no intention of being sidetracked.
Many of you have been reporting on a club of investors taking a stake in Qantas, a club that includes some key players from the rejected APA private equity bid in 2007.
There has been some interesting speculation about the aims and ambitions of APA Mark 2 –
but so far there is no evidence they know their aims and ambitions themselves.
At Qantas we are not looking to recreate the past.
We are not dwelling on earlier times.
The world has moved on and we are busy taking care of today’s business, looking after Qantas interests, and advancing our strategy for all of our stakeholders and for all of our shareholders.
Where we see specific issues that need addressing, we do so.
We will always defend our interests.
Today you’ve seen mention of correspondence relating to the Qantas relationship with Tourism Australia and a conflict of interest issue.
Given that the Tourism Australia Chairman is a member of the APA Mark 2 club we deemed it prudent to suspend our partnership with Tourism Australia. We will, of course, continue to be a proud supporter of Australian tourism through other avenues.
And the tourism industry can be assured that no one dollar of tourism marketing will be lost as a result of this decision.
The only difference is where we spend our money.
Let me conclude.
As I have said before, and strongly believe, Qantas is not just any company.
We are part of Australia’s heritage, a lifeline for regional and rural communities, a great sponsor and supporter of good causes, a promoter of Australian excellence in food, wine and design.
And always, a great champion of Australian tourism.
We will remain a strategic resource for this nation in times of need.
Those of us who are custodians of Qantas today see ourselves as builders.
We will never be wreckers of this amazing company that belongs to Australia.
The majority of our shareholders know that the strength of our brand relies upon being there for Australia and representing the best of Australia in the world.
That will never change.
But a lot is changing, and must change.
When I first laid out the imperative for Qantas International to transform I talked about building a better and stronger Qantas, a Qantas for our times. That is what we are doing.
Piece by piece, milestone by milestone, we are building a better Qantas, one
that is fit for today and for the world of the future.
That is the main game.