Lessons from Qantas
Yesterday, Australian carrier Qantas turned in its second-highest profit in its history for first-half 2017. In contrast, its regional rival Cathay Pacific reported its worst first-half loss in at least two decades last week.
Qantas was able to announce the profit as it has reinvented itself. The domestic market is fuelling its growth and pressure on the international routes seems to be easing for Qantas.
The fortunate part for Qantas is that it started its restructuring journey well ahead of any of its regional rivals. It was virtually on the brink of collapse some years ago, but the lower fuel prices over the past few years helped in its restructuring journey. Its CEO Alan Joyce pulled the airline through by cutting jobs, reducing its cost base to make it more competitive, doing away with unprofitable routes and opening the airline to new opportunities.
Qantas even partnered Emirates to save cost on routes.
Today, it is said to be the most profitable airline in this region after completing its A$2bil cost-cutting programme and will tar- get A$400mil in cost savings a year as it continues to invest in new aircraft, lounges and expand new routes into Asia.
Airlines need to invest in new aircraft, products and services to remain relevant.
Joyce is now even challenging the makers of planes to build long-haul jets so that Qantas can launch non-stop flights from Australia’s east coast to London and New York within five years. If that happens, traffic from Australia and New Zealand that now flies via Asia may opt for non-stop services, and that could potentially put pressure on carriers like Singapore Airlines, Cathay and even Malaysia Airlines.
After Qantas’ results were announced yesterday, its share prices hit a 10-year high. It reported a net profit of A$1.4bil for the firsthalf and announced an A$373mil share buyback.
Cathay is known to be a premier airline in this region, but has been bleeding due to lower yields and faces tough competition from carriers, especially from China. It reported a loss of US$262mil for the firsthalf of 2017.
It has a lot of work ahead and has to decide on its premium hub strategy besides bringing its cost base down.
Its story is no different from what Malaysia Airlines faced a few years ago, though it had more issues than Cathay. Malaysia Airlines had to re-start from a clean slate to rid itself of its legacy issues. It is also no longer a listed entity so it is difficult to see the direction of its earnings for now, even though those at the airline keep promising that it will be profitable next year. So, the real test for Malaysia Airlines is in 2018. Can it deliver the profit it so much talked about? For Cathay, it is going to be tough if it sticks to its ways and not change with the times. There are plenty of lessons from Qantas to be learnt, given its success.