Pandemic cuts have been good business for Qantas
Pumped-up fares have airline and its investors flying high
Fortunately for Qantas, Australians are a forgiving lot. On October 13, Qantas told investors its underlying profit before tax for the first half of the 2023 financial year would come in between A$1.2 billion and A$1.3b. Its latest trading update was a huge surprise — analysts had been expecting earnings of between A$350 million and A$600m.
But the airline wasn’t finished with surprises. Just six weeks later, it delivered yet another upgrade, revealing expected earnings of between A$1.35b and A$1.45b.
Earnings had improved by as much as a quarter of a billion dollars in just a few weeks.
Only a few months ago Qantas was facing white hot consumer anger over huge numbers of delayed and cancelled flights, lost luggage and hours-long wait times on the airline’s phone lines.
The airline blamed staff’s Covidrelated sick leave for the delay and put on more staff and cut back the number of flights. Its performance has improved but it is still suffering a large number of flight delays.
For all the talk of how consumers would boycott Qantas and the reputational damage that would damage its profits, we have all kept flying with Australia’s national carrier.
We may not have forgiven them, but we have little choice, with only Qantas (and its subsidiary Jetstar), Virgin and Rex flying domestically.
It seems Australians’ desire to travel outweighs our desire to punish Qantas. Additionally, with fewer overseas flights on offer, we are taking more domestic flights.
Qantas still hasn’t restored full capacity to its services. Data from the Bureau of Infrastructure, Transport and Regional Economics showed that Qantas scheduled 748 flights from Sydney to Melbourne in October — 35 per cent lower than pre-Covid figures.
The combination of more people wanting to travel on fewer flights can only have one consequence. It’s not uncommon to hear stories of travellers paying A$1500 or more for a Sydney to Melbourne return flight.
For instance, according to the Qantas website on Sunday, the cheapest option to get from Sydney to Melbourne on Thursday and come back on Friday was about A$850. And these were for early morning flights. If you wanted to choose the time, you’d pay a lot more.
What’s worse, they are on Qantas’ subsidiary Jetstar, which has a woeful record of delays and flight cancellations, so there’s no guaranteed you’d get to your destination, or back.
Pre-pandemic it was easy to pick up a A$200-A$300 return fare on this popular leg. Sale fares were significantly cheaper.
It’s little wonder Qantas is making such outsized profits. But the airline’s performance is even more impressive than the headline profit figure would suggest.
In its most recent trading update, the airline said it would pay off an extra A$900m in debt, most of it from improved earnings.
Travellers might not be too pleased with Qantas’ surging profits, but investors are. Shares are up about 50 per cent from their July lows.
Melbourne Airport chief executive Lorie Argus recently said airfares “are not sustainable where [they are] if we are ever going to truly recover [from the pandemic-induced slump]”.
Of course, he’s right, but why would Qantas chief executive Alan Joyce want a recovery?
It seems Australians are going to keep getting on his planes and paying inflated prices no matter what.
Consumers keep spending
It’s not just airfares that Australians are spending up on.
Even on an unpopular night like Tuesday, Sydney restaurant tables are full and you’ll be lucky if they can fit you in at 6pm, and only if you promise to be gone by 8pm so they can book a second service.
The Reserve Bank of Australia might be trying to slow consumer spending with rising interest rates, but it seems a lot of Australians aren’t getting the message.
House prices are down, but in many cases that looks more like sentiment rather than an actual affordability problem, and default rates are very low.
Billionaire Gerry Harvey recently said Australia was nowhere near a recession with unemployment still very low, and it was tough finding shop floor assistants.
The founder of the Harvey Norman stores told investors at the company’s annual general meeting that the group’s same-store sales rose 6.3 per cent in the four months to October.
The company’s biggest problem isn’t the economy. Wetter and cooler conditions have reduced sales of air conditioners and outdoor furniture.
What all of this suggests is that interest rates will have to keep rising to tame inflation or at least keep it in check. That will increase the risk of a hard landing for the economy.