Boy, does newly selected Qantas chairman John Mullen have a job on his hands when he eventually takes charge in October. 

Former CEO Alan Joyce’s strategy (with a complicit board) was to run the joint like a private equity buccaneer: selling off assets, outsourcing, squeezing capital expenditure and slicing, dicing and driving down real wages for its most essential workers.

But such things cannot last, most especially in sectors like airlines, which are both capital intensive and customer focused. Joyce’s successor Vanessa Hudson is now beginning to pick up the pieces, but there was a pile of evidence to show just exactly what a shit sandwich Joyce left behind. At least it won’t have come as a surprise, as she had been his sous-chef and chief bean counter.

Falling profits

The hard bottom line is that Qantas profits were down 13% on the same period last year at a $1.25 billion half-year pre-tax profit. That was 40% higher than the last half-year trading period before the pandemic, but much-needed investment in new aircraft is finally coming home to roost. 

Net capital expenditure is climbing as Qantas must spend $3-3.2 billion this year and at least double the last pre-COVID year, mainly on new aircraft. At the same time, aircraft deliveries — including A321XLRs and A350s — are running late. And in a world where pretty much every carrier is screaming for planes, this is likely to continue.

While the results were predicted by market analysts, stock market punters fled anyway, collecting their winnings while they could. This sent the company’s share down almost 7% to $5.21, well off its post-COVID high last April of $6.62 and despite yet another buyback of $400 million to go on top of last half-year’s $500 million. 

Investors are clearly no longer swallowing this lazy, capital-starving method of boosting the stock price that transfers wealth from customers to shareholders, and they know it is damaging the airline’s balance sheet (increasing the liabilities over assets), leaving Qantas increasingly less protected from any future shocks. Perhaps the board is confident that the federal government will continue to prop up the company in the face of any financial crisis. Having helped steer Telstra through the government-created post-NBN mire, Mullen may not be so certain.

Yet some things stay relentlessly the same and herein lies the problem for Hudson. She is continuing to try and screw the only front-line workers — pilots, maintenance engineers and cabin crew (well most of them) — left after Joyce’s heady COVID-era redundancy and outsourcing spree that saw the company found guilty in the High Court of illegal sackings.

Bargaining deals

Earlier this week, Treasurer Jim Chalmers was having a moment in the sun as the wage price index climbed 4.2% during 2023, the fastest growth since 2018. Yet Qantas is insisting on a two-year wage freeze and a rise of 3% thereafter in an environment where inflation remains over 4%.

Pilots in Western Australia have paused strike action this weekend due to expected extreme weather, but they remain resolute, as underscored by an 80% no-confidence vote in local management this week in a union survey, and with strikes to resume next Wednesday.

Major enterprise bargaining deals with pilots who fly the company’s mainline red-tail aircraft are now in early stages. Outsourced ground staff companies Dnata and Menzies are also pushing for a better deal from Qantas as its own staff costs have soared, insiders told Crikey. Oil prices are also on the rise once more. A promise to spend $230 million on improving customer service and its frequent flyer service was inadequate, especially in the face of continuing pilot and engineer shortages and bare-bones ground staff, insiders said.

Qantas’ 65% or so of Australia’s domestic market is the main reason for Hudson’s upbeat commentary, as there is a far flatter outlook for the sector globally and it was evident in the poor performance of Qantas’ international business. As has been noted, its European business is largely outsourced to Emirates in a massive codeshare operation. Qantas only flies daily to London and less regularly to Paris and Rome. 

Asian carriers are increasing their frequency weekly — Korea’s Asiana is just the latest  — providing more competition both to Europe and North Asia, and the well-regarded Turkish Airlines is finally beginning flights. But it is on the Pacific routes Qantas dominated less than a decade ago that its troubles are worse. Pilots said passenger loads were “as bad as I have seen them”, according to one who spoke to Crikey. US carriers, especially United Airlines, have increased flight frequency and are exclusively using more modern aircraft (B787, A350) whose fuel requirements are a third of the Qantas A380s it uses in tandem with B787s on US routes.

Much will depend on Mullen who will succeed Richard Goyder in October after joining the board in July, though why not immediately is testimony to the power of Australia’s tight-knit directors club. Mullen of course is a member, and while he has logistics experience, like Goyder before him, he has none in the unique world of airlines.

The same can be said of the other new director so far unveiled, Nora Scheinkestel, who comes out of financial services and has been on many of the same boards as Mullen, such as Brambles and Telstra. At least their hands are clean of the Joyce era and Hudson’s cosy appointment.

Mullen’s biggest job is to set a new strategy — because the old one, like too many Qantas planes, has reached its use-by date.

Correction: A previous version of this article said Mullen would succeed Goyder in July. It has been updated to reflect that the change will officially happen in October.