It’s been a roller-coaster of a ride for Qantas in recent times. With passenger traffic, freight and yields experiencing terrifying dips, the “Spirit of Australia” has had to respond with drastic action for the slow climb upwards.
Reducing flying capacity, deferring delivery of new aircraft, a slew of lay-offs, internal reorganization, and raising $460 million (AUD500 million) by selling new shares to institutional investors have all been on the agenda. And, after years of on-off merger talks with a host of international suitors large and small — British Airways, Air New Zealand, Singapore Airlines and Malaysia Airlines among them — in mid-2009 Qantas declared consolidation off the agenda in order to concentrate its entire focus on management of the core business.
That core business is flying. Aside from the main network carrier, the Group runs Jetstar, a regional low-fare carrier. QantasLink, a domestic feeder, comes under the main Qantas brand.
The evidence suggests the strategy is paying dividends. While IATA predicts continuing losses for the world’s airlines in 2010, Qantas recorded a statutory profit before tax of $83 million (AUD90 million) for the half year ended Dec. 31, 2009.
“While the operating environment has been unprecedented and challenging … our two-brand strategy, focused on growing the full service, premium Qantas and low-fares Jetstar, is not only delivering benefits to our customers, but also to our shareholders,” notes Alan Joyce, Qantas chief executive officer.
Even with the aircraft deferrals, the Group still took delivery of 13 new aircraft during the second half of 2009 — two A380s, one A330, three B737-800s, two A320s and five Q400s. Adds Joyce: “We remained committed to a long-term fleet renewal, backed by one of the world’s largest aircraft order books, with more than 160 new aircraft to be delivered over the next 10 years.
“This will result in new aircraft such as the B787 and more A380s, giving the group access to operational cost savings, growth and new market opportunities,” he continues. “We have also undertaken an exhaustive review of where we believe international demand is heading, and how Qantas’ B747 and A380 fleets should be best configured to meet that demand.”
All for one?
However, running a diverse mix of airlines is complex. Defining the synergies and avoiding the inconsistencies means treading a fine line. Particularly thorny is the issue of how to organize ground handling.
Ground handling in Australia has become more competitive over the last 10 years, with a number of new entrants. Within Australia, Qantas self-handles. Jetstar also uses its own team at the main airports — with ramp services provided by the wholly-owned subsidiary, Express Ground Handling — but also incorporates a degree of third-party assistance. Aero-Care (Sydney International), Skystar (Perth International, Darwin International & Domestic), Oceania (Gold Coast ramp), Air Trade (Hobart and Launceston) and Aviation Ground Handling (Queensland Airports) are all involved.
“Qantas, Jetstar and QantasLink procure ground handling separately and decisions are made on a case-by-case basis,” says Zac Ayoubi, manager, Commercial Ground Handling Services, Qantas. “In certain ports, Qantas provides ground handling for Jetstar and QantasLink, but we must compete for this business as all providers do.”
Jetstar’s key focus in relation to its ground handling arrangements is to maintain its highly competitive cost structure. “It is imperative for us to get the right balance of cost and professional services to maintain the constant delivery of low fares, safe operations and great customer outcomes,” says a Jetstar spokeswoman.
The diverse requirements seem to preclude the economies of scale that come with a coordinated program. Other evidence confirms the brands are following different paths. Qantas recently announced a hike in its ground services charges. Even its own subsidiary, Jetstar, was driven away by the 30 percent increase.
QANTAS expects this year to halve the amount of maintenance work it sends offshore.
The order includes 68 A320 or the larger A321 aircraft, and 31 Boeing 737-800 aircraft.