Qantas expected to come out of the pandemic stronger than ever

While COVID has proven to be fatal for many of its competitors, Qantas is poised to soar even further.

It is the last Wednesday of January 2020, and Qantas CEO Alan Joyce is all smiles and handshakes. The coronavirus has yet to claim anyone outside of China.

He is travelled nearly two hours north from Sydney to Toowoomba, a mining town, to establish a pilot academy.

He tells a crowd of staff, students, and local politicians in the sweltering heat of the open hangar that graduates will one day fly the massive Airbus A380 or Boeing Dreamliner’s that serve as the backbone of the iconic Australian airline’s long-haul network.

The virus is not widely mentioned as it would lay waste to global aviation weeks later.

Yet Joyce is already focusing on the upcoming struggle on the trip back to Qantas headquarters that afternoon. He is going to do everything he can to get out of the pandemic.

That was an early glimpse of the determined and even ruthless approach that Qantas not only experienced in its home market but also was almost invasive of the biggest crisis in aviation history and survived.

While global losses on the Covid-19 airlines are expected to exceed US$174 billion by the end of 2021 – a half-ten year in profit – Qantas has become one of the world’s financially secure carriers.

Its stock increased by 120 percent, and its market value increased to A$8.9 billion, following March 2020. Qantas says nett debt is peaking and that the year ending this month is a year in which it can make a significant profit.

A tale of commercial opportunity and political hypocrisy is Qantas’ muscular recovery from a crisis that was end of many of his peers.

Australia’s unlikely achievement, not to mention flight subsidies, to almost eliminate the Covid 19, provided a haven for aviation which was fully exploited by Joyce.

Joyce’s springboard was Australia’s closure of its international borders in March last year.

The government didn’t just stop visitors coming in – it also barred citizens from leaving. So within months, travel-loving Australians who’d normally jet off to Aspen or the Mediterranean started emptying their wallets at home in a domestic holiday bonanza.

Qantas, by far Australia’s largest airline, was inevitably one of the biggest beneficiaries.

The boost was turbo-charged this year when the government started subsidizing 800,000 half-priced airfares to support tourism. Air travel in Australia has become so popular that Joyce said in May demand was about to surpass even pre-Covid levels.

Joyce a former air travel scheduler, orchestrated the largest expansion of the Qantas network in a decade, adding 45 pandemic routes.

One of them is Sydney-Ballina. The town of Byron Bay, New South Wales’s coastal city known as Hollywood.

Qantas hadn’t been there for 15 years before Covid from Sydney. In these times and in order to fulfil the growing demand of Australians, the airliner and its low-cost Jetstar operate up to 55 flights every week.

This month, a Tuesday night flight from Sydney to Ballina shows how the near-elimination of Covid by Australia works in favour of Qantas.

For this 80-minute flight, the 74-seater aircraft was more than 80% complete. This is always a benchmark for airlines, let alone at the middle of the week, during a pandemic during a chilly June season.

An unlikely victory over a virus has allowed the holiday boom to occur, which has killed nearly 3,9 million people worldwide.

Australia, where less than 1,000 deaths have been reported, has only about 150 active cases; life has continued largely as normal.

The only thing underpinning Qantas’ recovery is not self-containment. Australia’s huge landmass – more than double the Indian mass – makes flight between most major cities the only practical way to travel; plus a meagre 26 million population, a viable airlines’ competitors are also limited.

Joyce successfully argued against the reward of “badly managed” companies when Qantas’ closest rival Virgin Australia called for government support a few weeks into the crisis.

Virgin collapsed in April last year, riddled with debt after vain efforts to deal with Qantas, without the kind of support that supported carrier travels across Europe and the U.S.

Two months on, while Bain Capital was rescuing Virgin, the purchasing company was shrinking and relaunching the airline’s fleet with modest ambitions. Joyce soon followed the frequent flyers of Virgin – the core of any airline – with an offer to quickly monitor their loyalty status by switching to Qantas.

Such efforts are fruitful. The Competition Regulatory Authority says that Qantas’ market share was 74% in December and 69% in March, up from 61% before the pandemic.

According to March data of the Department of Transportation, that is an undeniable degree of domination in the USA, where American Airlines has a 20 per cent market share.

Qantas estimates that the pandemic has cost A$16 billion in lost revenue and the pre-tax loss of the company for the year ending June is more than A$2 billion.

The bare-bones budgeting skills he later honed as the Jetstar head had to be deployed by Joyce, who studied physics and mathematics at university. He cut 8,500 Qantas jobs and generated a total cost of A$15billion.

Qantas stated in a statement: “We were aware that in order to survive, we must make fundamental changes to our business. Our focus must be to ensure that we can repair and rehabilitate.”

This generated record profits and dividends for Qantas shareholders, but profitability made it difficult to argue for more job cuts.

The pandemic has changed that, but management’s bullish statements while Qantas is cutting thousands of jobs have ranked union leaders.

As well as previously announced job cuts, Qantas announced a 2-year freeze in May and provided volunteer redundancy for international cabin crews.

Early last year, he threatened to bring in hundreds of cockpit crew from Asia if Qantas pilots didn’t agree to a new pay deal for planned ultra-long flights.

Joyce’s biggest test may come from the Australian policy that Qantas has so benefited from. While the U.S. and parts of Europe are reopening to foreign travel, Australia is in no hurry.

The government says borders are likely to stay shut until the middle of 2022, with public support for the closure still high and vaccination rates slower than elsewhere. The international business generated about a third of group income before Covid-19.

To get back on track, Qantas set out a three-year plan last June that included raising A$1.4 billion from institutional investors and grounding its entire fleet of 12 A380 for at least three years. Qantas expects its cost-cutting program to deliver A$1 billion in annual savings from June 2023.

The plan suggests Qantas could come out of Covid not only stronger at home, but able to gain market share against international rivals that have become weighed down with debt during the health crisis.