Murray’s data points seem disobliging to the argument he wants them to support.
Using the latest available data from the Bureau of Infrastructure and Transport Research Economics, the Qantas Group’s international market share fell from 29.5 per cent in June 2019 to 26 per cent in June 2022, despite the near total evaporation of capacity operated by Chinese and other East Asian carriers.
By comparison, Singapore Airlines’ (group) market share has nearly doubled to 20.5 per cent from 10.5 per cent. Emirates, Qatar, Air New Zealand and United – all natural premium competitors – have each grown their share.
Total passengers carried between Australia and the United States has nearly halved from June 2019 simply because Qantas and Jetstar have more than halved theirs. Delta and United are back to where they were.
Qantas is currently so short of international aircraft that its dog-tired mid-range A330s are operating ultra-long haul routes to India and Los Angeles with severe payload restrictions and crew sleeping alongside the passengers.
Yes, that’s mostly due to COVID – as mothballed A380s take many months to reactivate – but it is also a product of strangled fleet investment through the Alan Joyce era.
In 2008, Joyce inherited Geoff Dixon‘s order for 20 A380s and 65 787s and a fleet whose average age “is forecast to remain between 8.5 and 8.9 years [based on] the existing contractually committed long-term fleet plan…”
Until June 2019, nearly 11 years into the job, Joyce had never ordered a single new aircraft for Qantas mainline.
Joyce might’ve been right to defer and then cancel eight A380s, though those could’ve been cycled in to replace the oldest ones (now 14 years old). Reducing the 787 order to just 25 inarguably killed a great deal of potential growth. The average age of the fleet, meanwhile, has blown out to 14.7 years while Qantas has returned more than $3 billion to shareholders.
The Qantas fleet has never been this old.
The A330s are now, on average, 16 years old (the eldest are 20), yet Qantas has still ordered no replacement for them. Doing so will require capex – not built into forecasts – of approximately $US9 billion ($13.5 billion) at list prices, and then take many years to arrive.
The mainline domestic fleet of 737-800s is now, on average, 15 years old (nearly a third of them are 20), and is worked harder than almost any other 737 fleet in the world. These 74 planes are at the absolute twilight of their usable lives and replacing them will cost approximately $US8.5 billion at list prices. Qantas placed that order, for A320neos, with Airbus in May this year. Airlines have been receiving this aircraft since 2016 but Qantas will get its first just before Christmas of 2023.
Qantas has also ordered 12 A350-1000ULRs, which can fly non-stop from Australia to London and New York, to arrive from 2025. These will cost $US4.2 billion at list prices.
On international routes, Qantas is competing with much younger fleets. Singapore, for example, has retired all 12 of its initial A380s and since 2016 has taken delivery of 62 A350s and 35 787s. Its fleet is just 6.5 years old. What’s more, Singapore has renewed its fleet while maintaining very strong cashflows.
Joyce has preferred to retrofit new seats onto his old planes. While that has reduced his capex, he runs at a major opex disadvantage on fuel burn and maintenance.
And Qantas loves talking up its sustainability credentials but when you willingly fly aircraft that burn 25 per cent more fuel per passenger than your competitors, your environmental credentials are all too easy to see through.
By rough calculations, in the next decade, the Qantas Group will need to spend up to $US28 billion to replace its fleet without even growing it. Bear in mind this is based on list prices, to which airlines command significant discounts, though this estimate also excludes any replacement of its A380s.
Qantas also needs major, urgent technology investment. qantas.com is absurdly unreliable, constantly crashing on users mid-task. Customers have faced hours-long waiting times on the phone mostly for things they should be able to do, but can’t, on the Qantas app or website. It is a far cry from the seamless mobile touchpoints of most major foreign airlines. It is the shoddy amenity of a virtual monopoly.
This is chronic underinvestment in systems, which is extremely expensive and slow to fix (maybe Joyce could
poach some engineers from ANZ Plus?). It is almost completely unrelated to COVID, but has probably done the most damage to customer satisfaction.
These are just some of the reasons why many market participants are maddened by the latest Qantas buyback. They reasonably wonder why anyone would be conducting a buyback at this famished point in the company’s capex cycle.
(20min delay)