qan - comments from an expert

PROFITS in a nose-dive, a share price spiralling seemingly out of control, a credit-rating experiencing severe turbulence... Is Qantas the Flying Kangaroo or the Dying Kangaroo?

The Doc this week turns to aviation economics expert, Tony Webber, for a lay-passengers guide to understanding the reasons why one of our enduring national and international brands is in such trouble.

The Doc asked Webber, who worked for the airline for seven years, for some answers, in as easy-to-understand terms as possible, on why the Qantas seems to be in constant crisis and why it's finding it so hard to make a buck on its international routes.

Can it even actually survive, and could its low-cost sister airline Jetstar one day even become Australia's de facto national carrier?

During four of his seven years at Qantas, Webber served as the airline's chief economist.

When he left Qantas he established his own consulting firm, Webber Quantitative Consulting (webqc.com.au) and is now an associate professor at the University of Sydney, Business School.

There are no easy solutions to the Qantas flight plight but Webber has a few ideas.

Doc: So, what are the fundamental issues facing the embattled Qantas?

Webber: There are four big issues. One is the fact that the oil price is no longer $US20, which is what it was for two decades on average before around 2002. Now it's over $US100. Secondly, there are just too many seats in the international [airline] market, creating excess supply, which drives down fares making it really hard for a high-cost, full-service airline like Qantas to pay the bills. Thirdly, the part of the market that likes cheap fares and only cares about airfares is growing. Lastly, Qantas is high-cost and heavily-taxed and can't avoid either of the two.

Qantas is often described as a full-service airline. How is that term defined?

Full-service airlines usually serve a meal on board for free, have first and business class configuration and bundle-up the price (so it includes everything, like the baggage that is placed in the belly of the plane and meals) unlike a low-cost carrier that unbundles the price and lets you choose [and pay for] different services.

Where, and when, did Qantas go wrong?

It's not so much a matter of Qantas going wrong. Not one international airline in the world makes money. In fact, Qantas is one of the best performers and it still makes a lot of money in the domestic and regional markets.

Why is so hard for full-service/premium airlines to make a profit these days?

Oil prices are too high, there are too many seats in the market, the global economy is too weak and the low cost carriers are taking market share from them.

Okay, what could and should be done?

They can convince the Australian Government that it is bad for the economy, particularly tourism, if they keep giving out too many air rights to foreign government-owned carriers, particularly those from the Middle East. They are taking out more Australians than they are bringing in foreign tourists - at least at current exchange rates.
It also costs Qantas a lot to protect itself against fluctuating oil prices and the exchange rate. They can make better fuel and foreign exchange-hedging decisions and reduce the money they spend to hedge against fuel. [Hedging is defined as a risk-management strategy employed to limit or off-set profitably or less from fluctuations in the rate and price of currencies and commodities, such as oil].

They should also do away with the domestic market share target of 65 per cent because at current capacity levels it can't be profit maximising. If that doesn't work, they should contemplate splitting the company, selling off the cancerous international business and concentrating on code-shares and alliances with other airlines that are willing to suffer losses and persistent poor performance internationally.

What would a world without Qantas International be like? Could Jetstar conceivably become the new de facto national carrier?

It would be disappointing because I think it is still a great carrier, with some great people working for it. If Qantas wasn't flying international [customers] wouldn't really miss it because they are travelling on the likes of Emirates, Etihad, Singapore Airlines and Cathay Pacific now anyway. They would just plug the gap. Jetstar couldn't become the new national carrier because the national carrier has to be full-service, in my view.

But could the Qantas Group perhaps create a Jetstar Gold premium-style airline to fill a void left by any failure of Qantas International?

Yes they could, and they would have different labour contracts and awards, which means they could probably get cheaper labour. And there are a few other things they could probably do cheaper, such as yield management, and flying into secondary airports.

When was the last time you flew Qantas and how was it?

I flew back from LA to Sydney last year up the front of an A380 while I was still working for Qantas and it was brilliant. And a few weeks back I flew Sydney and Melbourne and that was good as well (on time, good service).