Service crew

Qantas’ return to normal service has been bumpy, so are sunnier skies ahead?

Unlike many airlines, Australian airline Qantas has survived the pandemic.

But its return to normal service – and profitability – is proving to be a bumpy ride. It may well get worse before it gets better.

As domestic and international travel resumes, the airline is struggling to keep pace – having laid off thousands of staff whose experience has proven invaluable in running such a complex business.

Canceled flights, lost luggage, long delays at airports and low staff morale tarnish its carefully cultivated reputation.

Qantas engineers launched industrial action last month. This week, there’s been a strike by contractor-employed baggage handlers since the airline laid off nearly 2,000 ground workers in 2020. (The Fair Work Commission has since ruled that such outsourcing was illegal.)

Former staff members told ABC’s 4 Corners program they fear the cuts could hurt the airline’s safety record.

There is no quick or easy solution. These issues are tied to the airline’s profitability – or lack thereof. The prior year, it reported an underlying pretax loss of $1.89 billion. Since 2020, total losses have amounted to A$7 billion, with halted travel costing around $25 billion in revenue, according to chief executive Alan Joyce.

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What do Qantas staff say is wrong with the airline?

A demanding industry

Qantas is by no means alone in facing the challenges of post-COVID reconstruction. Even in normal times, airlines are notoriously difficult businesses to keep in the dark.

The products they sell — the seats — are highly perishable. Once a flight takes off, any empty seat becomes worthless. It’s tempting to fill seats by offering discounts, but this can cause competitors to do the same and create a perception that leads customers to undervalue the product.

There’s a reason so many national carriers are wholly or partially government-owned, including Air New Zealand, Emirates, Etihad, Garuda Indonesia, Malaysia Airlines and Singapore Airlines.

One wonders how many of these airlines would be viable as stand-alone commercial operations. A government-regulated airline with a vested interest in its prosperity can be helped in a variety of ways, from bailouts and tax subsidies to policies that help protect it from competition on domestic routes.

How to reduce costs?

Adding to these difficulties in 2022 are fuel prices, which have been inflated since Russia invaded Ukraine in February. Fuel costs typically account for around a quarter of airline costs.

The hedging contracts shielded Qantas from the full impact of these increases. Like other airlines, it has few options to cut fuel costs apart from cutting routes or buying more fuel-efficient planes. (It is buying 12 new Airbus planes, but with plans to offer nonstop long-haul flights, which will increase fuel consumption.)

Reducing personnel costs therefore became the default option.

Qantas never shied away from this under Joyce, who was appointed chief executive in 2008.

In 2011, he notoriously grounded the fleet and locked out staff during “hardball” collective bargaining with three unions (the Australian and International Association of Pilots, the Australian Association of Chartered Aeronautical Engineers and the Workers’ Union transports).

But this combative stance on wages and working conditions, and the outsourcing of so many key activities, has eroded corporate knowledge. Qantas’ problems with lost baggage are clearly linked to the firing of so many experienced staff and their replacement with contractors who do not necessarily understand how the airline’s complex systems work.

A difficult prospect

It’s easy to look for scapegoats – there are growing calls for Joyce to leave, for example – but there are no easy solutions to the problems Qantas faces.

In the short term, it must balance the necessary cost reductions with the reality that further aggravation of its workforce will reduce customer service – and, ultimately, its reputation.

Australian domestic airlines by market share, January 2019 to April 2022

A graph shows Qantas with the biggest market share, followed by Virgin, Jetstar and Rex
The Qantas Group – including Jetsatar – is Australia’s largest carrier.(Provided: CAPA Center for Aviaction, ACCC)

Domestically, it has the advantage that its main competitor, Virgin Australia, is in an even worse position. Virgin only survived the pandemic by being sold to US private equity giant Bain Capital. This should save Qantas from a nationwide rebate war for the foreseeable future.

But even with moderate domestic competition, the airline industry remains unattractive. For the flying kangaroo, the road back to profitability seems to be one of many ups and downs.

Peter Galvin is Professor of Strategic Management at Edith Cowan University. This piece first appeared on The Conversation.