Qanta’s return to profitability must now be followed by a tariff cut

Qantas’ handsome win is further evidence that Australians have made their own deals with COVID-19 while thousands are fleeing. Thursday’s $1 billion half-year profit announcement marks a dramatic turnaround from a $456 million loss for the same period a year ago.

The airline suffered $7 billion in cumulative losses over the three years of the pandemic. Flying back into the black is cause for celebration for Qantas, as the national carrier holds a special place in the Australian sense of identity. But win or not, the airline faces ongoing anger and disappointment over flight cancellations, lost luggage, credit and refund troubles, and persistently high airfares.

Qantas ticket prices remain about 20 percent above 2021 levels. The airline has started discounts and plans to add more flights in March. For his part, Qantas chief executive officer Alan Joyce said he was aware airfares were a concern as Australia’s social fabric continued to be riven by rising living costs. “Farees will continue to drop as more airlines are able to free up capacity – which depends on things like the aircraft supply chain, labor availability and training pipelines,” he promised.

However, if its yardstick for cutting prices is increased competition, there is little immediate pressure on Qantas to offer cheaper flights. Australia’s skies remain fairly deserted. Of course, Rex Airlines (formerly known as Regional Express) has bought seven jets and flies them between major cities, and Bonza, a new budget start-up based on the Sunshine Coast, recently received its first Boeing 737 and is currently popular on regional holiday routes . But the Qantas/Jetstar duopoly’s main rival in the domestic market, Virgin Australia, has been struggling to get back into the game since surviving bankruptcy in 2020.

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When Virgin nearly collapsed on $7 billion in debt after years of destructive market share wars with Qantas, Joyce laid off 6,000 employees — almost 20 percent of its workforce — in the belief that planes wouldn’t fly overseas in large numbers by at least the middle 2021. “We have to position ourselves for a few years where the revenue will be much lower,” he said in announcing the changes.

Joyce’s brutal and ongoing downsizing, along with some $2 billion in non-binding JobKeeper payments, saved Qantas’ stock price. It’s up 45 percent since the pandemic’s lowest days. However, it suffered a decline following Thursday’s earnings announcement.

Qantas’ return to profitability was largely driven by domestic business as flight levels rose to 94 percent from 86 percent six months ago, with underlying revenues of $915 million – $785 million from Qantas and $130 million -Dollars from Jetstar. International flights nearly doubled from 31 percent to 60 percent of pre-COVID capacity in the December half, with the airline’s international arm reporting an underlying profit of $511 million. Joyce has forecast that domestic seating capacity will rise to 100 percent by June, while international seating capacity recovery is a year away.

Despite continued irritation at the airline’s performance, Joyce said Qantas represented good value in the highly competitive Australian aviation market. “I will say that Qantas charges more than other airlines … because with Qantas you get more value in other areas and it’s all about the value. And a lot of customers pay that extra… We charge a premium.”

Try saying that to Qantas travelers who have experienced months of delays and cancellations, lost luggage and poor service. If they didn’t leave Qantas for lack of alternatives, one way to restore customer loyalty would be to lower fares.

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