It was a year of record-breaking numbers for Qantas – from eye-watering profits and margins, to ticket prices and customer complaints – and while shareholders and executives may be grinning, the airline is still staring down some key challenges and enemies.
The $2.47bn full-year underlying profit – helped by a ravenous travel demand, high air fares, lower jet fuel prices and a dramatic reduction of its structural costs – makes the company’s previous record, of $1.6bn in 2018, look small.
During those pre-pandemic days, Qantas group – which includes Jetstar – was generating a return on invested capital, which measures how easily it generates profits, of about 20%. In 2022-23, that metric jumped to 103.6%, which is so high it looks like a misprint.
Qantas’s domestic operating margins jumped to 18.2%, representing a 50% increase in profit margins over the past six years. Typical profit margins for domestic aviation operators in Australia have been between 8 and 10%.
The enormity of the profit could even prove to be a flashpoint amid growing discontent over the ability of some companies to generate huge revenues while living costs surge.
Just 12 months earlier, Joyce had been announcing a $1.86bn loss, but on Thursday, the outgoing CEO who has helmed Qantas since 2008 was telling the story of an epic turnaround, from being 11 weeks shy of insolvency during the pandemic to a financial position “the strongest it’s ever been”.
It has been able to generate such huge returns by charging high ticket prices while offering less capacity – partly necessitated due to shortages of staff and aircraft supply chain issues – thereby generating large revenues and recording lower costs, to the detriment of travellers.
This has accentuated the larger-than-usual divide between the experience of its customers and shareholders.
While many airlines have returned to profit over the past year, few have rebounded as aggressively as Qantas.
Air New Zealand recorded a 132% lift in revenue in its full-year financial results, also reported on Thursday, but its share price is still languishing from the pandemic selldown. British Airways owner International Airlines Group has had a similar share price trajectory, as has American Airlines Group.
But the Qantas share price, which lifted again on Thursday, has recovered to trade near 2019-20 highs, as if the pandemic interruptions never happened.
Then there’s the other transformation Qantas has undergone.
The flying kangaroo had long been one of Australia’s most trusted brands, and while part of that image is related to its impeccable safety record, Qantas’s reputation for good service took a battering after its mishandled baggage rate, poor on time performances and air fares hit new records in the second half of last year.
Qantas has dropped off the list of most trusted brands entirely. It has now entered the distrust index in the most recent edition of Roy Morgan’s rankings released last week and is the 13th most distrusted brand in the economy, held in poorer standing than its own budget carrier Jetstar.
Meanwhile, Qantas was the most complained about company to the Australian Competition and Consumer Commission in 2022-23, and it plummeted 12 places to 17th in the industry’s list of world’s best airlines.
At a press conference announcing the results, Joyce shot down accusations that Qantas has been strategically scheduling then cancelling flights out of Sydney airport to prevent competitors from gaining access to the scarce takeoff and landing slots.
Just under one in 10 flights on the Sydney-Melbourne route are cancelled, and with 66% of domestic aviation operated by Qantas, the group’s performance heavily influences this figure.
While the industry, as well as airports, the Productivity Commission, an independent review and the ACCC have called for reforms to the rules they say have allowed major airlines to game the system, Joyce said “the underlying premise … is just wrong”. The allegations are “all in self-interest” of the “monopolistic” Sydney airport, Joyce insisted.
Joyce also defended Qantas’s opposition to Qatar Airways’ push to almost double its capacity into Australia.
At a time of stubbornly high air fares, and with Qantas’s international capacity constrained from returning to pre-Covid levels before next year, Qatar’s expansion was supported by tourism and aviation sectors, state premiers, as well as its partner Virgin Australia.
On the slots and Qatar issues, Qantas can thank the Albanese government. Its refusal of Qatar’s expansion has, among other reasons, been justified by the transport minister, Catherine King, as being linked to Qantas’s new fleet investment.
King has also deflected calls for urgent reform of Sydney’s slot rules until after the aviation white paper, which is already running behind its scheduled release for mid next year.
Then there are the looming legal battles.
It faces a mammoth compensation bill that could run beyond the tens of millions if the high court upholds a federal court decision which found Qantas illegally outsourced 1,700 ground handling jobs at the beginning of the pandemic.
This week, Qantas also learned it was facing a class action lawsuit alleging its use of travel credits allowed it to treat customers’ money as more than “$1bn in interest-free loans”.
Neither were specifically mentioned as potential legal payouts in Thursday’s figures.
Like the big banks and major supermarkets, Qantas has taken full advantage of market conditions to profit.
With government priorities seemingly acting to protect Qantas from competition, few would have been surprised by the incoming CEO Vanessa Hudson’s optimism that even this result “is not as good as it gets”.
