YESTERDAY’S update from Qantas reflected supreme confidence about the carrier’s ability to continue to exact record high fares from the travelling public.
Amid a host of revelations as part of the annual Investor Day presentation was confirmation that the airline is forecasting a whopping $150 million in additional “structural earnings growth” this year compared to 2019 – not least because of ongoing high ticket prices.
In a masterpiece of understatement the carrier noted that its operations had “captured the yield opportunity during COVID”, adding that although yields are now moderating somewhat, they are expected to stabilise at about 150% of the numbers recorded in the 2019 financial year.
While there’s more to the yield figure than just airfares, given the largely fixed nature of other costs to operate flights, that’s a pretty good indication that fares are definitely not going to fall any time soon.
“COVID-19 had an unprecedented impact…and we are stronger from it,” according to CEO Alan Joyce.
A step-change in wider behaviours continues to have a lasting impact industry-wide, the carrier noted, with key factors including continued flexible ways of working, the ongoing demand for labour, increased penetration of e-commerce and associated customer expectations, and of course prolonged supply chain delays.
Amid all that, intent to travel remains significantly above pre-COVID levels, with Qantas citing the April results of monthly internal research which noted a doubling in domestic travel plans compared to the same month in 2019, while international travel intention for the next 12 months was up a hefty 80%. “Travel is still expected to outperform other categories in the next six months,” the presentation noted – and that in an environment of surging inflation, ever-increasing interest rates and economic uncertainty.
Effectively it’s still all about supply and demand – and there’s not enough of the first and an awful lot of the latter. Those hoping for a swift resolution driven by the return of capacity to the market will be disappointed to hear that it’s not a short-term issue, as per a graph in the presentation (below) which indicates a mismatch persisting right out until 2030.
It would be lovely for airlines to be able to snap their fingers and return all those planes from the desert to service straight away, but as Qantas noted, there’s a huge range of issues to deal with, from maintenance issues, limited spots in engineering facilities and ongoing engine and spare parts shortages. Supply chain issues are also impacting manufacturers, with aircraft production lines currently not scheduled to return to pre-pandemic levels until 2026 or later – another three years away!
And of course the constrained labour market, which is affecting every sector of the economy from health to hospitality to manufacturing to resources, is of course also impacting aviation so there aren’t enough people being trained to operate all those planes anyway.
The Qantas presentation also makes it clear that the carrier’s mainline brand is firmly focused on the premium end of the market. Those who can afford it will pay extra for non-stop ultra-long-haul services such as those envisaged by the Project Sunrise A350 routes from Australia to London and New York – and those extra high fares will flow to the Qantas bottom line, to the tune of a forecast $400 million in annual extra earnings once all 12 of the aircraft on order join the fleet.
The carrier is also predicting that the prestige associated with the Project Sunrise product offering will have a halo effect on the rest of its operations, in turn driving a yield premium particularly from the more affluent cohort among its frequent flyer scheme members.
The overall conclusion is that, naturally Qantas is very happy with high fares, and customers who don’t want to pay them should probably look elsewhere. Having said that, the two-brand strategy which has seen the relentless rise of Jetstar means the Qantas Group well and truly has its rivals being squeezed in a pincer movement.
Whatever criticism is levelled at Qantas and its management – and of course there is always plenty of it – yesterday’s update should at least garner some grudging admiration that in terms of overall strategy there is definitely some method to the madness – and a strong Qantas Group is probably an indicator of a strong travel sector overall which is good news for everyone in the industry.