Virgin’s downmarket spiral to benefit Qantas says Joyce.

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October 23, 2020
Qantas
Qantas boss Alan Joyce in better times. Photo: Steve Creedy

Qantas expects its share of the Australian domestic market to increase by 10 points to 70 per cent as Virgin Australia changes flightpath downmarket.

Speaking at the airline’s AGM chief executive Alan Joyce said that “over time, our domestic market share is likely to increase organically from around 60 per cent to around 70 per cent, as our main competitor changes its strategy.”

Last week Virgin Australia’s new owner Bain Capital ditched the airline’s chief executive Paul Scurrah for former Jetstar chief Jayne Hrdlicka while slashing the in-flight offering in a clear sign the once premium airline is spirally downwards to meagre options.

But that 70 per cent market share is a long way away with Mr Joyce telling shareholders that the closed borders and Victoria’s second wave had delayed recovery with the airline only operating half the anticipated flights.

“We had expected Group Domestic to be operating at about 60 per cent of pre-COVID levels by now. Instead, the continued border closures mean capacity is now below 30 per cent,” Mr Joyce said.

But Mr Joyce is upbeat on the pent up demand.

“We know that latent travel demand is strong. We saw that with our ‘scenic flight’ earlier this month, which sold out in 10 minutes. And we saw it when South Australia opened to New South Wales, with 20,000 seats selling across Qantas and Jetstar in just 36 hours.”

Qantas chairman Richard Mr Goyder told shareholders the national carrier was in survival mode, with revenue down A$4 billion in the last quarter of 2019-20.

To survive, the airline has raised more than $2 billion in secured and unsecured debt and $1.4 billion through its first equity raising in a decade.

It has also let go 6000 staff and another 18,000 remain stood down.

Mr Joyce said that “the delay in opening the state borders has resulted in a $100 million negative impact on earnings for the first quarter of FY21, and will have an impact on Q2 as well,”

However, assuming Queensland opens to NSW in coming weeks, Qantas expects domestic capacity to reach up to 50 per cent by Christmas

On costs, Mr Joyce said that the airline has identified $15b in cost savings over the next three years, mostly through reduced flying activity.

“The only antidote when you’re faced with less revenue is to lower your costs,” he said.

“In addition to job losses, we’ve announced a review of our property footprint in order to consolidate.

“We’ve also stopped cash spending on sponsorships – because we can’t justify that while the majority of our people are stood down.

Qantas is also renegotiating its arrangements with travel agents, which will, it says, create better selling opportunities for the trade and significantly reduce our cost of sale.

“And we’re reviewing our ground handling operations with a view to saving up to $100 million a year,” Mr Joyce said

“These are the kind of changes – the kind of reinvention – you need when IATA says that global travel demand is expected to take up to four years to fully recover.”