Qantas: Looking at the Stars, Qantas Chief Executive Officer Alan Joyce, Wings Club, Dublin
Dublin, 10 March 2009
There must be something in the water - or the Guinness - here. Because there's certainly a very special Irish connection with aviation.
Even our writers look skyward. After all, Oscar Wilde thought we were all in the gutter, but the best of us are 'looking at the stars'. And William Butler Yeats called the passion for flying a 'lonely impulse of delight'.
Well, the skies are hardly lonely today. The global aviation business is crowded - though not, I think, over-crowded - with Irish aviation executives like Willie Walsh, Dermot Mannion, Michael O'Leary and Conor McCarthy.
When I took over as CEO of Qantas in November last year, someone asked how it felt to be taking the reins in the midst of this global financial crisis. I replied that there was no other airline in the world that I'd rather lead than Qantas.
Qantas is a remarkable business. In fact, it's much more than a business.
It is an iconic Australian institution, rich in history and heritage.
Qantas was established in 1920 by two energetic 25 year old pilots and a smart Queensland grazier. They saw the potential of aviation to shrink the vast distances of the Australian outback. What started out as a tiny bush mail service has developed into the world's longest continuously operating airline.
Today the Qantas Group, including Qantas and Jetstar, is the world's 10th largest airline - quite an achievement when you consider that Australia is at the far end of the world, ranked 54th by population size, and that Qantas is neither government-owned nor heavily subsidised like a number of our key competitors.
We have a total fleet of 232 aircraft, ranging from Dash 8s through B737s to our majestic A380s. We fly to 150 destinations across Australia and the world, spanning the planet from Mumbai to Mount Isa, London to Launceston, Johannesburg to Jakarta, Heathrow to Ho Chi Minh City and Osaka to remote Olympic Dam in South Australia.
In fact, we must be one of the few airlines that flies to every continent bar the Antarctic. And even though we don't fly to the South Pole, on a good day you can catch a glimpse of the icebergs en route to Buenos Aires from Sydney.
And we are a diverse company, reflecting Australia's great multicultural and merit-based society. I am well aware of my good fortune to lead Australia's iconic national airline. Few other countries would be so open to a newcomer.
Next year we celebrate our 90th birthday and believe me, it's going to be a big party. Qantas people are incredibly proud of their company, and rightly regard themselves as custodians of a special brand of Australian corporate citizenship.
You might have seen coverage of the recent terrible bushfires in Australia.
Well, as always, Qantas has been right there, lending a hand with financial and material support, including flying fire-fighters and emergency services personnel into Victoria from around the country. And our Qantas people have dug deep into their own pockets with more than $240,000 in personal donations, matched by our company.
We call ourselves the Spirit of Australia, and we all take this responsibility very seriously.
Of course, the Qantas name is a powerful symbol of home to Australians all around the world.
But Qantas has also built a global reputation based on safety, on quality, and on sustained leadership in our fleet purchases and product offerings.
Which is why the Qantas name is championed by superstar John Travolta, and still remembered for the reference in the movie Rainman, when Dustin Hoffman gave Tom Cruise a lesson in our safety record.
Right now, we all find ourselves in the middle of this unprecedented economic downturn. It is taking a huge toll on companies and communities around the world.
And on airlines too.
The International Air Transport Association reports that 31 carriers have gone broke, and yet there is still way too much capacity in the marketplace.
The collapse in passenger numbers has more than outweighed the reduction in oil prices. Airline share values have dropped. Load factors have plummeted. Freight volumes have slumped. And many strong airlines are reporting losses.
It's not clear how severe these circumstances will get or how long they will last.
But the outlook from Australia is a little more positive than in many other economies. The banking system remains strong. Regulatory regimes have been effective. Australia is a major provider of commodities to still-growing markets like China.
Australia entered this downturn with relatively high interest rates and no central government debt, which has provided room to stimulate economic growth both on the monetary and fiscal side. So the Australian economy is better positioned than most to weather the storm.
And I can assure you that Qantas, too, is well-positioned to weather the economic storm.
Put simply, we have a range of strategic assets which make us uniquely different to other airlines. If we manage these assets wisely, we'll be very strongly positioned for the future. That's certainly what my leadership team is planning for, and working towards.
We have a portfolio of aviation and transport businesses with strong revenue streams and a sound balance sheet. We have an unequalled ability to diversify our sources of income. We can react decisively to meet changing times. And we are able to invest substantively so that we can perform more strongly than ever when the cycle swings up again.
We are aggressively managing the short-term crisis, but never distracted from long-term success.
At the core of the portfolio are our two flying brands of Qantas and Jetstar.
From the ultimate Qantas First Class Suites on our designer A380s to ultra-value promotional fares on Jetstar, we have an unmatched ability to meet the needs of a wide spectrum of customers.
In this economic storm, our two flying brands provide effective waterproofing. Indeed, we are strategically investing to strengthen each brand and sharpen its performance.
Qantas Airlines, for example, is redefining - upwards - what a premium airline means.
We now have three A380s now in service and four more expected by the end of this year. Custom-created for us by Marc Newson - who is one of the world's most celebrated industrial designers - our A380s are truly the world's first designer passenger aircraft, bringing together technology, style and ease in a completely new way. Among aviation and design fanatics our A380s have become a destination in their own right.
We have just opened a purpose-built, $10 million, Centre of Service Excellence - a dedicated training college to take the quality of our service to new standards. The aim is not just to be a great airline, but to become a leading customer service business. The Centre includes simulators for cabin crew training across all cabin classes, expert sommelier training, style and grooming classes, and executive training - all under one roof.
Then there's Jetstar. Since Jetstar was established in 2004, it has become one of Australia's best recognised brands, and firmly cemented its low fares leadership position in the leisure marketplace. Jetstar's cheerful good value proposition is proving very important to us as we deal with the downturn.
Jetstar is the now the fastest growing airline operating to and from Australia, expanding international leisure routes and growing new markets.
And each airline is a leader in its category. Global passenger survey Skytrax has listed Qantas among the world's top full service airlines for the past six consecutive years. Last year Jetstar was voted among the top three low cost airlines.
You know, many airlines have but one choice in a downturn - to cut capacity. And quite frankly, that's what many are doing. They must shrink to fit the economic environment. And so they risk being under-strength when the good times return.
But our two airlines give the Qantas Group genuine options - allowing us to respond quickly to changing patterns of demand. Of course, we have had to respond to the downturn in premium traffic by prudently cutting or redirecting capacity. But we are certainly not retreating. Far from it, we are innovating and finding effective ways to protect our long term interests.
For example, we are ceasing direct flights to Beijing, but moving to daily Sydney - Shanghai flights, preserving our foothold in that vital market.
We are ceasing non-stop Mumbai services, but ensuring strong connections from seven Australian capital cities to Mumbai via Singapore. So we are ready to ramp up swiftly again when the good times return.
And then there's Japan. The conventional wisdom about the Japanese market was that it was highly traditional - destined forever to be dominated by travel agents, with a travelling public that was dubious about low-cost carriers.
So with the downturn in premium travel we could have just taken Qantas out of Japan and conceded the matter. Instead we chanced our hand and increased the Jetstar presence, backed by a fantastic marketing campaign featuring Japan's hottest young TV personality, Becky. It's been a huge hit.
Since we inaugurated Jetstar's Tokyo service in December last year, our flights have on average been approximately 80 per cent full, with up to 40 per cent of our passengers using direct booking channels.
So our two-brand strategy is serving us well through these challenging times.
And while our airlines will always be at the core of our portfolio, we also have high-potential related businesses like our Frequent Flyer Program, our Freight Enterprise and our market-leading Holidays business.
The Frequent Flyer program, for instance, is already a major enterprise in its own right. A third of Australia's adult population are already members - and with new offerings and alliance relationships we expect an incredible 50 percent of Australian households to be participating by the end of this year. Profit in our recent half-yearly results was up by nearly 25 per cent. This is an enormous opportunity for us now, and over the longer term.
Our Freight business is still profitable, which is a remarkable achievement in this environment, and still holding up well relative to our competitors.
And we have put together Australia's leading full-service travel management company, Jetset Travelworld. It brings together multiple distribution channels, wholesale and retail holidays, and business and leisure customers. Again, we see this as a strategic play which will pay off for us over the long term.
Importantly we remain profitable both as a Group and within each individual airline. We are one of only three airline groups in the world with an investment grade credit rating - the other two, by the way, are Southwest and Lufthansa.
We have a strong cash balance, and that's very important in this environment where cash is king. We are mindful of the need to preserve it.
So we are retiring older aircraft and deferring lower priority capital expenditures. We are scouring the business to reduce costs. Our hedging program is very active to cope with the volatility in both currency and fuel valuations.
We successfully completed a $500 million equity capital raising in early February, with our shareholders demonstrating a real faith in the strength of our business by reinvesting. With this capital raising we have enhanced our financial flexibility by increasing the diversity of our funding, reducing net debt and of course, continuing to back up our strong credit rating.
Most important of all, we are positioning ourselves for success in the future by maintaining our capacity to invest in service, innovation and efficiency and exploit key opportunities.
One of our major projects is our fleet renewal program. The average age of the Qantas Group fleet is currently about 8.8 years, which certainly compares favourably to other long-established carriers, especially the American airlines whose average fleet age is well over ten years.
And though the timing on some planned purchases may have to be put back, we intend to maintain our broad fleet renewal program both to lower our fuel and maintenance costs, and to retain our position as a lead buyer of the world's best and latest aircraft. We still have nearly $20 billion in outstanding commitments for aircraft, a sign of our own confidence in the future of the Qantas Group.
As you will know, last year Qantas and British Airways entered detailed discussions with a view to a possible merger. In that particular instance, the two airlines were not able to come to terms over key details of the merger, and the discussions lapsed. But there is no doubt the future of aviation will be about global airlines that can deliver efficient global networks and economies of scale and scope. Airline consolidation will happen.
When the right partnership option emerges, Qantas will certainly be ready to participate, including via a significant ownership interest. But it will need to be the right partnership, providing a good brand fit, the right network reach, and attractive scale and economies.
For all of us in the Qantas leadership team, though, the key investment - the key asset for Qantas - is our people. Their passion for the brand, their pride in what Qantas means for Australia, their skill and dedication, their love of the business of flying. We want to engage and capitalise on this passion. We are working hard to ensure that the commitment our people feel for Qantas is translated into even higher levels of service for our customers.
So let me conclude.
Yes, these are extremely challenging times. Hard decisions must be taken and they will be taken. At Qantas we know very well that success in the past is never a guarantee of success in the future. So we will continue to be alert to the environment and respond decisively as required.
We will continue to focus on savings to ensure we retain our strong cash position.
We will retain our strong bias towards innovation in how we do business, to increase revenues and lower costs.
We will keep investing aggressively in fleet and product to ensure our brand remains at the forefront.
And we will be engaging with our 36,000 dedicated people more deeply than ever to drive innovation and take our service standards to new levels.
For more than 88 years Qantas has survived through hard times, and prospered through good times.
Today we find ourselves in hard times, stormy times. But if we get things right, when the sky turns blue, Qantas will be flying higher than ever.
And still looking at the stars.
Issued by Qantas Corporate Communication (Speech)