Expected turbulence with Qantas & Virgin results

Wednesday, 27 August 2014  Media Alerts

“Things are grim for Qantas right now - and it pretty much symbolises what has happened to aviation in Australia,” said UNSW Business School’s John Roberts, who has been analysing the business model of the airline. “Qantas is expected to reveal a record loss when the airline opens its books on the 2013 to 2014 financial year on Thursday.”

The Flying Kangaroo is forecast to report a pre-tax loss of over $770 million, as the airline enters the second year of a three-year ‘transformation program’ which is expected to save two billion dollars in costs by mid-2017.

John Roberts, a Professor of Marketing at UNSW’s Business School said “it really is a stark contrast to 2011, when it made a pre-tax profit of $552 million. It was then flying high, but now is firmly on the descent, with large losses looming. Indeed, much of the problem is that it has been looking at cutting costs, but that comes at the cost of the passenger experience.”

“For example, just this week Qantas announced economy passengers would receive their meals in small boxes, rather than on a tray. Unfortunately for the customer, it just looks a little cheap and that has an impact on what a customer feels it is worth paying the extra ‘Qantas Premium’ for,” he said.

One off costs from the airline’s restructuring, including redundancy payments for 2,200 workers, are likely to add some $250 million to losses, which will be announced tomorrow.

“Qantas could also sell off their Frequent Flyer scheme to the highest bidder,” said Professor Roberts. “Given the way in which Qantas allocates joint costs, it is massively profitable. Indeed, given the role that it plays for the corporation, right now Qantas is known as a Loyalty Scheme which also runs an airline. If  it sells off the crown jewels, it Qantas will get a short term cash boost, but long term it will be without its cash cow and more importantly it will lose its most effective cost lock-in tool which means the whole airline survives. Right now customers actively chase after Gold or Platinum Frequent Flyer status, and without that incentive, Qantas would start to haemorrhage customers.”

Qantas will present its annual results next Thursday, August 28th, with Virgin Australia following on Friday August 29th. Virgin Australia’s pre-tax loss is expected to be around $250 million including the low-cost airline Tiger, in which Virgin holds a 60% stake.

For further comment call John Roberts on 02 9385 9698, 0421 078355

Media contact

Julian Lorkin: 02 9385 9887