The world’s safest airline is crashing its brand
QANTAS Airways is like a troubled Australian celebrity. The airline is both a source of national pride and often reviled. That its vaunted chief executive officer should depart amid a scandal, instead of being lauded for 15 years of successful stewardship, is a sad but fitting chapter in the story of the world’s safest carrier.
Alan Joyce only had two months left in his term, so the handover to new CEO Vanessa Hudson won’t be particularly disruptive. He fell on his sword because Australia’s competition watchdog caught the company selling seats on flights that had already been cancelled. According to the Australian Competition and Consumer Commission (ACCC), Qantas continued advertising more than 8,000 flights for an average of two weeks, and for as long as 47 days, even after that service had been scrapped.
A statement from ACCC chair Gina Cass-Gottlieb encapsulates both why this practice was wrong, and how it could get away with it. “There are vast distances between Australia’s major cities. Reliable air travel is essential for many consumers in Australia who are seeking to visit loved ones, take holidays, grow their businesses or connect with colleagues.”
Qantas and its low-cost unit Jetstar control 61 per cent of Australia’s domestic market, with Virgin Australia taking a third. This duopoly is clearly unhealthy, yet there’s a strong argument to be made that it is necessary. The tyranny of distance means that Qantas’s home base doesn’t enjoy the benefits of being a global hub like Singapore or the UK. Yet it must serve a huge physical geography with a sparse population. Sustained profitability is predicated on being able to command enough of the market to have pricing power, but doing so makes it a target for anti-monopoly allegations.
For decades this duopoly was national policy. Qantas and Ansett Airways had the market to themselves and did a reasonable job serving multiple masters including passengers, shareholders and the government. Deregulation came in the 1990s, and in subsequent decades a line of entrants including Compass Airlines and Tigerair came and went. This competition led to Ansett shutting down in 2002 after nearly seven decades – the first sign of deregulation’s downside.
Joyce flew in to helm Qantas in 2008, and immediately oversaw two years of declining revenue spurred in part by the Global Financial Crisis. His job was never going to be easy, but he had the advantage of running Australia’s flag carrier and inheriting a brand that was still admired, if not loved.
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Its reputation for safety took a battering with a few incidents, notably the sudden drop in altitude of Flight 32 en route from Singapore to Sydney, but the carrier made it through and then went on to a path of sustained growth.
All Joyce had to do was not mess it up. This wasn’t going to be easy. Australians have a sense of ownership of Qantas, despite it being a private company. It’s the national flag carrier, leaning into that role with the red flying kangaroo emblazoned on the tail of its global fleet. But the real task for the Irishman was to navigate between regulators’ desire for competition, the government’s national interests, shareholders demand for profits, and parochial passengers who really have little choice of airline.
In the main, he managed this successfully. Investors enjoyed great returns: Shares almost tripled from the day of his commencement until just before Covid-19 struck, and tripled again from pandemic lows until this scandal broke. And the government – which, like most, wants to maintain a healthy national carrier – helped Qantas by limiting access to foreign rivals such as Qatar Airways. Meanwhile, the anti-monopoly commission kept a watchful eye, and consumers just had to grin and bear it.
But Joyce did mess it up. And he did so just as the nation took to the skies again after Covid and needed an airline it could trust and rely on. It may have been an innocent mistake: The company thought capacity would be in place when seats were sold. Or it could have been a technical error: The computer systems didn’t align seat sales with actual availability.
What’s worse, this unravelled just as the carrier was enjoying record first-half income. Fantastic earnings aren’t limited to Qantas – Cathay Pacific Airways and Singapore Airlines also posted blockbuster results – but it’s not a good look for a company caught bilking customers.
Hudson, herself a company veteran, will be left to clean up. She’ll face inquiries and lawsuits, and won’t have any choice but to apologise and pledge to do better. But it’ll be very difficult for her to do so.
The ACCC’s case in Federal Court, coupled with a separate class-action suit related to refunds, will have her hamstrung. There’s little room for her to leverage the carrier’s pricing power, and calls to break up the airline will grow louder. The government will be less eager to maintain barriers to foreign entrants, and customers’ fragile loyalty won’t easily mend.
Joyce’s journey was long and safe. But on his final approach to retirement, he crashed the Qantas brand. BLOOMBERG
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.
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