Altitude Sickness: Qantas Emerges from the Cloud of COVID-19

As the effects of the COVID-19 pandemic begin to clear, it has become evident that many Australian industries, including domestic and international airlines, have suffered losses over the past three years. Alan Joyce, Qantas Airways Limited’s Chief Executive Officer and Managing Director for 14 years, labelled the COVID-19 pandemic as ‘the worst crisis the aviation industry has gone through’.

Air travel around the globe drastically decreased throughout the pandemic, and Australia shut its borders for close to two years. As a result, airlines such as Qantas recorded significant losses. Qantas announced an underlying pre-tax loss of approximately $1.9 billion for 2021-22, and a total loss of approximately $7.0 billion over the two years through 2021-22, with Joyce stating that the pandemic cost Qantas ‘more money in the past three years than [it] made in the five years before that, including some record years of profitability’.

Opinions differ as to how Qantas will recover in a post-pandemic world, and what could have been done during the pandemic to minimise the reputational, financial, and operational damage the carrier is now facing as a result of further issues, such as:

• A decline in reputation due to lost baggage, cancelled and delayed flights, and concerns about current safety standards.
• Increased fuel prices due to the Russia-Ukraine conflict, leading to a 10.0% increase in domestic travel prices, and a 20.0% increase in international travel prices.
• Industrial action, including strikes, legal action, and calls for Alan Joyce’s resignation.

Industrial action

When the Australian Government rolled out the JobKeeper Payment scheme in 2020, Qantas received approximately $856.0 million, making it the scheme’s largest recipient. The company received about $2.0 billion in Government support overall. Despite this support, Qantas dismissed 1,683 workers in August 2020 and, in 2021, outsourced labour to foreign-owned companies Swissport International Ltd. and Dnata Pty Ltd. This move enabled the carrier to cut costs, avoid industrial action and subsequently avoid negotiating a new enterprise agreement, potentially saving up to $100 million annually.

However, the Federal Court deemed this dismissal a breach of the Fair Work Act, and ultimately illegal. Qantas has appealed this decision to the High Court, but if the appeal is lost the company will owe compensation to all dismissed ground staff and be held liable for resulting damages.

During the pandemic, Qantas’s expenditure on staffing, fuel, and aircraft operating variables decreased significantly, with a strong uptick in 2022 as restrictions eased. The carrier spent $4.3 billion on staffing costs in 2019, compared with $3.0 billion in 2022. These results indicate a reduction of over $1.2 billion despite the company receiving approximately $850.0 million in JobKeeper payments throughout the pandemic.

While Qantas was seen as a safe and secure employment choice that boasted a renowned safety record and high customer service standards for years, these ideas have recently been called into question. The Transport Workers’ Union and Qantas’s current ground staff, engineers, and pilots appeared on an episode of ABC’s Four Corners arguing that the illegal firing and subsequent outsourcing of ground staff has been the cause of cancelled and delayed flights, lost baggage, and recent safety concerns, as a large number of remaining staff are undertrained and overworked.

The union body is currently calling for Alan Joyce’s resignation, and for the establishment of a Safe and Secure Skies Commission to promote wage increases, regain skilled employees, and regulate the aviation industry within Australia.

In mid-August, Qantas engineers engaged in industrial action by delaying the start of each shift by one minute, requesting a 12.0% pay rise due to stagnating wages over the past four years. Dnata then announced that 350 workers would go on strike on 13 September to bargain for pay increases and minimum guaranteed work hours. This action was later cancelled after their ground handlers secured a 12.6% pay rise.

While Qantas has announced contingency plans, the strike will likely cause international delays, fuelling further declines in the carrier’s reputation. Qantas has denied all claims that its engineers are overworked, and states the company’s requirement for engineers has reduced over the past three years due to COVID-19 restrictions. The company has continued to emphasise that there is no risk to passenger safety. However, some fear that Joyce will ground all Qantas flights if industrial action continues, a move seen during a 2011 dispute with union bodies.

How have other airlines managed these issues?

Alan Joyce asserts that the issues currently faced by the national carrier are industry-wide, and not unique to Qantas. Others, including union groups, argue that it was Joyce’s mismanagement of staff that has led to Qantas’s current problems. So, how have other airlines dealt with the financial consequences of the pandemic?

Singapore Airlines is a government-subsidised carrier with implicit government guarantees, and operates solely in the international market. It therefore contrasts with Qantas, which is a publicly owned carrier operating in both the domestic and international markets. Similarly to Qantas though, Singapore Airlines is a premium airline that is consistently voted as one of the best-performing carriers globally.

Since April 2020, the company has received $15.0 billion from institutional and retail investors including Temasek Holdings (Private) Limited, a Singaporean state holding company and part owner of the airline, and was able to raise a total of $22.4 billion. Executive Vice President of Commercial Operations Lee Lik Hsin thanked shareholders for their support and recognition of ‘the importance of Singapore Airlines to the Singapore hub and then to the Singapore economy as a whole’.

However, Singapore Airlines’s resilience has not been without issues. Much like Qantas, it has come under fire recently for extended customer service waiting times due to closing its Singapore-based call centre. The company outsourced the work to India and the Philippines, where many of the workers have not received the same level of training and experience as the former call centre’s workers.

Singapore Airlines is also facing staff shortages, with 6,600 unfilled vacancies at Changi Airport, where the airline is based. The company implemented pay cuts and temporary staff lay-offs during the pandemic, and even transformed a grounded Airbus A380 into a restaurant to generate extra revenue.

However, Singapore reopened borders and removed restrictions on international travel earlier than the Australian Government, and Singapore Airlines reinstated temporarily laid-off cabin crew and pilots who agreed to pay cuts, thereby enabling a faster post-pandemic comeback.

Air New Zealand is New Zealand’s flag carrier airline, and the company recorded three years of loss throughout the pandemic, much like Qantas and Singapore Airlines. The national carrier announced a NZD$725.0 million loss for 2021-22, but expects to bounce back due to the country lifting border restrictions and the post-pandemic environment.

Throughout the pandemic, New Zealand implemented tough border controls to minimise infection and boasted a low death rate compared with other nations. However, the highly infectious Omicron variant eventually spread through the country and reduced the airline’s staff numbers. The current rate of illness among Air New Zealand staff, combined with a global increase in fuel prices, has pushed the carrier to operate at 90.0% capacity for the next six months.

Despite currently operating under a tight labour market, Air New Zealand claim their rehiring efforts have been strong to maintain a steady upkeep in staff as international and domestic travel increases. The carrier’s capacity reduction also stems from cutting around 30% of its workforce, or 4,000 jobs, to reduce wage costs by NZD$150.0 million.

The national carrier secured a NZD$900.0 million government loan in 2020, and union body E tū called for the company to use the money to avoid outsourcing labour to China. E tū argued that once normal work returns to New Zealand in a post-pandemic climate, jobs needed to be returned to their Auckland-based cabin crew. Furthermore, Air New Zealand followed Qantas’s example and implemented commission cuts for travel agents. From 1 July 2022, commissions for travel agents booking long haul routes through the carrier fell from 5.0% to 1.0%, and from 3.0% to 0.0% for short haul routes.

Regional Express Holdings, a regional carrier within Australia trading as Rex Airlines, reported a $46.1 million loss after tax during the last financial year due to the COVID-19 pandemic and increased fuel prices stemming from the Russia-Ukraine conflict. In early 2021, Rex hired 400 employees with the goal of expanding into the domestic market. Many of these hires were former employees of Qantas or Virgin Australia Airlines.

However, in August 2021 the company announced that it would stand-down many employees due to border restrictions, claiming the measure to be a short-term solution. Rex is estimated to have received over $150.0 million in government support during the pandemic.

When comparing revenue and the labour cost proportion between Rex Airlines, Qantas, and Air New Zealand, Qantas shows the most extreme drop in revenue growth. However, it also shows the strongest recovery, indicating that the company is bouncing back from the pandemic faster than its competitors.

All three of Air New Zealand, Rex Airlines and Qantas have seen increases in staff expenditure as a percentage of their revenue from 2018 through 2022, although Qantas’s relative costs have increased the least over the period. Air New Zealand received government support to cover its staff costs in 2021, although the share of its revenue devoted to labour costs has still risen over time. Qantas’s reduced labour spending over the past year highlights its current staffing-related issues. While its competitors are spending more, Qantas is cutting costs to aid its recovery.

Affected industries

Given the state of Qantas’s current reputation, will the national carrier be able to regain its former glory? Qantas recently announced a $400.0 million on-market share buyback, thereby returning capital to shareholders after they bolstered the company with approximately $1.4 billion at the start of the COVID-19 pandemic.

The share buyback signals that the company’s performance is stronger than it has been in the previous three financial years, and Qantas is now investing in itself to work on regaining its previous positive reputation. In response to customer dissatisfaction and recent issues with flight cancellations, delays, and lost baggage, Qantas issued $50.00 vouchers for Frequent Flyers, although this gesture met mixed reviews as the rush to claim them crashed the airline’s Frequent Flyer app and website, fuelling further disdain from customers.

In June 2020, the Qantas Group released a recovery plan to be completed by the end of 2022-23. The Group is looking to reduce costs by $1.0 billion annually, and has done so through redundancies, reduced flying activity, cash sponsorships, and outsourcing labour. It has also announced a commission cut for all Australian travel agents when booking Qantas international flights, down from 5.0% to 1.0%.

While this cut may be deemed necessary by the company, it puts further strain on travel agents, whose businesses also suffered throughout the COVID-19 pandemic. While Qantas is by no means the only carrier that has implemented these cuts (Air New Zealand also cut its travel agent commission from 5.0% to 1.0% for long haul flights), travel agents now have more incentive to direct customers to airlines such as Delta, Lufthansa, or Qatar Airways, who have maintained a 5.0% commission.

Qantas has also announced a 20.0% increase in ticket pricing for international travel, and 10.0% increase for domestic travel. These price rises have been paired with reduced domestic flying capacity to return the company to a profitable state.

These commission cuts and increased prices will have a huge effect on travel agents, with many businesses already struggling from travel restrictions during the pandemic. With travel generally costing more than it did pre-pandemic, travel agents are looking for cheaper alternatives for their clients, and Qantas’s cost cutting methods are likely to encourage agents to seek alternative carriers to benefit themselves and consumers.

These pricing changes, in addition to employees of the company voicing safety concerns, are likely to discourage consumers to book with the national carrier, potentially having an adverse effect on their bottom line.

Furthermore, by cutting capacity on domestic flights due to fuel prices and staff shortages and increasing the cost of domestic and international flights, there could be adverse consequences for the company’s commercial operations, which often utilise passenger flights to transport cargo.

Qantas currently operates as the largest air freight forwarder in Australia, holding 16.4% of the market share, and Qantas and its subsidiary Jetstar collectively hold over 60% of the market share in the Domestic Airlines industry. Qantas Freight produced a record performance in 2020-21 due to a step increase in ecommerce as mandatory businesses closures drove retailers and shoppers online.

Qantas Freight recently added six Airbus A321 aircraft to its fleet to meet new demand in the domestic market since the COVID-19 outbreak. The first half of 2021-22 produced a record performance for the division due to rising ecommerce, supply chain disruptions increasing international yields and reduced passenger flight capacities.

While this steep climb in Qantas Freight’s success is expected to drop with the reopening of businesses and international borders, its performance has limited the Group’s overall loss. With Qantas Freight succeeding financially, the Group has an opportunity to move the added revenue to assist with passenger services.