Alan Joyce, chief executive, talks to FT.com about the impact of grounding its A380 fleet, higher oil prices, the airline’s focus on Asia and ‘The Oprah Winfrey Show’
Alan Joyce had just stepped off an A380 superjumbo from Los Angeles to Sydney recently when the news broke that one of the Australian carrier’s aircraft had been forced into a rapid descent when its cabin suddenly depressurised.
Safety scares are not uncommon but Qantas, which has not suffered a fatal accident since the start of the jet age in the 1950s, has been under close scrutiny since the mid-air explosion of a Rolls-Royce engine on one of its A380s prompted the Sydney-bound jet to make an emergency landing back in Singapore in November.
Speaking at Qantas headquarters near Sydney airport, Mr Joyce, bleary-eyed having just returned from a series of Australian tourism promotional events in Los Angeles, said the grounding of the A380 fleet was one of the toughest periods in his more than 20 years in aviation.
“That was probably the most intense period,” Mr Joyce said, because media scrutiny arrived just as Qantas was also busy with its 90th birthday celebrations. “There were big decisions with grounding and restarting the aircraft operations of the A380.”
The 10-year Qantas veteran, who was founding chief executive of the airline’s fast-growing in-house budget carrier Jetstar, will next month reveal an estimate of how much the A380 episode has cost the airline – a figure some analysts say could exceed A$60m (US$60.4m).
Qantas may also seek payments for damage to its brand. The carrier is pursuing Rolls-Royce, the British engine maker, for compensation and has filed a pre-emptive legal action in an Australian court, in the event it fails to reach a negotiated settlement.
“We would rather that [a negotiated settlement] and I think Rolls-Royce would say they’d rather that than anything else. But we’ve also protected our legal position,” said Mr Joyce.
Cameron McDonald, aviation analyst at Deutsche Bank, believes Qantas’ reputation has been enhanced after Qantas withdrew its entire A380 fleet. Mr McDonald also rates Qantas one of his “top picks” globally as industry consolidation gathers pace.
“Qantas’ proximity to the Asia-Pacific region, which we expect to be the most profitable region in 2011 with a net profit forecast of US$9.7bn, puts it in a good position to benefit from strength of the market,” he said.
Mr Joyce confirmed that Qantas would focus on Asia, emphasising organic growth, Jetstar, its partnerships with other airlines, and its frequent flyer programme.
Mr Joyce also forecast a rise in airfares and fuel surcharges. But he noted that higher fuel prices, which represent almost a third of costs, are a double-edged sword.
“The reason they are going up is because the global economy is actually improving and because the economies are improving, we will see an uplift of business traffic and premium traffic,” he said.
According to Mr Joyce, the peak of the fuel price rise in the 2007-08 financial year was the pinnacle of earnings for Qantas. “We can cope with a high fuel price,” he said.
Mr Joyce also expects a boost from the four episodes of The Oprah Winfrey Show that displayed Australia as a tourist destination. Qantas, which flew Ms Winfrey and 500 audience members and crew to Australia, has not said how much it spent.
But Mr Joyce has no doubts about the expected return: “We spend as a group A$120m a year on marketing … and this is by far the most effective marketing spend we have done in the last decade.”