Life after Joyce: What challenges await Qantas come November?

The airline has so far ordered 118 aircraft to be delivered over the next 10 years including 12 Airbus 350-1000s, 20 A220s and 20 A321XLRs. The first of the A321s and A220s will begin arriving this year and will, along with 109 A320neos, replace Qantas’s current domestic and short-haul international fleet of Boeing 737s and 717s and increase the number of seats by 40 per cent. The A350s are expected to service Qantas’s extra-long haul “Project Sunrise” flights from Australia’s east coast to Europe and New York, from 2025.

The modernisation means passengers will be travelling on more fuel efficient, quieter aircraft with a lot more seats. But it’s too soon to tell if they will be thanking Hudson for the extra comfort or cursing an increase in fares as we do not know how much passengers will be charged for the pleasure of flying in the new aircraft.

Sustainability targets

The aviation industry has a bigger carbon footprint than Australia and is responsible for about 2.5 per cent of the world’s emissions. It’s also one of the few major carbon-emitting sectors disproportionately used by wealthier people. Like the majority of the world’s airlines, Qantas has set ambitious emissions reductions targets to reach net-zero by 2050. Unlike in other countries, it’s difficult for local airlines to meet their targets by simply reducing the number of services due to the size of Australia and lack of viable alternate transportation options.

The International Airline Transport Association – which represents 290 of the world’s biggest airlines – estimates the aviation sector will need to invest $4 trillion in offsets and sustainable fuel through to 2050 to achieve emissions reductions compatible with a 1.75 degree carbon cap, which works out to an annual investment of $192 billion. This means travellers banking on an industry-wide fare price fall are likely to be disappointed as airlines are likely to offset some of the cost of sustainable travel through airfares.

In the case of Qantas, Hudson will have to manage the price pressures of the airline’s emissions-lowering fuel initiative and lobby federal and state governments for assistance in setting up this new industry.

Qantas has said it will convert to 10 per cent sustainable aviation fuel by 2030, and 60 per cent by 2060. Made from crops, household waste, animal fat and other biomass, sustainable aviation fuel (SAF) produces about one-fifth of the emissions of conventional jet fuel, but there’s a global supply issue, and it’s more than double the price.

The airline hopes its joint $307 million investment with Airbus to develop a local SAF industry will prompt the federal government into action. Although groundbreaking, some industry experts argue banking on SAF is a lofty pursuit given there’s only enough currently produced to replace about one per cent of the world’s flying

Qantas generates more than 30,000 tonnes of total waste every year. COVID-19 exacerbated the use of single-use plastics across the industry as airlines and airports grappled with how to minimise human-to-human contact. In 2022, the airline committed to eradicating single-use plastics by 2027 and generate zero landfill waste by 2030.

Increased competition and staff shortages

Airlines are notoriously difficult to make profitable. To keep Qantas in the black, Hudson will have to display a competitive streak. But according to Virgin co-founder Brett Godfrey, there’s never been a better time to run an airline. “Qantas is one of the most financially fit airlines in the world and right now is the best of times in terms of yield and demand,” he said.

“The fact we’ve now got four airlines and none of them are bleeding red ink indicates the strength of current conditions and may point to temporary industry capacity constraint versus longer-term sustainability”.

Despite the increased choice, Qantas continues to control more than 60 per cent of the domestic market.

“Airlines globally lack economic moats due to a business model with high fixed costs not conducive to rational pricing, a lack of barriers to entry, and low switching costs. We expect these conditions, which plagued the airline industry before the pandemic, to return,” Morningstar analyst Angus Hewitt said.

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UBS said in a note last month that Qantas’s competitors are well positioned to increase capacity and reduce their prices to put pressure on the airline on key domestic routes. However, the note also said Qantas’s capacity for returns is high now it’s reduced its costs.

Perhaps the most significant change consumers will be looking for from a Qantas under new management will be in service delivery.

Qantas became a lightning rod of customer anger when flying resumed more quickly than its COVID-crunched operations expected in 2022. This led to extensive delays, cancellations and lost bags across over key holiday periods in 2022. All airlines experienced similar problems. Qantas has since corrected its on-time performance and baggage handling system, but some consumers remain unmoved. Hudson said earlier this week the airline was working to restore customer trust and had so far invested $200 million to improve its customer service.

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The industry continues to be affected by ongoing staff shortages. In March, Qantas announced it would create 8500 jobs over the next decade in an acknowledgement of its swathe of redundancies in 2020 – which meant 9400 people lost their jobs – had restricted performance. Qantas’s $1 billion restructure created tension between the airline and many of the unions representing its staff.

One of Hudson’s major tasks will be rebuilding the relationship between the airline and these unions. The news of her appointment was met with enthusiasm from most unions, with the Australian Services Union saying it marked the “first opportunity in 10 years to reset the relationship” between the airline, its customers and its workers.

This clean slate may be tested as soon as next week when Qantas fronts the High Court to appeal a Federal Court verdict that its outsourcing of 1700 ground handling roles in 2020 was illegal. Although the bulk of Qantas employees covered by an enterprise agreement have now signed onto post-COVID-19 agreements, the airline still needs to make a deal with its short-haul and long-haul pilots, a task that may well fall to Hudson when she takes the mantle in November.

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