Qantas is no stranger to external shocks. It endured September 11, the GFC, Bali bombings, earthquakes, tsunamis, rising fuel costs etc. But according to Alan Joyce the coronavirus induced aviation crisis is like none before it. It’s the single biggest shock that global aviation had ever experienced.

Will Qantas survive? The answer is yes. 

He certainly has his detractors (with his cost-cutting and hard-line approach with staff and unions) but under Alan Joyce’s watch, Qantas is a very resilient airline. 

Qantas has a proven management team that has the expertise and experience to navigate such difficult circumstances. Qantas management is used to being on war footing alert to deal with constant changes in the external environment.

Qantas is one of the most financially strong airlines in the world (having an extremely strong balance sheet and recording stellar profits since 2014). Qantas has more cash, far less debt and the ability to raise cash by borrowing on aircraft that it owns outright than most airlines. In fact, Qantas has just done exactly that by raising about $1 billion in additional debt from the market in a loan secured against seven wholly-owned Boeing 787-9 aircraft.  Qantas has $3.5 billion in other remaining assets it can use to raise more cash.

The airline has already been aggressively cutting costs by standing down 20000 workers (saving about $2.8 billion of its $4 billion in labour costs), deferring its dividend payment, cancelling its share buyback and cutting executive salaries.

Another big plus for Qantas is that it already has a very healthy domestic operation. This will help them enormously because international flights are going to take a long time to return to anywhere like normal because Governments are going to be reluctant to allow international access for some time.

There is also no way the Australian Government can let Qantas (national airline) go under. Qantas employs about 30000 staff and there are lots of associated businesses supplying the airline that would go as well. The government has already announced a Federal Government financial assistance package worth $1 billion to the airlines and its newly announced wage subsidy will apply to the 20000 Qantas workers that were recently stood down. 

However, while Qantas will survive in the short term there is going to be lots of pain. Grounding their international fleet will cost them $8 billion in yearly revenue and the 60% cut in domestic capacity wipes out a further $6 billion. Qantas is also likely to look a lot different when the crisis abates with a smaller operation and network. Flight schedules (particularly international) are going to take a while to resume anything like normal.

Not all airlines will survive, and many could go bust. A silver lining for Qantas is that their main competitor Virgin Australia is looking shaky with analysts estimating that they could go through all their cash reserves by June. Virgin Australia is 90 percent owned by offshore airlines including Etihad Airways, Singapore Airlines and Richard Branson’s Virgin group, which are all facing their own cash-flow challenges amid the coronavirus pandemic. This could be another Deja vu moment for Qantas. Remember Qantas survived September 11 much better than most airlines because Ansett collapsed the next day, September 12th.

Virgin Australia have just approached the Australian Government for financial support ($1.4 billion). Alan Joyce has countered by saying that it would be completely unfair if the Government were to financially assist one airline and not the other. According to Alan Joyce, a bailout would level the playing field and the package should be relative to the size of each business. Because Qantas is three times larger than Virgin Australia, their bailout – if granted – should be $4.2 billion.

Source: Qantas, Virgin’s situation rooms on wing and a prayer by Elizabeth Knight March 21st, Silent skies and grounded birds by Patrick Hatch SMH Marc 28thCoronavirus which airlines will survive by Robyn Ironside The Australian March 30th, Virgin Airlines wants $1.4 billion bailout to keep flying www.news.com.au April 1st.

 

David Broadbridge

David Broadbridge holds a Bachelor of Commerce at the UNSW and a Dip Ed at UNE. He is the former Head Business Studies teacher at Pymble Ladies College. Follow David on Twitter or read his Qantas News Blog.