Saturday, October 28, 2017

This airline CEO is challenging Airbus and Boeing to step up their game


Qantas CEO Alan Joyce oversaw the airline's return to profitability with record profits in 2016 and 2017.

In August, Joyce challenged Airbus and Boeing to develop a new ultra-long-range jet to connect Australia with Europe and North America.

For now, Joyce sees the new Boeing 787 Dreamliner as a catalyst for future growth, but there's still a role for the A380.

Qantas is not looking to replace it regional fleet at the moment but it is observing the market.

Joyce believes his airline's sterling safety record can be attributed to its willingness to put safety before money.


Qantas Group CEO Alan Joyce is one of the most accomplished and controversial airline chief executives in the business. Since taking over the top job at Qantas in 2008, the charismatic Irishman has been the catalyst behind the Australian national carrier's return to profitability.

In 2016, Qantas Group reported a profit of more than $1.2 billion, the highest in the company's 97-year history. In 2017, Qantas followed up with the second most profitable year in company history, reporting more than $1 billion in profits.

This marked a drastic turnaround from just a few years earlier in 2014 when Qantas lost more than $2.8 billion.

What followed was drastic series of restructuring measures instituted by Joyce and his team. This included splitting up Qantas' domestic and international business as well as a reduction in staff, and capacity. Low oil prices also helped the turnaround along.

In August, Joyce and Qantas issued a challenge to Airbus and Boeing called Project Sunrise. The initiative asked the two aviation giants to develop a special ultra-long distance airliner by 2022. One that will be capable of not only flying non-stop between its hubs in the Southeast of Australia and destinations such as London, Paris, and New York but do so profitably with a full payload.

If successful, Qantas could cut the travel time to New York by up three hours and travel to London by as much as four hours.

Recently, Joyce sat down with Business Insider on board his airline's first Boeing 787-9 Dreamliner. The conversation touched upon Qantas' new fleet of Dreamliners, the future of its Airbus A380, Qantas' interest in the Bombardier C Series, and the airline's safety record.

The Boeing 787-9 Dreamliner versus the Airbus A380

"One of the big advantages of the Dreamliner is that it gives us a range of destinations we couldn't have done before," Joyce said. "It gives you better economics because it's 20% more fuel efficient and with a lot lower maintenance cost given the new technology. That means there are routes we could have done before with distance, but couldn't do economically that now come onto the radar screen."

"For Qantas, it also starts overcoming the tyranny of distance we have," Joyce added.

And the differences in economics between the Dreamliner and Qantas' previous flagship, the Airbus A380 Superjumbo are stark.

According to Joyce, he can fly two 236-seat Dreamliners for less than the cost of a single 486-seat A380, which entered the Qantas fleet in 2008.

"If we were to fly two 787s tail-to-tail, the per-seat cost would be less than the A380," the Qantas CEO said.

And the Dreamliner's lower operating cost goes beyond its fuel-sipping demeanor; itself an important attribute due to the fact that long-haul flights are far more sensitive to fuel efficiency.

"Obviously the maintenance and fuel costs are good on the 787, but we also have a deal with our pilots to give ourselves 30% more productivity on the airplane," Joyce said. "It's the same deal with the cabin crews and our engineers. That means the economics are a lot better than the A380."

Joyce believes the Dreamliner offers the airline more flexibility and lower financial risk especially on routes with inconsistent or seasonal demand.

The future of the Superjumbo

However, that doesn't mean the A380 is no longer useful.

"The A380 still has a role on airports that have slot restrictions (where you can't add a second flight) or where the scheduling windows work for (a single flight) like out of Los Angeles," he said.

In addition, the A380 could be used to get more people in and out of airports in China and Japan that are becoming more and more congested.

With that said don't expect Qantas to order any more of the Airbus double deckers.

"We still see a need for our 12 A380s, but the 787 is certainly the growth vehicle in the future," Joyce said.

"I think at the moment, we can see the economic benefits of the 787 on certain routes over the A380 and this is with low fuel prices," he explained. "Four-engine aircraft become very expensive during high fuel price periods. You find people moving to twin-engine jets all the time because that really benefits the economics."

"So I think, at the moment, nobody is ordering more of the A380s. The people that have them like the aircraft and we do, but we have 12 of them and we don't need anymore," the Qantas CEO said.

The Bombardier C Series potential

Qantas is one of the few operators of the of the 717-200, the last 100-seat jet produced by Boeing. However, that plane went out of production more than a decade ago. So with Airbus' equity acquisition of the next generation Bombardier C Series program, we were curious whether Qantas would be interested. The answer: Maybe in the future, but not now.

The Boeing 717-200 is one of the mainstays of the Qantas regional fleet.

"They're brilliant aircraft. Anyone who has them wants more of them," Joyce said of the Boeing. "We also have Fokker F100s we use on low-utilization routes. So we're not in any rush to replace either of those fleets. They're going to have some time before it goes there. "

Qantas is, however, watching the market.

"But we are keen observers of what's happening," he added. "The C Series is a potential replacement, but there are also other vehicles out there. Embraer has something and Mitsubishi are developing an airplane that can potentially get there. So we don't have to make a call today, but we like there's competition in that space."

Qantas' safety record

Even for those who are casually acquainted with the Qantas brand, one thing stands above all else and that's safety. To many Qantas is like the Volvo of airlines. After all, no two brands in the world have done a better job at selling safety to its customers.

For Qantas, its reputation is built on the fact that the airline hasn't lost a plane in the jet age; as Dustin Hoffman's character so emphatically reminded Tom Cruise and moviegoers in the 1988 film "Rain Man."

Joyce believes the airline's reputation for safety is ingrained into the company's DNA.

"It is top of mind in everything that we do from the management down to the engineers, pilots, and cabin crew," he told us.

When he holds management meetings, the first thing the team will go over is every single safety issue that has come up since the last time they met.

Another contributing factor is Qantas' willingness to put safety above money.

"I can see in our history that we have made decisions that cost us a lot of money, but from the safety point of view were absolutely the right thing to do," Joyce added.

In 2010, a Roll-Royce engine powering a fully-loaded Airbus A380 exploded shortly after departing Singapore. Qantas grounded its entire flagship A380 fleet.

"We grounded the aircraft and it cost us a couple of hundred million dollars because we were convinced it wasn't safe to operate until Rolls-Royce figured out what the problem was and there was a fix for it," Joyce said. "Safety is so important to us, it's top of mind, it's part of our brand, it's part of our obligation to the traveling public, and we regard it so seriously that we would never compromise on that.

(Benjamin Zhang - Business Insider)

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