30 Oct, 2023
Virgin Australia turns a profit for the first time in 11 years
The Age
Virgin Airlines CEO Jayne Hrdlicka oversaw the airline’s first profit in eleven years.CREDIT:

Virgin Australia has reported profits of $129.1 million for the 2023 financial year, its first profit in 11 years as demand for travel soared and passengers returned to the skies, driving up airfares.

The figure represents a significant turnaround from the $565.5 million loss Virgin made in the previous financial year, with revenue improving 124 per cent to $5 billion as the number of passengers nearly doubled to 18.9 million, according to documents filed to the corporate regulator on Tuesday morning.

Virgin chief executive Jayne Hrdlicka said it was an important milestone for the business.

“It has been 11 years since Virgin Australia returned a profit, and our results signal that the transformation of Virgin Australia is progressing well,” she said.

“Value and choice are core to our business and as the continuing rise in cost of living impacts household budgets, we believe we are well positioned to continue to provide customers with the best value in the market.”

The recovery in revenue was predominantly driven by “record” demand from leisure travellers as well as business travellers of small-medium businesses, while corporate travellers returned at a slower rate. The airline has been eager to position itself as a ‘value’ carrier, sitting in between the premium and the budget ends of the market.

As the end of border closures ushered in an era of revenge travel, Virgin used every available aircraft in its fleet, which saw domestic capacity return to pre-COVID levels at the beginning of this year. Virgin also won more loyal customers last financial year, with its loyalty business Velocity notching a 68 per cent increase in revenue to $330 million, while with the number of Virgin frequent flyers lifted by 6.5 per cent to 11.5 million members.

The country’s second-largest domestic carrier slid into administration just two months into the COVID pandemic, during which it was unable to service its debts as the coronavirus pandemic grounded most of its fleet and starved it of cash.

Virgin has ambitions to eventually return to the Australian stock exchange, which it delisted from on November 17, 2020 after coming into the full control of private equity giant Bain Capital. It has not given a timeframe for when it plans to float and said it is a matter for shareholders. Bain Capital owns about 93 per cent of the business, while Richard Branson-founded Virgin Group owns about 5 per cent and Queensland Investment Corporation owns the remaining 2 per cent.

While the airline expects to turn a profit again at the end of the current financial year, it will have to carefully manage its expenses, which increased 76 per cent to nearly $4.8 billion and weighed on the bottom line as its fuel bill rose by $728.3 million, or 146 per cent, to $1.2 billion. Labour costs and airport charges also rose 61 per cent to $3.5 billion. All of these factors are expected to continue this and next year, particularly as the war in Israel pushes up global oil prices.

Virgin has not paid any corporate tax in the past 10 years, according to responses provided to Senate questions answered on notice. The cumulative effect of several years of losses saw airline’s net liabilities swell from $730.9 million to $1.36 billion.

Virgin customers are sitting on approximately $114 million in unused COVID credits that will expire on June 30, 2025.

Virgin’s financial figures are dwarfed by the numbers of its rival Qantas, which reported a record $2.5 billion in underlying profits during the same period.

The aviation industry has faced heightened scrutiny over the past year amid persistently high airfares and cost-of-living concerns.

The Senate inquiry into the federal government decision to block Qatar Airways’ application to double flights yesterday released its final report, which recommended the government immediately review its decision, a position that Virgin welcomed.

“A reversal could deliver benefits as early as Christmas for Australians seeking to travel to Europe, the Middle East and Africa, for the tourism industry and Australian exporters,” a Virgin spokesperson said.

Since September last year, Virgin has had a codeshare agreement with Qatar Airways. This means Virgin would materially benefit if Qatar’s bid to add 21 extra flights a week to Australia were successful.

1 Sep, 2023
Helloworld shares surge as transaction volumes more than double
Financial Review

Helloworld shares were sharply higher on Monday after the travel agent said it had swung back to a profit and that it would continue growing earnings as international travel rebounds.

The volume of transactions more than doubled in the 12 months to June 30, from $1.08 billion in the last year, which took in a period of COVID-19 restrictions, to $2.57 billion. It remains below pre-pandemic levels.

Helloworld is one of the country’s largest operators of travel agencies, with 5 per cent of the retail market. Its largest competitor is Flight Centre, which will release its results this week and is expecting transaction volumes to be around $22 billion, an increase of some 115 per cent.

A turnaround among travel agents points to the size of the broader resurgence in the tourism industry. Official forecasts suggest there will be six million outbound departures this year, half the pre-pandemic level. That mark is expected to be surpassed by 2025. Domestic travel, on the other hand, has already exceeded levels seen before COVID-19.

Helloworld told shareholders that the proportion of leisure travellers would normalise and volumes should recover to pre-pandemic levels in the next financial year “assuming increased airline capacity”.

Tourists from China will also “present ongoing opportunities” for Helloworld, the company told shareholders, after Beijing put Australia back onto a list of approved destinations for local tour operators.

“Ticket volumes continue to increase as carriers return to Australia and New Zealand and number of flights grows,” the company said in a statement. “[Transaction volumes] for flights is near pre-pandemic levels, with lower volumes being offset by higher ticket pricing. Growth in ticket numbers into FY24 will be supported by the later opening of Asian markets.”

Helloworld declared a final dividend of 6¢ a share and guided for earnings between $64 million and $72 million this financial year.

Helloworld chief executive Andrew Burnes said acquisitions and investments into technology made during the year helped propel underlying earnings to $44.1 million, from a $10.6 million loss a year earlier.

“Helloworld made several acquisitions during financial year 2023 which will continue to support our growth into the future, and we have utilised our strong liquidity position to minimise dilution,” Mr Burnes said.

Among those acquisitions was Australiareiser, a specialist travel wholesaler, and Express Travel, which operates an air ticket consolidation business and cruise and package wholesaling in Australia and New Zealand. The company has also agreed to acquire Phil Hoffmann Travel, a Helloworld affiliate which operates out of nine locations in South Australia.

The company said even though it had entered the last financial year with several international borders still closed, their reopening spurred continued growth. “As travel recommenced, travellers visiting friends and relatives was the predominant reason for travel; however, over time the prominence of leisure-based travel has steadily increased,” Helloworld said in its statement.

Net profit after tax from continuing operations was $19.2 million, compared with a $28.8 million loss in the prior year.

During the year, Helloworld’s biggest shareholder, Qantas, sold its remaining 12.4 per cent stake in the company, at a price of $1.72 a share. The stock was up 6.7 per cent to $3.20 during trading on Monday.

1 Sep, 2023
Flight Centre reinstates dividend as earnings and sales soar
Financial Review

Flight Centre expects a return to “more favourable dynamics for travellers” after reporting record performance in corporate travel, taking its total sales to their second-highest level ever.

The company reported a $485 million year-on-year turnaround in underlying earnings before interest, tax, depreciation and amortisation to $301.6 million, above the mid-point of already upgraded guidance.

It will pay an 18¢ a share, fully franked dividend for the first time since the pandemic, representing 52 per cent of its $47 million net profit after tax.

The leisure and corporate travel agent said macroeconomic changes “do not appear to be significantly impacting demand” so far this financial year, with profit and sales higher than a year earlier in the first two months.

“We’ve got a reasonably significant, higher-end leisure market through travel associates and Scott Dunn in the United Kingdom and the United States and that market seems pretty resilient,” Flight Centre chief executive Graham Turner said. “Even in our mass market brands like Flight Centre, most of the international travellers tend to be mid to higher income people who probably haven’t been as affected by the economic issues.”

The company also said the strong recovery and improved outlook had given it confidence to announce a new capital management framework, through which it will re-invest in capital expenditure and, where appropriate, mergers and acquisitions, as well as pay dividends or conduct strategic buy-backs to increase earnings per share.

It expects to pay 50 per cent to 60 per cent of its after tax net profit as dividends or buybacks, including of convertible notes, from this year.

“Very low unemployment globally is aiding leisure sector recovery, while [Flight Centre]’s business is leveraged towards demographics that are less affected by mortgage stress, specifically the luxury sector and baby boomers, and who are therefore more likely to continue to travel,” it said.

Mr Turner said international flight capacity should return to around 90 per cent by the end of the year. “Flight Centre also strongly supports yet-to-be-approved plans by other airlines, including Qatar Airways and Turkish Airlines, to increase traffic to Australia to boost tourism and to deliver cheaper airfares to travellers,” he said.

Tim Plumbe, an analyst at UBS, said it was a “positive result”, with margins for leisure travel in the second half of the financial year on the same period before the pandemic. “Expect positive reaction [given the company’s] positive operating momentum ... for both businesses [and the] reinstatement of [its] dividend and capital management strategy,” he said.

1 Sep, 2023
Flight Centre swings back to profit, sees airfares falling
The Sydney Morning Herald

Flight Centre boss Graham Turner says travellers should expect to pay less for travel in the future as international airfares continue to fall. But he doubled down on his criticism of the Albanese government for blocking Qatar Airways from adding flights to Australia.

One of the biggest travel booking companies in the world, Flight Centre recorded $301.6 million in underlying earnings in the year to June 30, an almost half-a-billion-dollar turnaround from its 2022 loss of $183.1 million.

About 70 per cent of this result was generated in the six months to December following increased corporate travel, bolstered domestic flight offers and the rampant return of international airlines to Australia when the borders reopened after the pandemic.

Flight Centre recorded a full-year statutory profit of $70.5 million, swinging from a $377.8 million loss the year before. Its total transactions doubled to $22 billion.

The travel agent said macroeconomic conditions had not been “significantly impacting” demand in the first six weeks of this financial year, with its earnings already markedly higher than during the same, COVID-19-affected, period last year.

Flight Centre will issue a dividend for the first time since the pandemic. Shareholders will receive a fully franked payout of 18¢ per share. The company plans to adopt a new capital management strategy this year to pay out more than 50 per cent of its net profit as dividends or buybacks.

Presenting the results, Turner – who founded the travel booking behemoth in the 1980s – reiterated his criticism of the government’s decision to reject an application from Qatar Airways to double its flights to Australia.

“This is a significant blow. No other part of the tourism and aviation sector can rationalise it. I don’t blame Qantas for its lobbying, but I am concerned it was successful,” Turner said.

“This is supposed to be a competitive market, a free market. Our travel agency business competes with many major international businesses in Australia, as it should. Most other markets we compete in are relatively competitive.”

Turner said he was “reasonably confident” more international airlines would continue to apply to fly to Australia. He pointed to European carriers including Air France, which does not currently fly to Australia and has indicated it would like to. Turkish Airlines, one of the biggest airlines in the world, has also flagged its intention to fly here, but the Turkish government is yet to formally lodge an application.

Turner said he was concerned about the competition consequences of the government’s decision, and reiterated his prediction that it would keep airfares high.

Flight Centre’s results were buoyed by the resumption of corporate travel overseas. The group expects corporate travel in Australia to exceed 2019 levels by the end of 2024 as fares normalise.

“We spent a lot of time negotiating with businesses during COVID-19 to make sure they would continue to partner with us. We won a lot of work that way. This result is down to that success in the US and UK, but we expect Australian corporate travel to normalise as fares come down, and it becomes easier to book a seat,” Turner said.

RBC equity research analyst Wei-Wei Chen said Flight Centre’s leisure travel division outperformed its expectations, while its corporate segment underperformed. UBS’ equity research team said in a note the result was “a little underwhelming”.

Flight Centre shares closed 3 per cent lower at $21.42 on Wednesday.

1 Sep, 2023
July: 81% of Australians vying for affordable holidays

Over eight in ten Australians say they “need to find a way to make their next holiday more affordable” according to research commissioned by Melbourne-born luggage brand July.

In collaboration with Ground Truth Research, July’s Travel Report: Unpacking Australia uncovered various aspects of Australian travel, including cost-of-living impacts and the personal sacrifices made to fund holidays.

It found that 73% of people cite cost-related factors as the biggest impediment to realising their personal travel goals, with 35% of Australians having postponed a trip due to cost of living pressures. A further 23% have altered their trip significantly to make it more affordable, while 12% have cancelled a trip altogether.

1 in 5 Australians have extended a work trip to enjoy some leisure time over the past 12 months.

Over two-thirds (68%) of Australians say it’s important they travel for leisure within the next six months, however ‘general cost-of-living pressures’ (54%), a lack of available funds (43%) and the price of air travel (31%) are the biggest obstacles. This outweighs time-related factors, including getting time off (17%) and rising mortgage and rental payments (12%).

Personal sacrifices include forgoing food delivery and eating out (77%), cutting down on date nights (68%), cancelling streaming subscribtions like Netflix (52%) and giving up alcohol (67%) - for 18-24’s, this latter number rises to 76%.

According to the research, women are more likely to engage in these abstentions than men.

When it comes to altering holiday plans, 54% of Australians will consider travelling out of season to take advantage of lower accommodation and flight costs; 40% will consider low-cost airlines and budget accommodation; 30% will reduce the length of their stay, self-cater meals or choose a ‘cheap’ destination; and only 10% will take an indirect flight to their chosen destination.

“At July, we wanted to better understand the state of the nation,” July co-founder Athan Didaskalou said. “How Australians were feeling about travel and how they were committing to exploring with increasing pressures on daily life.

“These insights show that Aussies are willing to sacrifice daily life luxuries in order to make sure they see the world. Travel has never been more important and on the agenda for us.”

Ground Truth Research founder Helen Osborne said the findings show how integral travel is to Australian lifestyle.

“Despite growing cost of living pressures, Australians remain very committed to getting away over the next six months. But how people travel – where people go, how long they stay etc. – will change.”

The report also uncovered packing habits, finding that - on average - Australians will pack five pairs of underwear for a 3-day weekend trip.

25 Aug, 2023
Business laments loss of $788m due to controversial Qatar Airways decision
Business laments loss of $788m due to controversial Qatar Airways decision

A key business group has weighed into the debate over the government’s decision to block Qatar Airways from operating more flights into Australia, saying the move would cost the tourism industry an estimated $788m a year.

In a letter to Transport Minister Catherine King, Australian Chamber of Commerce and Industry tourism chair John Hart said more international flights would help operators rebuild after years of crippling Covid-19 restrictions.

He said the growth of Australian tourism was a function of inbound and outbound air capacity, and any limitations on capacity stunted growth not only through seat numbers but fare competitiveness.

“ACCI acknowledges the government’s role in approving applications, however, members are concerned that the decision will have long-term impacts on the tourism sector in a number of ways,” wrote Mr Hart in the letter seen by The Australian.

“For example, if this decision sets a precedent for consideration of future applications from other airlines, being that requests for additional flights will not be granted, the loss to the tourism industry will be grave.”

An additional four flights a day by Qatar Airways could potentially inject $788m into the visitor economy, he said.

“We would be grateful for the chance to meet with you to explain our concerns and detail the impacts of the decision on the tourism industry,” Mr Hart wrote.

Virgin Australia also stepped up its opposition to the decision and CEO Jayne Hrdlicka added her voice to the outcry.

The airline partnered with Qatar Airways last year in a deal designed to benefit both carriers and give Velocity frequent flyers he opportunity to use points on long-haul flights.

Ms Hrdlicka’s statement came after Virgin’s head of corporate affairs and sustainability told a Senate committee hearing on Monday that the ruling against Qatar was “deeply regrettable”.

“International airfares today are nearly 50 per cent higher than pre-Covid,” Ms Hrdlicka said.

“Additional Qatar flights would have an immediate and tangible effect in reducing airfares between Australia and Europe, the Middle East and Africa.

“Qatar is in the unique position in the context of a constrained global supply of widebody aircraft, to be able to quickly make available four additional services a day to Australia.”

Ms Hrdlicka said she looked forward to “working with the federal government and other key stakeholders to find a way to understand and resolve the underlying issues”.

Qatar currently operated a mix of Boeing 777s and A380s on Australian routes, and could increase capacity by 27 per cent upgauging to all A380s, Qantas suggested.

The flying kangaroo has defended the government’s decision over Qatar Airways, suggesting the reaction was overstating the importance of an extra 28 flights a week.

Qantas International chief executive Cam Wallace said a number of other airlines, including Singapore and Cathay, were increasing capacity to Australia by more than what Qatar wanted to.

Qantas opposed Qatar’s application for more flights, which appeared to have helped sway the government’s decision.

Earlier this month, Ms King told parliament “it was not in the national interest” to grant Qatar Airways more traffic rights but would not elaborate further.

Qatar Airways is yet to comment on the decision.

25 Aug, 2023
Qantas vows to make even more money after record $1.74bn profit for FY23
Qantas vows to make even more money after record $1.74bn profit for FY23

High airfares and a brutal cost-cutting program have helped Qantas deliver its biggest full-year result on record, a $1.74bn net profit, but CEO-designate Vanessa Hudson says it can do better.

Delivering her last result as chief financial officer before stepping into the top job, Ms Hudson said the $2.6bn turnaround on last year’s $860m loss was “not as good as it gets”.

Even with fares moderating and capacity increasing, Ms Hudson was confident that the $1bn in costs taken out of the business under its pandemic recovery plan would ensure a more profitable operation in the years ahead.

“All of the work we’ve done during Covid-19 in terms of restructuring our cost base, we are going to see that as fares come down and capacity comes back, our cost position is going to improve materially going forward,” said Ms Hudson, who will take over from Alan Joyce in November.

“Therefore we are expecting the future earnings potential of our business is going to continue to grow.”

The underlying profit of $2.47bn represented a $4.3bn improvement on the 2022 result, setting another new benchmark for the 103-year-old carrier.

In the 12 months to June 30, Qantas passengers poured almost $17bn into the airline, paying around 57 per cent more for international airfares than pre-Covid, and 34 per cent more for domestic.

The high prices saw Qantas International make $906m and jump from being the least profitable part of the business in 2019, to the second biggest earner after Qantas Domestic, which pulled in $1.3bn.

Qantas Loyalty was third with earnings before interest and tax of $451m, aided by the take-up of about 250,000 points-earning credit cards.

And low fares carrier Jetstar turned the prior year’s loss of $796m into $404m in earnings, with the help of 37 per cent growth in ancillary revenue collected from passengers for things like baggage, food and seat selection.

Mr Joyce lauded the “remarkable turnaround” of the airline group, which last made a full-year profit in 2019. He said the result was three years in the making, and it had been hard.

“From being 11 weeks shy of insolvency to a challenging return to flying across the industry to finally getting back to the leading domestic operational performance, it is an absolute credit to the resilience and hard work of our people, the patience and understanding of our customers and the support of our shareholders,” he said.

Domestic capacity was now back to pre-Covid levels, and international flights would get there by mid-2024, putting downward pressure on fares, Mr Joyce added.

He also delivered the final plank in the airline’s much-needed fleet renewal: an order for 24 new widebody aircraft to replace ageing A330s and eventually the A380 fleet.

The 12 Boeing 787-9s and 12 A350s would start to arrive in 2027, providing greater flexibility and efficiency for Qantas with their long range and lower fuel burn.

Another 12 A350-1000s were on order for ultra-long-range Project Sunrise flights, due to start in late 2026 or 2027.

“This is my last full year results as Qantas CEO,” Mr Joyce said.

“It’s been extremely challenging but I’m pleased to say the future of the national carrier is on solid ground.”

There was little movement in the Qantas share price in response to the announcement, which was within the profit guidance range flagged in May.

At the close of trade on the ASX, Qantas shares were up 5c, or 0.8 per cent at $6.22.

Analysts found much to like about the results, noting the balance sheet remained strong, net debt was down to $2.89bn and Qantas had a healthy $10bn of liquidity including $4.4bn in cash.

Moody’s Investors Service vice president Ian Chitterer said the airline’s credit profit had “never looked stronger”.

“We thus consider that Qantas will remain well positioned, even if the currently strong outlook for travel demand deteriorates,” said Mr Chitterer.

UBS analyst Andre Fromyhr said the market was more concerned about the outlook into 2024.

“On that front, if the company can build confidence in the resilience of demand and stability of the cost base, then the market may start to put a higher probability on Qantas hitting its 2024 financial year targets and sustaining its current earnings run rate for longer,” Mr Fromyhr said.

Union reaction was less effusive, although pilots were happy to see the fleet rejuvenation plans mapped out. Australian and International Pilots Association president Tony Lucas said the new 787s and A350s would provide “new opportunities for promotion”.

ACTU national president Michele O’Neil said Qantas was “hell bent on driving down terms and conditions for its workers to maximise profits”.

“Our flagship carrier, with these kinds of profits, should be respecting their workforce,” said Ms O’Neil.

“Qantas workers deserve secure jobs and fair pay and conditions for the hard and important work they do to keep us all safe. Instead on some Qantas domestic flights, you see the cabin crew on five different rates of pay on the same plane, all for doing the same job.”

15 Aug, 2023
Discount retailers, holiday travel operators cash in as cost of living bites
The Age
The Age

As temperatures dropped throughout July, a slew of consumer and spending data left Australian retailers with little doubt that winter had finally come.

Data from banking giant ANZ this week suggested overall spending was down by 10.3 per cent in the first weeks of July compared with last year, while over at NAB consumer surveys showed Australian households were scrimping on meals out and little luxuries to ensure they could afford to cover their insurance policies and children’s activities.

Retail sales data released on Friday showed turnover dropped by 0.8 per cent across the country in June, with the sharp fall coming off the back of weaker than usual spending at end of financial year sales.

At the same time, brands are struggling to balance their own budgets – a survey of more than 200 local retailers by e-commerce software platform Shopify this month shows 58 per cent of businesses say they’ve had to pass on most of higher input costs to their customers.

But over on the ASX, consumer stocks managed to shrug off the gloom. The S&P/ASX200 consumer discretionary index had posted monthly gains of more than 3.5 per cent as of Friday, and consumer stocks accelerated after better-than-expected inflation data on Wednesday.

Kmart, Target and Bunnings owner Wesfarmers was ahead by close to 1 per cent for the month on Friday. Online retailer was up by about 30 per cent for the month, surging this week after a trading update confirmed that while overall sales were slowing, profitability was improving.

Rivers and Katies’ operator Mosaic Brands shot up by 19 per cent last Friday after revealing it would swing back to profit for 2023, as chief executive Scott Evans flagged that the retailer’s cohort of older shoppers was actually continuing to spend in the face of cost of living pressures.

“Do we think that the next six months is going to be all wonderful? No. Do we think it’s Armageddon? Not quite,” he said.

Analysts and economists have been forecasting the spending slowdown for more than a year now, with many stock watchers already baking this pessimism into their models.

And while there is no doubt that conditions are softening overall, recent spending data suggests there could be some winners despite the slowdown.

Australian consumers have increasingly been making trade-offs in their spending to make their dollars stretch further, and to be able to afford the parts of their budgets that they can’t bear to axe.

The phenomenon of “trading down”, or moving from one product to a lower-cost alternative, could open growth opportunities for a range of retailers, including discount retailers such as Aldi and Kmart.

UBS analysts said this month that Aldi was most likely to win market share in the current trading environment. The investment bank said last month that it also preferred brands that “are lower priced and able to win from a trade-down”, such as Wesfarmers’ discount department store Kmart.

“The consumer is reducing spending in aggregate and when they do spend they are: (1) trading down by price point in apparel and general merchandise,” the UBS team said. founder Ruslan Kogan said this week that there were growth opportunities as consumers revisited their budgets, with the online retail platform seeing an improved performance in its phone plans business and its loyalty subscription program, Kogan First, even as overall sales slow.

“In this environment, where people are looking to save more money, that [program] has been very popular,” he said.

There’s also some evidence that older consumers are helping drive sales in areas such as fashion, even though clothing and apparel sales have weakened since the country emerged from lockdowns.

CommBank iQ cost of living data for the first months of this calendar year showed that consumers aged over 55 have increased their spending beyond inflation compared with 2022, and shoppers aged over 35 increased their clothing spending by 3.1 per cent in the first quarter of the year, as younger shoppers pulled back.

Things are also rosier at the luxury end of the retail market, where brands such as Chanel have had rapid growth as the world emerged from pandemic lockdowns.

Shares in ASX-listed designer brands platform Cettire have surged by more than 140 per cent year-to-date as the business reports that revenue momentum is growing rather than slowing.

Meanwhile, this month’s trading update from travel operator Flight Centre suggests that while households are working harder to balance budgets, discretionary dollars are still being spent when it comes to holidays.

Shares in the travel agent have advanced by more than 20 per cent this month and the business expects 2023 earnings will be better than previously forecast, coming in at between $295 million and $305 million.

Flight Centre managing director Graham “Skroo” Turner said in the trading update that the year-on-year growth in outbound travel suggested consumers are putting holidays first.

“Looking ahead, our expectations are that leisure travellers will continue to prioritise holidays
and experiences over other areas of discretionary spending,” he said.

15 Aug, 2023
Qantas’ record profit is costly for tourism’s pandemic recovery
Financial Review

There is no public benefit in the Albanese government rejecting a bid by Qatar Airways to bring more tourists to Australia. It’s another story for our national carrier.

Government records show that international aviation seats in Australia had recovered to just 64 per cent of pre-COVID levels by last December, and short-term visitor arrivals had recovered to just 60 per cent.

Over the past three decades, there has been a 61 per cent correlation between growth in airline seats and growth in inbound tourists. This means that if the international tourism sector is to completely recover from the effects of COVID-19, we need to convince international airlines to bring more seats into the country.

It is therefore confounding that the Albanese government would reject a bid by Qatar Airways to bring an additional three flights a day into the country.

An average Qatar Airways flight last year brought 330 seats into the country. Rejecting three services a day from the carrier is equivalent to turning away 722,700 seats a year, representing about 3 per cent of the Australian market.

When the government decides to accept or reject additional capacity bids from foreign airlines, it usually does so by considering the public benefit. What would it consider?

The first and most significant public benefit is inbound tourism spending. Qatar Airways flies between Australia and Qatar (90 per cent of its seats) and between Australia and New Zealand (10 per cent).

Most of the inbound tourists on its Doha-to-Australia flights are likely to be European. Assuming half the seats on these flights are sold to Europeans, three additional daily flights from Qatar could have brought 150,000 visitors into Australia.

Each of these visitors spends on average $3284, which means the additional visitors from Europe could have spent $500 million here, generating thousands of jobs.

Cheaper airfares

If 10 per cent of the additional seats that Qatar Airlines would have brought into Australia were also on routes between Australia and New Zealand, this would represent an additional 72,270 seats on the Tasman route. Some of these seats would carry New Zealand residents wishing to visit Australia, spending on average $1611 each, again generating benefits for the economy.

Australian residents would benefit from additional Qatar Airways seats not only because of the tourism spending, but also because Australians flying overseas would pay cheaper airfares.

If Qatar added more seats to the Doha-Australia and NZ-Australia routes, this would reduce the average airfares paid by residents flying overseas on these routes.

This would benefit 1.7 million Australians who are likely to fly to Europe and 1.3 million Australians who are likely to fly to New Zealand each year once we have fully recovered from COVID-19. With current international airfares at astronomically high levels, any additional capacity would have helped solve this problem.

What potential factors might have a negative effect on the public? To answer this question, we need to identify the Australian residents or companies that may be worse off if Qatar Airways was granted more seats.

Broadly, the Australian economy could be worse off if the additional Qatar Airways seats on Australian routes take more Australians overseas than visitors entering the country.

Official aviation data does not offer any insight into the residency of passengers, so it is difficult to quantify this effect. But it is certainly a possibility.

Airlines that fly passengers between Australia and the Middle East, Europe and New Zealand would be worse off because the extra Qatar Airways capacity would dampen their yields and margins. This effect would be significant for Qantas, since its services to London Heathrow and to New Zealand represent a significant proportion of its international capacity and earnings.

Qantas mainline international experienced combined losses of $879 million during COVID-19, more than half of which was recovered over the six months to last December with earnings of $464 million – the greatest six-month profit result for the carrier’s international arm in its history.

Qantas will not want the hard work that went into earning this record profit to be wound back by Qatar Airways adding more capacity.

Qantas is still looking to claw back more of the international losses incurred during the pandemic. It will do so by using the formula that worked so successfully over the latter half of last year, which is to drip-feed capacity back into the market and allow continued pent-up demand to drive up yields (Qantas international yields grew 64.4 per cent compared to pre-COVID levels over the six months to last December).

The most adversely affected carriers will be the other Middle East carriers, notably Emirates and Etihad. This is because Qatar competes head-to-head with these carriers. Doha Airport is just 380 kilometres from Dubai Airport and 320 kilometres from Abu Dhabi Airport, meaning that travel between Europe and Australia can easily move between transit stops at any of the three Middle East airports.

Given the Qantas code share relationship with Emirates, the negative impact that additional Qatar capacity may have on the strength of the code share numbers will not have gone unnoticed by Qantas management.

Tony Webber is chief executive of Airline Intelligence and Research.

1 Aug, 2023
Flight Centre boss warns ‘ridiculous’ Qatar Airways decision will keep fares high
Flight Centre boss warns ‘ridiculous’ Qatar Airways decision will keep fares high

Flight Centre boss Graham “Skroo” Turner has accused the federal government of deliberately keeping airfares up by rejecting Qatar Airways’ application to double its flights to the country.

Turner, who founded the $4.7 billion travel agency business, said the decision was “ridiculous” after unveiling a bullish profit upgrade ahead of the group’s full-year results in August.

“The cost of airfares is a huge problem for travellers. I think it’s the most ridiculous decision I’ve ever seen. We have Australian airlines like Qantas, which do not have the capacity for additional services, and yet we’re rejecting Qatar’s extra capacity,” he said.

Qatar Airways applied to add 21 flights to its services from Doha into Sydney, Melbourne and Brisbane last year. Transport Minister Catherine King confirmed the additional bilateral air rights were not being considered on Monday, as reported by The Australian Financial Review. She did not outline why.

Although supported by most of the tourism and aviation sector, as well as the National and Liberal parties, the application was opposed by Qantas. It was also opposed by five Australian women who were subjected to invasive searches at Hamad International Airport by Qatari federal police ahead of their flight with the airline in 2020.

The women were part of a larger group who were forced to undergo internal examinations after a newborn baby was abandoned in a bin at the airport. The women are now seeking damages from Qatar Airways and the Qatar Civil Aviation Authority – which are both owned by the Qatari government – over the incident.

“If the event with the women is the reason the airline has been prevented from additional flights, it is totally illogical,” Turner said. “Qatar as an airline has nothing to do with the behaviour of federal police. If the conduct of a country’s police force is the reason they were rejected we wouldn’t let half the world’s carriers fly to Australia.”

Qatar has a close partnership with Virgin Australia and was one of the few carriers that continued to fly to Australia throughout the COVID-19 pandemic. Qatar also assisted the government’s mission to evacuate Australians during the fall of Kabul in 2021. Sources close to the application process confirmed the carrier expected to be granted the additional flights as a recognition of its goodwill and close trading ties to the country.

Outgoing Sydney Airport chief Geoff Culbert said on Thursday Australia’s airlines should relinquish slots on high-demand domestic routes if they do not intend to fly them – a topic Turner is also passionate about.

“There’s no doubt the major airlines are deliberately cancelling flights to keep fares up and prevent other carriers. I don’t blame them for taking advantage of the system, but it can’t be denied they’re doing it and the government needs to close the loophole to prove they’re not in the pocket of Qantas and Virgin,” Turner said.

Culbert also hit out at the number of flights cancelled by Qantas, Virgin Australia and Rex on major routes, including Sydney to Melbourne, and said the creeping cancellation rates and high airfares had suppressed demand.

“If incumbent airlines have decided to fly less between key domestic markets, then they should relinquish slots to domestic and international carriers who want to operate out of Sydney Airport and provide more choice for customers.”

Passenger numbers on the Sydney to Melbourne routes are still 81 per cent of pre-COVID levels, while Sydney to Canberra sits at 64 per cent.

Flight Centre upgraded its full-year profit guidance for a second time in just six months on Thursday, after its total transaction value increased by more than 115 per cent on 2022 to $22 billion.

The business now expects its earnings before interest, tax, depreciation and amortisation to be between $295 million and $305 million, a 7 per cent increase on its prior projection at the mid-point.

Turner credited the upgrade to stronger-than-anticipated corporate demand, which will eclipse leisure turnover this year, with $11 billion to leisure’s $10 billion now expected. The business’s full-year results will be unveiled on August 30.

    Citi analyst Samuel Seow said the strong corporate performance was an encouraging sign, although he commented the upgrade lacked detail.

    “Looking forward, we see this as optimistic, as we see a mix as the key driving factor in achieving a 2 per cent profit before tax margin,” Seow said.

    Flight Centre’s share price increased by 4 per cent to $21.68 on Thursday.


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