Qantas Airways Group CEO Alan Joyce on business models and the future of the carrier

Transcript

Peter:

Good afternoon and welcome, a very warm welcome to Alan Joyce who's the CEO of Qantas, Qantas group. Welcome Alan, back to CAPA Live. Great to have you on.

Alan Joyce:

Good to talk to you again Peter as normal. It's a pity we're not doing it in person, but I'm assuming we'll get back to a CAPA conference in person at some stage which will be great.

Peter:

Well, we're planning on that very, very shortly. Yeah.

Alan Joyce:

Great.

Peter:

And I look forward to that. Thanks, Alan. A lot of things to talk about. Let's kick off with the purely domestic scene if we could. We've had a lot of stop start. It must've been very frustrating for you. Do you think we're getting any closer now to getting some domestic, ie state, interstate protocols in place for when we do close the borders down and notice periods, that sort of thing?

Alan Joyce:

Yeah. We've had some good dialogue with the States about the different parameters, about putting in a system that gives a bit more certainty. I will say before we get into that Peter, what we're seeing each time is that the market's getting stronger and stronger each quarter. Actually now I'll go through the financial year, in the first quarter of the current financial year, we were at 20% of pre COVID capacity levels. Second quarter, we got to 40. Third quarter, we got to 60. We're planning on being 80% or above for the last quarter. And the demand is improving all the time. But despite the stop and start, people are getting comfortable with what the situation is around borders. They're traveling. And then each time it looks like when the borders are closed, it's for a shorter period, the rebound is faster, and more rapid.

And so we're pretty optimistic about where the domestic demand profile is. Now, should we be at a hundred percent plus? Absolutely. Do we want to get there faster? Absolutely. Will certainty on the borders get us there faster? Absolutely. So what we've said to the Premier is let's have potentially three things in play. The first is a protocol where you, until the vaccine's rolled out to all the vulnerable groups, that you have a system in place where you can get people home to their home States. But give those 24, 48 hours to allow us to have that guarantee. And we've got good reaction, I think, from all the States on that.

Second thing we've said in line with the Business Council of Australia, is that when we get to vaccinating all of 1b, why would we need to close the borders down again and can we have some certainty and guarantee that because we've covered hotel quarantine and hospital workers, there's no need to, and that we should be okay at that stage. And again, I think this is being worked through National Cabinet and the AHPPC.

And then the third thing that we said when it comes to borders is relating to international, which is then what does the opening of international look like and what is the framework that goes around that? The vaccination requirements, the testing requirements, the quarantine requirements? And let's give a certainty on that because that will allow us to open up international faster when that system is in place.

Peter:

Right. Yeah. And I'd like to come and address international specifically a bit later on Alan if I could, but just staying with domestic, and I should say I had my first flight last week and it's just a bit scary going to the airport and really not knowing what to do anymore. But I mean, you're talking about the passenger demand. It's obviously coming back. It's obviously not there yet in full. You've had to, I guess, play it very much by ear in terms of revenue management with the pricing. Pricing seems to be holding up reasonably well. You've obviously got a massive amount of cheap fares in the market, but are you seeing a revival in terms of yield across the board domestically?

Alan Joyce:

We are seeing that the demand yields hold up pretty well, but we have been out there stimulating the market. What we always said is that for some time we'll be managing the business on a cash basis. That means that we just have to cover the operating costs of the operation, to get our pilots, our cabin crew, our staff back to work. And a lot of the overheads we're taking as sunk, they're there anyway, even if you don't fly the aircraft. It's better, as we say, to earn a dollar in the air then to lose a dollar on the ground, but that's been our philosophy and we've gone out there with some amazing promotions. We've also had the government's scheme to promote tourism. That's been very successful. It's generated huge volumes of demand, places like Cairns, a place like the Gold Coast. And we went everywhere else with everywhere else sale, to generate huge volumes of demand around those leisure markets.

I wouldn't take out say, Peter, I mean there are... Not one size fits all in domestic at the moment. What's actually gone back to pre COVID levels is the fly in, fly out market. That's really, really solid and really big. The freight market is bigger than it was before COVID, and then in the domestic market, the leisure market is back to where it was before COVID in the intakes that we're seeing coming in. And it's really the recovery that we're waiting for in the corporate, the SME market. We're seeing that just lag the leisure market by three or so months. And so we're seeing it coming back, as people are coming back for their offices. Now we've got most of our people back here in Mascot now.

A lot of other companies are doing the same thing. That's the first move. And then we tell people to travel. I've traveled quite a bit in the last few weeks and I don't think it's scary to go through the airport because I think it's just back to normal just about. If you're in our lounges, we've opened up 33 of our 35 domestic lounges, and we're finding that they're actually filling up. The reason why we've opened up the Qantas Club in Sydney and Melbourne is because the Qantas business lounge is full, and we needed to open up our other lounges. That's how good the volumes are.

So you have to wear the masks, the masks are there at the terminal and on the aircraft, but the system is very similar as to what it was beforehand. And I think there's a lot more people at the terminals, and every day it feels more normal than it was previously.

Peter:

Yeah, I didn't mean I was afraid in terms of catching anything because I do feel pretty confident in that respect, and things are pretty good at the airport now. What I felt more was just I'd become highly unfamiliar with what to do, how to put my baggage tag on and so forth. But going back to that, I mean Alan, so effectively what you're saying is you're still burning cash. When do you see the corner being turned in terms of profitability in the domestic market?

Alan Joyce:

Well, to be clear, what we have said that was our last outlook is that we would, in the last quarter, start repairing the balance sheet. So that's when the cash burn essentially stopped. And the reason why in the third quarter that we would be burning cash is because of essentially the redundancies that we had in that period of time, and the restructuring costs. At the operating level, the business is generating positive cash flows, there wouldn't be many airlines in the world that are in that position.

Now we said domestic was already positive cash flow, and has been for some time. International is burning around 5 million a week, and that will be helped by the government assistance program, which goes until October. But we're now in the process of repairing the balance sheet, we're more than treading water. The analogy I use, for some time Qantas was treading water. We weren't getting worse, we weren't getting better. And now we're starting to swim towards the shore. Hopefully when international opens up, we've got a speedboat to go with towards the shore. And that's the process that we're on at the moment.

Peter:

Right, yeah, that's a good analogy. Who knows where we'll end up? Okay. So I mean, by the end of the year, you're going to be making profits, you've got-

Alan Joyce:

Not profits. Generating cash. Yeah.

Peter:

Generating cash.

Alan Joyce:

Profits is a very different situation away. Generating positive cash flow, which is a very big, positive for Qantas, given it's depreciation, it's all reds that is has, there still has a amount of assets that depreciate which has a depression on our profitability.

Peter:

So when do you see profitability coming through Alan?

Alan Joyce:

Well, we're not giving a forecast on that period because it's very hard and a lot depends on when international opens up. A lot depends on what the demand and robust domestic is. A lot depends on whether the borders open, stay open domestic. And so there's a lot of uncertainty there. And of course, we're not giving that forecast. What we're saying, if the borders do remain open, that we will be repairing our balance sheets in the fourth quarter. We'll be generating more cash than is going out, which is... We're pretty positive that that will be the case if domestic borders stay open.

Peter:

Right. I mean, I think you had about a 70% market share in the first half of this financial year, which is pretty solid. Do you actually want to go any higher than 70% in domestic? I guess that's where it becomes iffy.

Alan Joyce:

Well, the market share will be the market share. What you have is your individual strategies of where your brands, where your businesses are and how they're doing. And I've got to say, if I look at the different segments of the market, which will determine at the end of the day where our share is, on the corporate market, we've won, I think nearly 30 corporate accounts in the last few months from a major competitor. Our market share there has typically been over 80%, we see that continuing. Where market that will shrink a bit, I'm sure we'll get into this, because [inaudible 00:10:28] but we don't think it's going to be as much of a shrink here than there is [inaudible 00:10:37] our position there is strengthened.

In the SME market there's going to be a big battle for that small and medium size enterprise. We've been growing market share the last decade. We have enough product and processes in play. We can grow share even further. And in the leisure end of the market, we think there's a lot of opportunity. Jetstar should be out of COVID a lot bigger than it was going into COVID. We don't have Tiger in this-

PART 1 OF 4 ENDS [00:11:04]

Alan Joyce:

Bigger than it was going into COVID we don't have tiger in this space any longer. Jetstar has a lot of capability to take share in that space. And when you put all that together, we think naturally our market share will be above 70% but it falls to where it falls. We got to competitive in every segment. We got to make sure we're profitable in every segment. And it's a very competitive market domestically, which is great for consumers. It's great for the traveling public, great for corporates, it's great for SME markets and Qantas always improves its game when it becomes more competitive. And it certainly is competitive.

Peter:

Yeah, it doesn't seem to be so great for Rex at the moment. I mean, it's obviously hard getting into a new market with a brand that isn't, well-known on the large jet routes. How do you see them affecting the competitive standing of the market and how do you see them going in the medium term?

Alan Joyce:

Well, it's clear that when you look at where Rex is positioned itself, it and Virgin are in the same territory they're fighting in the middle of the market. They have the same aircraft that Rex aircraft or Virgin aircraft, but same product on board. Their operating the same type of strategy in that middle of the market. So, that's the battle royal there and that will continue I'm sure. We know the opposition of the price sense [inaudible 00:12:24] very solid and has grown opportunities on Qantas at the premium end. And we're very solid there. So we were obviously watching and you know what? You've known my view on this for some time, I've never seen the domestic market supporting trade carriers. Maybe it's different this time, but in the meantime, it's going to be usually competitive at between all of the carriers in order to get there.

And as I said, anytime at competition has raised it's, Qantas raised the game with competition, that's come in. We're doing the same again here. I happened to be more efficient with going through our cost base. Making sure that we are [inaudible 00:13:05] up there. We're going through a product and make sure our product is the best product out there and leads, the field. We're making sure that Jetstar has the lowest cost base, they offer the lowest airfares and we'll continue to do that. And we think that strategy has been successful now for nearly 15 years, it will be successful going forward. And then we'll just watch what happens with the competitive dynamic as we'll play our best game, but when the Qantas group plays its best game, it always wins. And I have no doubt that will be the case on this occasion.

Peter:

It certainly looks like it's not just about price. It's about the whole array of different ammunition. You can bring to the party right across from the frequent flyers, the lounge, the just the general brand recognition of Qantas. So if you've got the combination of that and price, you're in it, obviously in a very strong position.

Alan Joyce:

I like to simplify it by if you keep your customers happy and they have no reason to move, then you're going to be a successful business. At Qantas the number one aim at whatever it's price sensitive customers or corporate customers, whatever on that spectrum, you are, we'll provide a product and a price on a service that meets your demands and give you no reason to have to build. And we think we can do that profitably and we can do that in a very efficient way. And that's been our strategy. It's pretty simple. Keep your customers happy at the end of the day. I think Qantas is good at doing that.

Peter:

So, I mean just what advice would you give.

Alan Joyce:

Off the record between the hundreds of thousands of people that watch your service? Yeah.

Peter:

I mean, I think seriously, I mean, if things do go well domestically and we'll come to international in a minute and it doesn't look as if they're going to go as well there, the things do go well domestically in terms of opening up, there should really be much more significant demand in 2021. And there wasn't 2019 presumably in the domestic market. Does that open up more opportunities for a new entrance for example.

Alan Joyce:

I think you're absolutely right. I mean, if international borders continue to have restrictions on them and even if they do open up and it will take some time and we've said for some time and that we don't think we'll get back to 19 levels internationally until 2024, which is similar to what I had been forecasting. And we know that 11 million Aussies traveled overseas every year. And so they are very big trips, a very long trip. So if they translate even into one domestic trip every year, it's a massive of growth in the domestic market and the potential for them to be bigger than that is quite huge. So we're quite excited, quite optimistic about the domestic traffic growth. And we think that could be good going forward. I think you've got the most open market in the world [inaudible 00:16:00].

As you know, most domestic markets around the world can't have a hundred percent foreign owned airline coming in and starting up. Australia has had that for a number of years, not the case in the United States, not the case in Japan, not the case in Europe, not the case anywhere else. And it's very easy to do that. But the dilemma you have is coming back to a very competitive market. You've got Virgin, Qanta's, Rex now being very competitive on price, being very competitive on product. And a lot of people look at it and think this is too hard. It's already too competitive. Somebody could think again, we could set up an airline here, but again, I'd say Qantas. When it plays its best game always ends up winning out of this. And competition has always allowed us to raise our game and nothing has changed on that in the environment that we're in today.

I will say a couple of other things that might be useful, we think that domestic market here is a little bit different from other markets around the globe. Corporate markets and there's a lot of talk about video conferencing, taking a big hit on the business market side when we've done our math on it. And we look at the low level of corporate market. That's fly in, fly out.

Resource space, government space, it's construction and manufacturing were layered. And then we were like the market that could be subject to being replaced by video conferencing, like professional services of people having internal meetings this way, we think the net result is something like attaining 15% drop in the corporate market science and for us. But with the potential for us making that [inaudible 00:17:44] market share and the potential for us making that open at the SME market, which is just a spec. And what we're finding at the moment is the SME market is less subject to, because these are small businesses need to travel, need to make the contact. It's less subject to be disrupted by video conferencing. And we're saying actually good growth in that market coming back faster than the corporate market. The segments that we're saying here, not only are we seeing a potential leisure boom, but we're also saying the corporate market, the business market, not being as impacted as other markets around the globe, which is good news for Qantas and for Jetstar

Peter:

Yeah. I think that makes a lot of sense. And that's certainly the way we see it, Alan, domestically, particularly with the strength of the FIFO markets. Let's just skip to international. And that respect in the corporate sense. I mean, obviously internationally let's sort of fast forward a year or so internationally that corporate market, as you say yourself isn't is not going to be anywhere near, as strong as domestically here and that corporate market, I think you'll agree pretty much does underwrite much of the long haul flying that any airline in the world does. How do you see that reshaping the pattern of international air services? Because there are going to be a lot that really aren't viable because they're not going to get that business segment traveling.

Alan Joyce:

Yeah. And every crisis as you know, Peter, I think you've plotted them. I think I've seen in one of your presentations, I have done for a while, but after September the 11th, that was a dip particularly on corporates. And then it took a few years, five, six years, the recovery then occurred after the global financial crisis. You saw that and it got back to pre crisis level. So we know it's a matter of time with economic activity, with economic growth, that these markets will wait. We've had this forecast for some time and that we don't see that occurring until 24 now. How has that corrected our strategy? Well, that's corrected our strategy by saying we park the A380s. The most premium seats of having the aircraft, on the fleet, as you know, are director towards the big premium market.

And we have luckily enough been replacing the bigger aircraft with the 787, that have a smaller premium cabin, but a smaller cabin overall and a bigger percentage of the revenue coming from the premium cabin. And the 787 is such a good aircraft. It can replace the entire A380s, 747, in terms of range with a smaller aircraft with unit costs are even better than a 380. So for us it allows us and our plan was at the end of October, if the international borders, were to open up, we could start 22 of the 25 destinations we have pre COVID with smaller aircraft, smaller premium seats on it. And we think that's sufficient to make good money and the economics work on that business. And we've been also taking a lot of costs out of our business, a billion dollars out of the Qantas in us and benefits coming through our transformation program.

And half of that, just [inaudible 00:21:11] is on international. So our cost base, even when a lower aircraft, like the 787 is going to come down lower to cope with a weaker business market a weaker demand. Now if demand comes back earlier, we can reactivate the A380s within three to six months. That's the level of flexibility we have. We think we will reactivate all of the A380s. We spent a lot money on them and have written down right in our roots. Once demand is there, they're going to be good aircraft, get back in the air and we can cope with this lower demand environment with some time by just parking them and using the 787 system.

Peter:

Yeah. I mean, when we talk about the, the contrast with the global financial crisis, I mean, there's a lot of meantime coming up in the meantime, till we get back to.

PART 2 OF 4 ENDS [00:22:04]

Peter:

In the meantime coming up... In the meantime, until we get back to these sorts of levels... I'm not just talking about Qantas here, I'm talking about the industry as a whole. Even with the [seven eights 00:22:12], you're talking about a much lower yield profile, unless for example, the economy fares go up significantly, which I guess they won't because you need the demand at first. We're talking about a long period here with a shortfall in significant yield.

Alan Joyce:

I'm not sure I'm there on that, I have to say, Peter. Because the global financial crisis is a little bit different. You had an economic recession that was massive. You had businesses overnight... We lost a billion dollars in revenue because people were not traveling in first-class or business class. We're coming out of this, if you read any of the views on the economy, we're going to have a bill. They always say the Americans are talking about a bigger growth to their economy than before they went into this crisis. And you [inaudible 00:23:10] in our economy and other economies, though it's very different from the global financial crisis in a number of ways. The thing we're going to have to account for is this move to video conferencing, [inaudible 00:23:22]. So it's not an economic activity with a depression of demand, it's more of a technology resetting of that demand, which I think is very different.

But I do think there's going to be the demand. We talked to our professional service clients and our customers, and they're saying the minute they can get back to the States, to Europe, to South Africa, to South America, they'll be on the aircraft. We establish those links, get those customers going, get the product out there, to talk to people. So I think there's going to be like we've seen in the leisure market, a big pent-up demand for some of these business-type trips to happen and internationally as well. And there's nothing like those personal contact. [inaudible 00:24:06] longer at EFC, I think it's very different from the EFC that gives me optimism about the future.

Peter:

Well, [inaudible 00:24:15] anyway obviously, otherwise you wouldn't be there. But let's talk more specifically about the issues involved in getting international now. Okay and I won't ask you to agree with this, but I think the common feeling now is that our government perhaps didn't do the best it could in getting the vaccines in place, and in distribution. And I think compounding it now probably by obfuscating about what is going to happen. That puts you in a difficult position as an airline that needs to be planning forward. You've obviously lost the October date, which was based largely on vaccines, vaccinations, and that's pushed back probably six months or so. I mean, how does that affect how you plan now and what do you see the horizons being?

Alan Joyce:

There's a lot in that question, Peter. That's a five course meal on its own, I have to say. But let me break it down first of all. First of all I think, again, I'm on the [inaudible 00:25:22] I think Australia has handled it [inaudible 00:25:23] when it comes to managing the virus, we're in the position where we're one of the best [inaudible 00:25:30] in the world, we'll get more aircraft, more people back to work, we're seeing more demand. And as you know, life is back to normal, just about in Australia, which I'd rather be here than anywhere else. And I think most of Australia would have the same view. And as a CEO of an airline, I'd rather be CEO of Qantas than any other airline because of that. So, I always think we should be glass half full on these things. And that is a real positive [inaudible 00:25:56] and thankfully that the leaders in the state and the federal level have helped us get there.

Secondly, I'd say, which I think is important, that there's a lot of things that have to be worked through before the international borders open up. And we haven't walked away from October. We're of the view at that there's still a possibility with the right level of assumptions around us. So people are going to have to make a decision and will we allow vaccinated people to travel, will they be able to get back in quarantine free and will they have to have testing and already countries are doing that, as you know, around the world. And there's a lot of countries that are dependent on tourism and that have opened up in that way. And this could happen bubble by bubble, which is what the government is saying.

And I would use New Zealand is a great example of this. Only a couple of months ago, we were talking about July for New Zealand and that's happened there earlier. We're now April and on the 19th of April that this will open up. It's a huge international market followers and that's ahead of our forecast, despite the delay of vaccinations. So this could open up a bubble by bubble, a market by market, depended on what their framework looks like. And the national cabinet are going through that at the moment, are talking about what our framework for opening looks like, when that will be and how that will work. And the BCA and the business community and Qantas and the tourism organizations are all putting their inputs into that process and trying to get an understanding of what that looks like. And the government have also put in a support package for us and to activate aircraft to get ready for that opening.

And that's still targeted for everything to open at the end of October. We're training people, we're activating aircraft with on the basis that we need to be ready for when the borders do up. Now the government have said to us, they can't give us that date with certainly today, because there's a lot of things that it depends on, how effective the vaccination is against stopping transmission, what the rollout looks like, what proportion of the population will have vaccinated, what the success of the other countries are going to look like. Now the numbers now coming out the UK, Israel and the US, with the high levels of vaccinations, are looking really good. So that's another dependency on how this could open up, but we just have to maintain flexibility. If it happens earlier, we can adapt. Or if it happens later and it could happen later or we just adapt and use it but we are getting ready and still planning, and it's our best guess at the end of October for the market to open up.

Peter:

Okay. Well, I want to see that too far, but I mean, and obviously Australia and New Zealand are probably way out there with Blue Sky coming next, in terms of ability to have a bubble like that. But I mean, let's go look at the vaccinations specifically in two respects. One, Allen, in terms of getting herd immunity domestically in Australia, where you need to get to whatever it is, 75-80%, but also, I mean, you've done polling and you found out that the support for your idea of requiring vaccinations before you get on board a Qantas aircraft, is about 80% of the people polled. I mean, how does that fit with an October deadline, if you want Australians to be able to travel? Because we're not going to have that many Australians vaccinated by that time, in the best of circumstances.

Alan Joyce:

Well, there is a few dependencies and we went through it again today on the [inaudible 00:29:42], so AstraZeneca is still applicable for everybody over 50 and they're vulnerable group, at that are more likely to have serious illness or die from that COVID-19 as we know, and the government has got an extra Pfizer vaccinations at which come available by the last quarter to vaccinate people that are under 50, that cover our population. You can easily look at the numbers and if the vaccinations from Pfizer are delivered on time, you can get by the end of the calendar year, easily to the population and herd immunity. And as some of the testing going on, as you know for under 16s, as are the vaccines safe to apply to them, which potentially increases the amount of people that could get a vaccination by the end of the year.

And with the level of the rollout in other countries. I mean, the US, it's going to have all of the adult population vaccinated by, or anybody who wants a vaccination, by April. And so they're going to have huge production capabilities that won't be needed for their own populations as well. So there's a lot different ways this could go. And I don't think anybody has the certainty to know how fast the Pfizer vaccination could be delivered, how fast the population could get there. And that's why this flexibility's there. I don't think it's anywhere near the six months as a worst case that you were outlining and maybe a few months at the other end of it, but again, there's a lot of uncertainty and we just have to keep flexibility and being able to plan on the range of different scenarios around it.

And you're absolutely right. I mean, we've said for some time, we think to open up the international waters, you're going to have to have a vaccination type passport. And the government's even said this, and other governments are saying it. But to travel, you either need to do quarantine or you need to be vaccinated eventually. And we know people we're not going to go with the 14 day quarantine and it just kills travel. So the vaccination requirements looks like it's the only way to restart the international markets again. And as we said, it looks like the Israelis may be doing a deal with Greece and Cyprus, will allow people to travel to those countries if they're vaccinate. Iceland has said, you can enter the country without quarantine if you're vaccinated, it's happening and it's happening in the rest of the world.

And then the second thing, we have a duty of care too. As you know, we're regarded as the safest airline in the world, but we have the duty to the care to our people and to our passengers. And if there's a way of enhancing that in anything we do, we're always going to be at the forefront doing it. So having a requirement, even if it wasn't governments to do it, having a requirement to ask people to be vaccinated before they get on our aircraft, [inaudible 00:32:35] where COVID is quite rampant, you would of course, thought that that's the sensible thing to do. And the number is, it wasn't just 80%. It was actually 89% of our customers said they thought it was a really positive thing [inaudible 00:32:49] to have people vaccinated before we travel internationally. We don't see it as a requirement for domestic or from [inaudible 00:32:57]. But our customers are saying, it gives them confidence in traveling internationally if they knew that-

PART 3 OF 4 ENDS [00:33:04]

Alan Joyce:

It gives them confidence in traveling internationally, if they knew that was the requirement. And very much going to take a number of years to build the demand backup, why wouldn't you do everything you could to generate that confidence? And if this requirement is one of the big ways of getting that confidence back, then why not take it because it lets more people travel faster and gets the demand back faster.

Peter:

I'm totally on that boat with you, Alan, that speed boat. But I mean, it does restrict. And of course, the decision ultimately is not going to be in your hands. It's going to be [crosstalk 00:33:35].

Alan Joyce:

It's got to be with governments, yeah.

Peter:

But it does restrict clearly, the number of Australians who will be able to travel by whenever it's going to be. First quarter next calendar year. Which is the sort of timeframe they're talking about, doesn't it? I mean, you're not going to have 100% of Australians able to fly at that stage.

Alan Joyce:

Well, it depends again on the rollout of the vaccination, because if the requirement is you're vaccinated, then the gap between the first and second jab of the Pfizers is shorter. So, potentially if there's supplied there and the large Alto population is vaccinated, that's a huge proportion of people.

But then it's also, it's not only there are Australians going to travel internationally. It's people coming into the country. Our largest market's the United States market. I don't know. What we be up to 160 million vaccinations that have been given now in the United States. What we in the UK, well, over 20 million.

And they're a couple of our largest markets. So, it is on both sides and there's a large element of people being vaccinated in the major markets that Quantas operates too. Which is a good sign that you could get an amount going back very happily.

And I will say, international we're going to approach the same way we did domestically. We're looking at what do we have to do to generate positive cashflows? And that is less than what you would normally have to do with a safe factor, or a yield to make a profit.

And we're going to be doing that to get the market's up and running again. And if that's there for a few months, so be it. That's a good thing to do to get our people back at work and to get our aircraft back operating and stopping the cash burn that international is actually occurring at that moment.

Peter:

Let's focus if we can, on your ace in the hole, as it were. The Sunrise operation. This does seem to be somewhere that can fit ideally into a new tight situation where you don't have to go through hubs. Where you've got the continuity and safety of knowing what's happening at each end.

You've got a decision to make on what aircraft. Is that going to come quickly? And how effective is Sunrise going to be in terms of this new opening up once you get on your speed boat?

Alan Joyce:

Yes. So, I think what's a good sign is before the trans-Tasman opened up, the number one route that people were searching for on our international operation was Perth to London. We could see that before COVID, it was the most profitable international route on our network.

And we think that post-COVID, the demand for that will be extraordinarily high. And that's a good route that will perform very well. But we are revisiting our [inaudible 00:36:25] dates where, Peter, I think we were two weeks from ordering the aircraft. We had done the competition between the 777X and the A350. And I picked the A350. We had negotiated a deal with Airbus. We had done a deal with our pilots. We were just ready to go to the boards to confirm it all. And then, in March of last year COVID hit.

So we've said, we need to see a little bit more certainty, the international borders opening up. The path out of this, because we have to do it in an environment where there's more certainty to get the market comfortable with making that purchase of the order.

Advantage is, there's not many people ordering aircraft at the moment. The slots for aircraft when we want, will be there. And when we revisit a case, when we look back at the research, I think there'll be strong demand for people, as you said, not flying through hubs, flying direct.

And I think it's a great strategy for the new environment post-COVID and something that we continue to be excited about. But we have to do it in the right environment. And I'm hoping within the next year, as we've said, that we come and revisit there and make a decision on it.

Peter:

So just to clarify on that. The decisions back on the table, is it, to make still?

Alan Joyce:

Yes, absolutely. I mean, we've said that we only parked it and paused it. We didn't say we killed the idea. We said we think this is really strategic for us, in its Qantas's history. I think I say every decade, Qantas has made a big strategic bet and they have paid off over 100 years.

That in the two thousands, it was Jetstar. Look how good that was for us. In the 2010s, it was Loyalty. Look how good that has paid for us. But I think that the 2020s big strategic move for us, is going to be Sunrise. And that's going to put Quantas in a position that, be the first airline out of the United States to get a jet aircraft in the 1950s. Being the carrier that created business class in the 1970s.

We looked at those big moments. We're pretty proud with the fact that we led the world. And we're pretty proud of the fact of the position that put Qantas into. But I think this is another one of them. So I'm still very excited. Have to persuade my boards. We have to go through a process on, we persuade our shareholders, that capital's worthwhile investing in that. But I'm up for that and I'm very positive about it. And I think the case is there to be made.

Peter:

Yeah. I can see a lot of sense in that. That does look good. And what it does for you, of course, I mean that Perth-London operation, for example, was very high yielding. And therefore, in a suppressed international market, I guess you can assume that you're going to be able to charge fairly significant fares on that because people don't have anywhere else to go.

Alan Joyce:

Well, I think when you do something unique, that gives you a customer value proposition that's quite special, you can obviously charge a premium for it. Whether it's Tesla motor cars, whether it's whatever the product is. Once it's in a space that hits a customer demand, a customer requirement.

You're still going to have competition around you. And if people want to stop off in a hub and want to go through LA, want to go through Dubai, want to go through Singapore, that still is a choice there. But if you're providing a product as a unique value proposition. And for that value proposition, you need a premium, which you do because it's more expensive to do it this way. And then you can demand that and you can make a profit out of it. And that's a win-win for everybody.

Peter:

Yeah. Well, that's a nice way to end it, Alan, on a win-win-win. As always, thanks very much for joining us. It's been great talking and we do look forward to seeing you later in the year in the flesh.

Alan Joyce:

I hope so, Pete. You might join me on that speedboat somewhere internationally as well at the end of the year.

Peter:

Yeah. [crosstalk 00:40:41]

Alan Joyce:

Thanks, Peter. It's good talking to you.

Peter:

Thanks for that, Alan. Cheers.

PART 4 OF 4 ENDS [00:40:46]

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