The Qantas Keynote

Transcript

Alan Joyce:Thanks very much, and can I welcome everybody here to Brisbane. I'm glad that CAPA has now hosted this, this conference here in Brisbane. This is a very important hub for Qantas, a big regional, domestic, and international operation based here. year and a market that we're expanding quite extensively. In the last week, we have announced new services into Papua New Guinea and into, into New Zealand, and we continue to see huge growth and opportunities in this market. Can I thank Peter and the team for holding what is another fantastic event? I'm a bit disappointed that Peter hasn't got a red tie this morning. I'm told that you wore an orange tie for Jane yesterday. And the expectation was we were going to be on brand today, Peter. But I'll forgive you that, mate. It's a Jetstar look. You shouldn't have worn any tie yesterday. But I think Peter always puts on— the team always puts on a great conference. And again, this is exceptional. I think everybody massively enjoyed the dinner last night. Wasn't that entertaining? And didn't Richard do a great job? I'm a bit petrified. Now Richard is just interviewing me. He hasn't got 400 victims in the audience. He's got one victim on the stage, which is a bit of a worry. One of the issues we have with the CAPA conference, apart from it being a great conference, it's always just a couple of weeks before our full year results. And that's again the case this year. And of course that limits me. We're in what we call a blackout period, and that limits me on what I can say about the Qantas group, the Jetstar, the Qantas International, Domestic, all parts of our business. It limits me what I can say about their performance. But having said that, I thought this would be a great opportunity for us to talk a little bit about what we regard as the long-term forces and challenges and opportunities that the industry is facing, not just Qantas, but we believe the entire industry. And if you look back at the last 10 years, And I've been CEO for Qantas for 8 of those 10 years and CEO of Jetstar for a bit of that. The industry has gone through some unbelievable challenges, unbelievable changes. My predecessor used to call it the constant shock syndrome. Issues that can occur everywhere around the world that would have a big impact on us. And in that 10 years, we've seen a global financial crisis. We've seen record low oil prices, record high oil prices. We've seen geopolitical issues that have had a big impact on us. We've seen security and safety issues that have had an impact on the industry. And we've seen shocks like volcanoes and weather events that came out of left field that have caused millions, tens of millions, hundreds of millions of dollars in terms of impact to the industry. Now, what's been fantastic about the industry generally is we have been addressing the long-term issues and transforming our businesses. Most airlines around the world have gone through big changes. They formed either consolidation where it was possible around the globe, alliances where consolidation wasn't possible, changed and used new technology to improve their performance, coping with some of those dramatic changes in a very good way that is seen for, for the first time last year, the entire aviation industry recovering its cost of capital. Now, thinking how long ago the Wright brothers did the first flight and the fact that 2015 was the first year that we returned our cost of capital, shows that this industry hasn't been a great financial industry. But we are making even more progress this year and hopefully this is the trend for the business to be on a sustainable footing into the future. And I want to talk a little bit about what we see as the 4 global forces that we think are going to influence the industry in the longer term. And, you know, a lot of time and a lot of effort could be spent on the short term. And sometimes fixing and focusing in on the issues that happen on a daily basis is exciting. It's something that people want to get involved in. But in this industry, you do have to look at the longer term because a lot of the decisions that you make have really long lead times. And I think fleet is a great example of that. When we make a decision on an aircraft, it's a 30-year decision. It'll take us probably 5 years before the manufacturer delivers the aircraft, and we'll be operating the aircraft potentially for 25 years. That means you're going to have to have a view on what the long-term forces and challenges and opportunities out there are in order to make those decisions of fleet and infrastructure and investments. The A380 is a great example for me. That decision was made under James Strong back in 1999. The aircraft didn't arrive until the last month of Geoff Dixon's CEO period. And I took delivery of essentially 12 aircraft during my time as CEO. And probably these aircraft will be operating well into the term of the next CEO, maybe a bit beyond. We're making decisions on the 787s, which will go past the next few CEOs in the organization. And so, in order to make an appropriate view on these, you do need to understand those global forces. And I wanted to talk about what we see as 4 of the important global forces that are going to impact the industry. And the first one for us is really around growth markets. And the opportunities that exist out there within this growth. And the— you've heard me talking about for some time the opportunities in the Asia-Pacific market in particular. And the statistics here always amaze me. In 2009, the aviation market in the Asia-Pacific region became the largest aviation market in the world, the first time that's ever occurred. The view is that by 2025, 20 of the world's richest cities, of the world's richest 50 cities, will be based here in Asia. By 2030, the estimates are that 35% of all consumer spending will come from China and India. And by 2034, the Asia-Pacific aviation market will be bigger than Europe and North America put together. That's massive, massive opportunities in the region. And of course, what we've been doing over the last few years and continues to do is to take opportunities in setting our foundations and our ability to take advantage of that. We've restructured our network to Asia so that it wasn't a stopping point on the way to Europe. but took the markets seriously in their own right and dedicated aircraft frequency and schedules in order to improve our appeal to the business market for Qantas. We've invested in new seats and in new products so that our premium product allows us to attract the premium traffic in this market. And premium brands and premium products will be extremely important in this region. We think it's one of the biggest regions where premium brands and products really have a value and can demand a premium. We've also been taking advantage of our opportunity to form alliances. And they don't come overnight. We've been working with China Eastern for over 15 years. And now have this year a joint venture with them. The first joint venture that they've done outside of SkyTeam. We have a close relationship with China Southern. And we've seen a resurgence in the Japanese market thanks to our presence there with Jetstar, but also with the very valuable partnership we have with JAL. And that has allowed us to increase dramatically our capacity in Japan, including a new Brisbane-Narita service which has been performing unbelievably well. We're also positioning Jetstar very well for the group in the region. And Jane mentioned how well and how important our Asian ventures are with Jetstar Japan, Jetstar Vietnam, Jetstar in Singapore. They're not only important to the Jetstar Group, they act as feed and they act as a presence for the entire Qantas Group. Particularly in Singapore, our operation there allows us to have a bigger network in Southeast Asia than we've ever had before. offering our, our Qantas customers that network and those connectivities. And of course, while the rise of Asia is very important for us, it doesn't mean that the other markets are irrelevant. The North American market— we are bigger in North America than we've ever been. And as new technology comes available for us, that market has continued growth opportunities. Similarly, in Europe, our partnership with Emirates has quadrupled the amount of traffic that's flying on the Qantas code into Europe. And that market still has good growth opportunities, again, particularly with new aircraft technology that gives us the reach that we've never had before. However, I think we are seeing bigger growth and bigger potential in what is going to happen in the Asian market in the future. And there's so many ways that we can participate into that growth. The second global force that we're excited about is the digital and the data revolution that we're experiencing. We've seen radio took 40 years to have 50 million listeners. Facebook took 1 year to get 16 million members, and now it's got 100 times that. The rollout and the pervasiveness of digital technology is something that we have never seen before and it gives you opportunities and challenges. Ernst Young estimate that around 80% of the data available to companies around the globe is not being utilised. That's a huge amount of information that is available. Now, we've always believed that airlines have been at the forefront of using information that's been available to them. We've had a frequent flyer scheme for the last 27 years. We've been collecting information on our customers and determining how we design our products and services around that. But with cloud computing, with the technology that we now have available, the application of big data and the use of that data is something that we've never seen before. And part of our transformation over the last few years has been driven by the use of big data. We've centralized data. We've hired additional resources. We have Rob Marcelino, who's here today, who's the head of our strategy department, that's run a couple of amazing projects on the use of segmenting our customer base. and having unbelievable knowledge about our customers' requirements. And then using that to decide where we invest in product, in lounges, in technology. What's important? How do we leverage it? And how do we improve customer satisfaction through it? One of the reasons we've gotten to record customer satisfaction. But it's also allowed us to do something a lot of airlines have struggled with. Using the 2 brands in a way that is completely unique. It's data-based, data-focused. When I was running Jetstar 9 years ago, there were huge debates internally about how we operate the different brands. Today, it's data-driven. There's no debates around it. And we go out and make dramatic changes to our network on a continuous basis to optimize that. It is very unique and something that we're at the leading edge of. But there's also other opportunities around there. Our loyalty business has been launching new businesses like Qantas Assure. We're probably the first airline, maybe the only airline, that has a health insurance program out there. We've had a big involvement in financial services. And we're using the data about our customers to design products that we believe will penetrate into those markets and produce profits from day one. It allows us to have a diversified base that other airlines around the globe can't and allows us to have a stability of earnings that other airlines around the globe can't. And that has been phenomenally successful for us. And there is use of big data coming through our systems still. We are at the forefront of using the information on disruption management. We've been focusing in on new revenue management systems which have better use of information that have been available to us. And we have a really exciting project that's been taking place with the University of Sydney to use real-time weather information to optimize our flight plans in real time to improve our efficiency of fuel usage and efficiency of aircraft uses. And it's a A phenomenal program, world-leading edge, that is fantastic in this space. So this second global force is a huge, huge opportunity for people that can get their systems, people, and data usage right to create business growth opportunities and transform and finesse their existing operations. The third global force for us is around new generations of customers and employees. Generation Y and Generation Z are becoming more and more important in every year. Today it's estimated that those segments account for over $200 billion in expenditure. It is estimated by 2020 that they'll represent 50% of the workforce. They think very differently from the baby boomers and Generation X, probably everybody in this world— this room maybe. Their values are different. The way they use entertainment and social media is very different. The way they interact with companies, the way they view companies is extremely different. So it's important for brands like Qantas, brands like Jetstar, that they appeal and that they attract Both these segments of the market from a customer point of view, but also from an employee point of view. And for us, that's important about getting social media right. 10 years ago, we had no social media presence. Today, we have a massive one. That for us is having an engagement directly with the consumer, understanding their needs on an individual basis and communicating them with them essentially on an individual basis. And it involves us being a company that, that said, those segments want to work for, which is having a social responsibility, which Qantas has always had, but making sure that people are aware of it, know about it, and is having an involvement in social issues around the country, because there's a demand from that segment that companies and corporate Australia act in that way. And the last global force to talk about is really climate change and resource issues. The aviation industry is probably at the forefront compared to any other industries of its developments in this area. We are an industry that agreed a few years ago at IATA to have a sectorial-based approach to climate change. We are an industry that has worked with ICAO, and this year, hopefully at the ICAO meeting, for the first time we'll have a framework of a market-based mechanism for carbon emissions. We have new standards that have come in for the design of aircraft that make them even more fuel-efficient and less CO2 production. And we have given, I think, a commitment to very strong targets over the next few years in order for us to reduce our impact on the environment. We know that there are around 50 years of known carb— of known fuel reserves left. We know that by 2035, some estimates say that of all energy production, 35% to 50% will be renewable. So the industry has a lot to do to meet its targets and to meet its obligations. And there are a lot of policy issues that we still have to work through. How do we get new aircraft technology that's even better than the 787s? How do we get fuel efficiency in our operation through better use of air navigation systems? systems and better use of the resources that we have around the country? How do we actually put in place carbon offset programs and carbon programs around the globe that allow us to offset the emissions we have? And I should say, Qantas is the leading airline in the world at this. We have the biggest carbon offset program of any airline. We're investing millions of dollars in programs in PNG and Australia to offset our carbon emissions. And we're using our expertise to make that service available to other corporates in Australia because, again, the aviation industry is well ahead of where a lot of other corporates are in that space. We also need to, in particular, figure a way of having a commercial production of sustainable aviation fuels. We know that they work. But we need to have that commercially produced at scale so that it doesn't affect— have other side effects like affecting the food supply. So lots of issues and questions, potentially lots of plans from different airlines on how to achieve that, but a lot more work needs to be done in that space. So when you look at those global forces, when you look at the opportunities, that they present, I think you have to take a long-term view. Qantas has been around for 95 years, the longest continuous operating airline in the world, because we've always adapted, we've always changed, and we've always been in a position that we look to the longer-term trends, take the appropriate commercial decisions, take the appropriate calculated risks, and adapt our businesses to take advantage of the opportunities. People shouldn't be worried and people shouldn't sit still and let disruption or changes happen to them. We believe that we need to be at the forefront of taking that challenge head-on and leading the way and using those challenges as an opportunity for our business to thrive in the future. And thanks to the transformation program that we've done over the last couple of years, thanks to the hard work of 28,000 of our employees, we believe that we now have the right foundations because Qantas is in the best position it's been in its entire history to invest in its people, to invest in its product, to invest in its technology, to generate even better service than the record service we're achieving today to our customers. and to deliver even better returns to our shareholders than we've been doing over the last year. We believe this is a great time for us, an opportunistic time for us, and we are very excited about the future and looking forward to those opportunities and taking advantage of them. Thank you very much for your time. Qantas Airways.

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