The Qantas Keynote And Q&A

Transcript

Andrew Parker:Good morning everyone, and I think the format will be, I hope it's this way, that I'll give some brief remarks and then Peter will grill me on topics near and dear. But thank you for that welcome, and Stephen and I go way back, the Emirates days.

Peter Harbison:Yes.

Andrew Parker:And congratulations not only on staging this event again, but such a successful dinner last night. And by reaching day 2 of the summit, I think it's fair to say that we are well on the way of exceeding the average recent tenure of a White House press secretary. So there's an achievement already. The CAPA conference does fall just prior to the full-year results for the Qantas Group, so it limits some of what we can talk about ahead of those, of those results. So if you'll at least forgive me on that basis, I don't want to steal the thunder of our CFO. Instead, what I would like to do in the prepared remarks is talk about Qantas, the Qantas Group, tourism, aviation, and in particular a focus on, on Asia, and do that through the lens primarily of Qantas International. Some of you would have heard from my colleague Jane Herdlicker from Jetstar yesterday and Jetstar's focus and growth in Asia, and I know many people in this room similarly have a business that is pointed and focused on the enormous opportunity there. And, and today is really about sharing some insights from Qantas and our perspective on how we can further flourish this great opportunity, but also what are some of the challenges, and particularly the policy challenges, given, given my world. And I thought we should begin by thinking about mindset, and Christopher Luxon yesterday I thought, and I'm prepared to pay a competitor a compliment, he captured very well the Kiwi mindset in a tourism context. So in that respect, what is the psyche of Australia in 2017 in relation to how we now regard tourism? And I think if we think back to the Sydney 2000 Olympics, one of the best ever, as was proclaimed. I think it's fair to say Australian tourism did have a form of crisis of confidence post those Games, because it did not translate into a sustained tourism boom. We had other booms, namely mining, we had a high dollar, and we had tough competition particularly from other markets and countries that pursued tourism far more aggressively. So it's our contention that Australia never realised that moment, and I think that's borne out in the data, that outbound tourism grew much faster than inbound tourism post the Sydney 2000 Games. And Stephen Borthwick, for those who heard that, uh, panel yesterday, reminded us that bilateral liberalisation occurred at pace during the 2000s. So it was not an issue about airline capacity because, in fact, what we saw was the additional capacity from new entrants, from what Qantas and Australian Airlines were doing, but particularly the international arrivals.

Peter Harbison:Mm-hm.

Andrew Parker:of new capacity was being soaked up with Australians outbound. So the additional seats was really just stimulating an outbound market. So this was an enormous challenge for us, and I think it was the missed opportunity. In 2007, Australians travelling overseas far exceeded those coming inbound. We also, we also had issues of ground product, of high costs, and those other examples like the dollar that I mentioned earlier. But the good news is we have well and truly moved on from those challenges of the earlier 2000s and mid-2000s. And if we look at March this year, 8 million overseas travellers visited Australia, up 9% on the prior year. with a record 92 million trips taken by Australians travelling domestically. And recognising the importance of the domestic network is absolutely critical to the Qantas view on tourism. It's both Australian travellers, but if I call out the example of Chinese visitation, on Chinese visitors arriving on our network, We see an average of 2 to 3 domestic trips per visit, per visitor. So a very significant ecosystem for us and our visitor economy. So together, internationally inbound and domestically in tourism terms, those travellers spent $121 billion last year, which was another record. And we believe, thanks to the hard work of Tourism Australia, the state tourism bodies, tourism advocates, and many people in this room, that we have rediscovered our tourism brand. And last week, some of you might have been to the Lowy Institute where Boris Johnson, the UK Foreign Secretary, spoke. And he said one particular remark that I thought captured up the Australian brand essence in a tourism context extremely well. He said, we're a fierce— we have a fierce sense of identity and independence. We're a truly global country engaged with the world in a way that is positive and fearless and upbeat. So it was a nice flattering reference from Bojo, but it was also, I think, very relevant as a descriptor on why so many visitors are seeking out Australia in 2017 that perhaps we missed out on in the early 2000s. We have certainly now got a far better defined range of qualities that we promote that give Australia a competitive advantage. We are capitalising on our strategic location, which gives us exposure to now the world's largest and fastest growing tourism market of Asia. And I think all of us— industry, government— are seeing this shift from the short term to momentum for the long term. And importantly, I think this shift is now recognised that tourism is a core element and pillar of the national economy, not some subset that governments disregarded prior. We employ, we invest, and we drive regional and metropolitan Australia in ways that have not been done before. And this is creeping into government decision-making. It's not always perfect, but we believe it's significantly better. This could be the rollout of online and in-language visa applications and processes for more nationalities, and also the welcome decision to build Sydney's second airport. We're also seeing growth in business confidence and the fact that now 1 in 13 jobs in Australia is directly employed in the tourism space. In 2015, 3.8 billion people boarded a flight somewhere in the world, more than 50 million of those on Qantas Group aircraft. By 2035, that's expected to double to 7.2 billion, or an annual growth rate of 4%. And they're extraordinary numbers, and they're even more extraordinary for the region because the majority of the growth will happen in Asia-Pacific. From 1.3 billion travellers today, there'll be 2.9 billion people flying in Asia-Pacific by 2034. That means this region will be almost half the global market and bigger than North America and Europe combined. Over the past 10 years, recognising this, Qantas has rebalanced its network towards Asia. Asia now makes up more than 50% of the Qantas Group's total international network. on routes to and from Australia compared to about 30% in 20— 2007. And we have more to come. Over the past 2 years alone, Qantas International has added capacity and new routes to China, Hong Kong, Japan, Indonesia, Singapore, and the Philippines. In the first half of financial year '16, Qantas International grew by 13% on Asian routes, meaning Asia made up 90% of our total growth in that half. And just last week, we announced our new Sydney-Osaka service beginning in December, which I think is a further sign of the value we see in the region. Jane yesterday touched on Asia and Jetstar. But it is worth repeating that the Jetstar brand now represented not only in terms of the outbound network from Australia and inbound, but also the Jetstar-branded businesses in Vietnam, Japan, and Singapore are one of Australia's great tourism exports. So our business has changed, the visitor economy has changed, so it's a good opportunity to consider therefore our mindset on what this means for the future and the role that government, particularly the states, that airlines, our airports and the whole tourism ecosystem needs to play. Qantas believes our tourism success is absolutely grounded in the story we tell about our destination and what it represents. Australia is open, it is multicultural, stunning landscapes and vibrant cities, and we are diverse, a key point. Our research shows that unique selling points for Australia, like our ancient Indigenous culture, cannot be overstated in their importance. And we have the Australian reputation for warm, generous, and sincere hospitality. And these are themes that we are not only using in Asia, but more broadly, particularly in the context of our launch of the new 787 service between Perth and London in March next year. As many of you know, and it is, um, my favourite statistic, this flight will link Australia and Europe for the first time, and these are the last 2 continents to be served by non-stop air service, excluding Antarctica. And we do believe it is an enormous opportunity, not only for Perth, not only for Western Australia's regions, but for Australia more broadly. Brand Australia is now a very powerful asset and solid foundation for us to grow visitor numbers and expenditure. The points I mentioned about our diversity of assets and positioning ourselves as a clean, green, premium destination with some of the world's most diverse experiences on offer are so compelling. It's a package and it's a destination that is beginning to cut through in ways we haven't seen before, and China is the strongest example. We might only have 1% of the total outbound Chinese market, but we at Qantas are confident that that will grow. Now, a strong tourism marketing voice and message is not only effective in how we promote and facilitate growth, It gives us a voice in the wider debate about tourism in a policy sense, and to ensure that we make this growth sustainable in an enduring way in Asia and beyond in the decade ahead. As an industry, we should speak up against decisions that impact tourism's potential, whether it's poorly designed taxation, expensive visas, or unreasonable costs that threatened our sustainability. And whilst I complimented earlier some elements of government decision-making, we have a lot to do. And indeed, for those who sat in on the panel yesterday that featured Graeme Samuel, the new Chair of Airlines for Australia and New Zealand, he also called out the cost pressures that we as an industry face, including from airports, that we must be vigilant and conscious of. The final point I would like to make is about ground product and tourism assets, and here I'd like to call out Tasmania as a case study that we at Qantas see as a standout. I think it's fair to say a decade or so ago Tasmania was not experiencing significant tourism growth in their visitor economy. Many of their assets were tired and their marketing was somewhat patchy. But a collaboration between government, between the private sector, including the remarkable David Walsh, saw a metamorphosis of their tourism sector. Our group grew Jetstar as well as the Qantas business into that state in line with our dual brand strategy and confidence in sustainable demand for Tasmania and its product. And the results have been quite remarkable, with record growth and record visitor satisfaction. It's a state that gets it. Some suggest that if you can just magically turn on the airline capacity tap, that visitor numbers will surge. It isn't true. Product quality and diversity, like what I mentioned, collaboration, targeted marketing, input costs such as airports and others, and airline capacity all make for a successful tourism strategy. So in conclusion, for the past few years Qantas International has been adding capacity to meet demand and maximising our partnerships like we have with China Eastern and Emirates, to name just 2, as well as the cooperation we have with federal and state marketing bodies. This global network enables us to tell Australia's story, to promote and sell our country as the national carrier in the widest possible range of markets. We do this through our aircraft, through communication channels including an increasing digital focus, the partnerships I mentioned, and our brilliant people. Tourism is evolving into a sector the likes of which Australia has not seen before. it will be a key driver of growth. We in this room should be proud of what we've achieved as an industry, particularly in recent years. But if we are to see a sustainable future for our sector, sustainable growth like we've experienced, we obviously can't be complacent. We need to work together to ensure government pursues genuine policy reform that benefits us. particularly in the areas of taxes, charges and visas, and appreciate economic growth will only come if we maintain a competitive cost and product advantage. Qantas believes our visitor economy on Asia's doorstep is presented with its largest opportunity, certainly the largest in our 97-year history. So we thank all of you here today and everyone in the tourism sector who work with us day in, day out to help make this a reality. Thanks very much for your time and look forward to Peter's grilling.

Peter Harbison:Thanks very much, Andrew. Just a quiet little fry, I think, rather than a grilling. Let me pick up on that last bit. You know, I mean, tourism, obviously the industry is doing some great things, Tourism Australia is doing some great things, and at the state levels also. And as an airline industry, you particularly are doing a lot. New Zealand's ex-Prime Minister was also the Tourism Minister for New Zealand. We don't have a Tourism Minister, we don't really have a lot of generic or holistic tourism focus in Canberra at a political level. The issue of visas, somebody yesterday mentioned that It costs more to get a visa than it does to fly to Australia. We've got this stupid passenger movements charge that probably costs 9,000 jobs and $1 billion in GDP. Does Canberra get it? Do we need to do more at a political level?

Andrew Parker:Yeah, it's a great point, Peter, and the, the point I was trying to make is that we can definitely see improvement. I think it's, it's, it's not, as, as perfect as we would like it to be. I think Stephen Chobo has done a very good job in driving tourism to the front of an agenda in Cabinet. You're right, there is no standalone tourism minister, and I think in the states where that often resides with a premier or is a very senior portfolio, you absolutely as an airline notice the difference. in terms of funding, in terms of speed of decision-making, and New Zealand is the standout of, of what they achieved under John Key. But look, we are optimistic that the tourism story that we just presented, I think, is so compelling now that 5 years ago even Treasury, I think, did not take tourism as a serious pillar of the economy. We were a subset, whereas now the debate has absolutely moved on because it's irrefutable on the scale of employment and investment. The governments can no longer ignore it. So we can't be complacent. There's a lot more to do, and passenger movement charge is the biggest example. All sorts of other taxes and charges. I do call out the Tasman as well, because if you look at airfares on the Tasman at the moment, they're probably the most competitive they've ever been. Yet New Zealand has introduced recent departure taxation increases. We have our PMC. It is still a far clunkier border than it needs to be given the relationship between our 2 countries. So When Alan Joyce was in Wellington recently, and I know Kerry Mather and the TTF and others have similarly called for a far greater simplicity of movement between those 2 countries so we can try and take cost out, have a sustainable business model between the Tasman.

Peter Harbison:And stimulate a lot of traffic, stimulate a lot of jobs in both countries. I mean, it's really a no-brainer, isn't it?

Andrew Parker:Absolutely. And the technology is there. We've got rid of some of the manual processing you see now outbound of Australia, but New Zealand really should be the test case for what we can do more to make that a domestic-like experience. And it's something Qantas, and I know a lot of others in industry, are going to push very hard on in the next 12 months.

Peter Harbison:Good, good to hear. On a more positive note, let's talk about Perth. Qantas's potential new Western hub to look after a whole new range of things. Obviously that's a very interesting long-haul service starting next February?

Andrew Parker:March.

Peter Harbison:March, sorry, I'm thinking of Qatar Airways, I'll come to that next. Starting next March, London first. Alan talking to us before was sort of talking about, well, if that works, we'll Probably do Paris, maybe do Germany, maybe Frankfurt. Do you see that as a really, as a long-term big switch in terms of direction for Qantas long-haul going in the western direction?

Andrew Parker:Look, we are optimistic on the potential of this new western hub, and I think people were slightly surprised perhaps when we first came out and said, how is a single service a hub? But if you think of what the opportunity is, it's really the first time strategically Australia has had a competitive advantage in difference compared to the existing and more traditional hubs. And that is whether you're coming out of Canberra or Adelaide, Sydney, Brisbane, Melbourne, Auckland, to go through an Australian transit experience where we'll develop a product that we think will be premium, user-friendly, and expedite the journey onto a non-stop service to London using new aircraft technology. And as we've said, if it works, we absolutely see growth potential. We will have our Singapore operation out of the new facility as well, as well as the Auckland flying. So it's early days and we want to bed in and see the success of London, but as Alan has said and Gareth has said, there is absolutely the opportunity to grow that market if we think demand is as strong as we predict. And certainly on, again as Gareth has said, the initial sales are very encouraging.

Peter Harbison:You're making a big focus on the premium market on that service. Obviously with a long-haul service like that, you're not going to be throwing away Do you see that from a corporate point of view, from a business traveller point of view, do you see that as a really attractive option for more than Perth O&D?

Andrew Parker:Absolutely. Look, whilst my remarks, and I think a lot of the focus, is on Asia, London and Europe remains a key market for corporate Australia. You only have to look at the profile of a Rio Tinto or a BHP Billiton the fact of capital markets in the UK, accessibility into Europe, that for corporate travellers the UK is critical. And obviously being Qantas and the loyalty program, our corporate market is, is a very significant part of our portfolio. So it is a premium-focused service in terms of the configuration of the aircraft, and how we'll market. But I would also stress, we are going to market and position this aircraft inbound as a game changer in terms of visitation. Particularly, we know that people will spend time, um, in significant additional numbers on their port of entry. So the message we're saying to West Australia is this is a unique opportunity for visitors coming out of the UK and Europe to begin their journey in Australia in WA. So you're breaking down the tyranny of distance, but with our network, I think a dramatically improved domestic product offering that Western Australia now has in terms of hotels in Perth, of Margaret River, of the Pilbara, that we're very confident on, on both Length of stay, the yield that Australia and Western Australia will, will get out of these visitors, and obviously good for Qantas and our network.

Peter Harbison:But I mean, corporate works both ways, of course. If you've got decent business hubs in Perth and this service goes through to Melbourne as well, so you've got a one-stop service through to Melbourne at a premium. Increasingly corporates want a bit of— I hate the word— but leisure. A bit of mixing travel for business with a bit of leisure, and obviously Perth is a nice option for that. Is that Melbourne plus Perth combination going to be a useful one from that point of view?

Andrew Parker:Yeah, absolutely.

Peter Harbison:Will a corporate traveller want a one-stop to Melbourne? I know how much they love coming through Sydney when they go anywhere.

Andrew Parker:I think if you consider this service, it really is the perfect arc that connects Los Angeles at one end to London at the other. London at the other. And we shouldn't forget, for inbound visitation from the US, you'll have one-stop seamless service through to Western Australia. But similarly to your point, for someone beginning their journey out of Melbourne, you'll come into the existing domestic terminal, you'll, you'll go into a new lounge, and you'll have a fast journey onwards to London. But similarly, for those from Sydney in this room, which I suspect is the majority, it's another great option to be able to jump on a service out of the domestic terminal here of Qantas into our domestic/new international operation in Perth. And with us, with our A330 widebodies, is the majority of that service. You'll have a very consistent product all the way through to London.

Peter Harbison:So is this starting to chip away at the Emirates partnership westwards?

Andrew Parker:No, we don't—

Peter Harbison:Is there an alternative potential for the future?

Andrew Parker:Yeah, we don't believe so. And look, some people have said, well, why aren't you partnering with Emirates on the new Perth-London service? Bilaterally, that's not possible. The UAE is not a party to Australia-UK air services agreements, but Absolutely. The Emirates partnership has been so significant for us, but also for, as an ex-Emirates employee, for Emirates as well, in terms of our domestic network, the Qantas passengers we put onto the Emirates Middle East, European, and North Africa route network. Our 5-year approval from the ACCC will be up in the coming months, so we'll— well, we have recommenced that process for reapplication. It has had enormous growth, and I think what the Perth service demonstrates is that we will play to our strengths, and this is clearly going to be one big one. But we also know Australians have a variety of needs to reach many European points that we, Qantas, won't serve or aren't able to serve. So I think the, the virtue and the harmony of the relationship is only going to get stronger. Australia's growth through the Dubai hub has been so strong, we see this very much as just a successful adjunct to what will continue in Dubai.

Peter Harbison:So just staying— thanks. Just staying on, on the Middle East, obviously there's a, a lot going on there at the moment, apart from the obvious Syria and Iraq and, and so forth, but Donald Trump going in and stirring up the Gulf states, the GCC states against Qatar, which I think his, his Foreign Secretary is, is, is trying to unravel a bit at the moment, but obviously Qatar's a bit excluded.

Andrew Parker:Yeah.

Peter Harbison:The, the, the general nature of the way things are going there, the unilateralism of the US in terms of security, and this is very topical at the moment. Is it— how are you coming to grips with that sort of US unilateralism, the laptop thing which was suddenly sprung, which was illogical from a safety point of view anyway, if not security? Are you starting to see some rationalization coming out of that? I know from Europe, the de facto Minister Transport for the EU, uh, um, Hollolay has, has been very vocal about the way the US has not coordinated with, with other authorities. Uh, how are we dealing with that from Australia and from a Qantas point of view?

Andrew Parker:Yeah, and perhaps there's 2 parts to this, of the, the first part in terms of protectionism and, and the debate on, um, golf carriers, etc. We shouldn't forget the US is still the leader in terms of open and liberal agreements, over 100 open skies agreements. It has been a ferocious debate. Alan likes to call us Switzerland in this debate. We watch it with great interest. I think the greater nervousness we have is that we talked about Australia's liberalisation, we talked about the Asian opportunity, and ASEAN and a potential open skies Pan-Asia is an enormous opportunity for Qantas and Jetstar. So we do not want to see any backtracking away from the liberalisation and open market success that the world is beginning to see in aviation. It's hugely frustrating. Stephen Borthwick talked about the difficulty of negotiations with markets like Hong Kong yesterday. So To see any reversal of that or walking backwards does worry us. We'll watch with interest what the US does. The level playing field debate in aviation is also a relevant one, which is, you know, we do have to ensure that the system respects that we need to compete like any other industry on as level a playing field as possible.

Peter Harbison:Except that nobody agrees what a level playing field is.

Andrew Parker:Well, that's true.

Peter Harbison:Unless it benefits me.

Andrew Parker:That is, that is very true. So I think the second part of your question on security, we certainly haven't seen any change in demand profile. We're working with the Australian government very closely on the new US arrangements. There was a meeting, for example, of major governments in Estonia last week, which Australia attended. We're working on a daily basis with our government on a whole range of security matters, but obviously the potential new US arrangements. We have a close relationship with the US that we hope and believe they will respect in terms of how will we cooperate on security. So change is coming, but travellers and our industry and airlines are so increasingly adaptable. We're We're confident we'll, we'll manage that like, like we do volcanoes and everything else.

Peter Harbison:Are you getting any signals from the Trump administration as to what their policy is going to be? I mean, you've got this, this vocal mob from, from Delta and the pilots unions and so forth fighting against the Gulf carriers, but is the Trump administration likely to respond to that or not?

Andrew Parker:We don't know. And look, you know, I won't commentate on the debate other than to say that Uh, it is clear the US carriers are particularly aggravated over certain elements of it, 5th freedom, for example, operations.

Peter Harbison:Um, which are minuscule, of course.

Andrew Parker:Yeah, absolutely. I think, uh, symbolic, but, um, have set the hares running. Uh, I think the great challenge is there are those in the US who, who believe absolutely in open markets and, and the benefits that have been extracted out of this But there are those that also believe, like in other sectors, that there needs to be a serious examination of this playing field. That's probably as much as—

Peter Harbison:Is that a Qantas position? Do you think there needs to be an examination of it?

Andrew Parker:Well, no. Well, look, what we have said in Australia that— and we've said this consistently— we are believers in liberalisation. And you only have to look at the China-Australia deal negotiated last year. that Qantas of 15, 20 years ago, it is unthinkable to imagine that we would have supported the China Open Skies deal the way that we did. We lobbied for it, we met China on it, we support it because we see that opportunity. The only issue in aviation liberalisation that concerns us is when you get uncommercial behaviour and that you have to compete against such irrational behaviour that it is genuinely demonstrated that this is not commercial activity, that under WTO rules, which aviation is not part of, but in any other sector—

Peter Harbison:Hey, we're talking about the airline business here, aren't we? Is there anything rational about behaviour in competition?

Andrew Parker:Well, yes and no. I mean, but, you know, look, I use the word systemic sustainable in the remarks, and I think that's what all industry wants, in that it is only a slither of years that airlines have had a return on invested capital. And the great hope is, whereas Warren Buffett once said he wished someone had shot down the Kitty Hawk so that aviation had never begun, given how much money he lost in investing in aviation, to today Warren Buffett is investing in US carriers for the first time in decades because he believes earnings and profitability are sustainable. So that's, I think, something the US has demonstrated extremely well, that rational behaviour has meant they're investing in new product, they're employing more people, they're growing markets. And you've seen that with Qantas, with our transformation And that was not easy, but that is an effort to set us up for the long term to avoid these cycles. So that's the only thing that concerns us, is to ensure that there is rational commercial behaviour. And if there's not, and there's extreme cases of that, well then that's something government should have a concern about.

Peter Harbison:Last question. We're running out of time now, but on the US, back in the US. You were— the Department of Justice, Department of Transportation knocked Qantas and American back on their expanded joint venture across the Pacific. You're back in there arguing to, to get that reinstated. It's a very important relationship for Qantas in terms of accessing a massive market which is growing very rapidly. What are your prospects of getting that antitrust-flavoured approval through?

Andrew Parker:Yeah, if you want any cafe restaurant recommendations around DOJ or DOT, I can tell you the amount of time spending there at the moment. We're very confident. I think we were wrong place, wrong time of changing administration. We just think the consumer case for this application is very strong. Our growth into markets like Dallas, the additional services that we are adding, growing into Los Angeles out of Melbourne, for example. The fact that American Airlines have come on to Auckland, we went to San Francisco, they've come into Los Angeles, from Los Angeles into Sydney with their own metal, it would not have happened without a deep partnership. And the fact that there has been some changes to the relationship since we were rejected, I think, is, is a real reminder of what happens when decisions like these are taken. In other words, there are consequences. So I think both the counterfactual But more importantly, the consumer story of us together, particularly given you've got all the major US carriers on the route. You've got Virgin, you've got Hawaiian, you've got, as you heard from Christopher Luxon, their focus of trying to suck Australians via the Auckland hub. This is a highly competitive market across the Pacific in 2017. So I think we'll prevail.

Peter Harbison:Is there a timeframe on it?

Andrew Parker:Look, we have said that we will file, refile an application this year. I think that's the coming months. And then it's just a matter of dealing with the DOT and DOJ processes in the US. And it's not a traditional government perhaps in terms of, of this administration and decision-making, purely for the fact that a lot of Department of Transport hasn't been populated with political staff, for example. So, um, we have to be patient, but we'll get there.

Peter Harbison:Well, good luck. Thank you, Andrew Parker, and we'll look forward in a couple of weeks to hearing what Qantas has to report on for the past year. Thanks a lot.

Andrew Parker:Thanks, Peter. Cheers.

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