Alan Joyce’s Early Exit From Qantas Dumps Mess on Incoming CEO Hudson

(Bloomberg) — Alan Joyce’s early departure from Qantas Airways Ltd. removes the primary lightning rod for public anger over fake-ticket allegations, sky-high fares and flight cancellations and delays as the airline struggled to cope with a post-pandemic travel boom.

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Now incoming boss Vanessa Hudson has to clean up the mess.

Joyce, 57, abruptly stepped down Tuesday, less than a week after the competition watchdog sued Qantas for allegedly selling bogus seats on thousands of flights last year that had already been canceled. His shock exit came just two months before he was due to formally sign off after 15 years at the helm, cutting short his farewell tour.

Hudson, who has worked at Qantas for almost three decades, inherits an even tougher job than envisaged when she was announced as Joyce’s successor four months ago. She was already tasked with overseeing a multibillion dollar fleet renewal that has unnerved analysts, and repairing the company’s battered reputation with customers, regulators and lawmakers. She must now fend off calls for structural reform to weaken the 103-year-old airline’s grip on the market.

The stage is also set for months of potentially damaging evidence in Australia’s Federal Court as the regulator pursues its bogus ticket case.

With the watchdog, customers and emboldened lawmakers pushing for more competition, Qantas’s commercial dominance in Australia is under attack. Latest data from the regulator, the Australian Competition & Consumer Commission, show Qantas and its low-cost unit Jetstar control about 61% of the domestic market. Virgin Australia, owned by buyout firm Bain Capital, has about a third.

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Qantas’s record-breaking profit for the year ended June 2023 fueled arguments that customers and rivals are losing out.

“It’s one thing for Qantas to have the advantage of the incumbent — it’s another thing to use that power to stifle competition,” said Kyle Kimball, a Sunshine Coast-based commercial litigator at law firm Sajen Legal who has acted for airlines including new Australian entrant Bonza. “It’s a disincentive to new businesses.”

The regulator laid out the mechanics of reining in Qantas in its March submission to a government review of the aviation industry, and a June report on airline competition.

Among the most effective ways would be to make it easier for rival airlines to obtain landing and takeoff slots at Sydney airport, Australia’s biggest aviation hub, the ACCC said. Existing rules that allow carriers to keep slots forever limit opportunities for new or expanding airlines such as Rex and Bonza. Incumbents are also able to exploit the system by acquiring and hoarding slots to stop competitors butting in, according to the regulator. Qantas denies such behavior.

Lifting restrictions that stop foreign airlines from picking up domestic passengers on an Australian leg of an international flight would help too, the ACCC said. It also saw a “clear need” for an independent ombudsman to resolve disputes between airlines and consumers. And it’s worth considering forcing airlines to pay passengers compensation for flight delays or cancellations, the ACCC said.

Regulatory clampdowns can be expensive for companies that are targeted, even if little market share is lost.

For instance, Australian casino operators Crown Resorts Ltd. and Star Entertainment Group Ltd. are still reeling from the cost of tighter operational-control measures following damning money-laundering inquiries in the past two years. Australia’s financial sector was forced to soak up billions of dollars of remediation and higher compliance costs after a 2018 probe uncovered a litany of wrongdoing, including charging dead people for services.

The extraordinary money-for-fake-seats accusations against Qantas marked a tipping point after a series of blows to the airline’s reputation. Joyce — a man who’d spent a career dismissing calls to quit from disgruntled passengers, unions or left-leaning lawmakers — was gone within days. “The company needs to move ahead with its renewal as a priority,” Joyce said early Tuesday.

Qantas shares fell 2.9% Monday, the most in nearly three months.

He exits with a mixed legacy. Among the high points, the Irishman set up budget unit Jetstar before leading Qantas through the financial crisis. He executed at least two turnaround programs, and dragged the airline back to financial health when it was just 11 weeks from collapse during the pandemic. Still, the past week will leave a stain on his tenure.

Qantas Chairman Richard Goyder told the Australian Financial Review that he’d spoken to Joyce over the weekend before the CEO addressed the board late Monday.

“He felt, and I agreed, that a circuit breaker might not be a bad thing and give us clear air,” Goyder told the newspaper. “It’s a time for humility, and I think you’ll see plenty of that as well.”

To many passengers, humility was in short supply at the top of Qantas for much of 2022, when the airline struggled to cope with a sudden rebound in demand as Covid-19 restrictions eased. At one stage, Joyce told frustrated passengers they weren’t “match fit” for travel as he sought to explain lengthy check-in delays.

With the airline short of staff and planes, cancellation rates soared in 2022. Traveler rage reached its peak in July last year, when Joyce’s Sydney home was pelted with eggs and toilet paper.

Then this year, it emerged that Australia’s government had blocked a request by Qatar Airways to operate more flights into Australia, citing the national interest. The decision, after lobbying from Qantas, fueled the perception that the government was protecting the dominant carrier at the expense of smaller rivals including Virgin Australia and Rex.

Executives — even outside the aviation industry — and politicians questioned the logic of blocking the flights at a time when the market was short of capacity and fares remained above pre-Covid levels. Joyce argued that giving extra flights to the Middle Eastern airline would distort the market.

Yet granting more routes to overseas carriers would be the easiest way to improve competition, said Rico Merkert, a professor in transport and supply-chain management at the University of Sydney. Blocking extra Qatar Airways flights will cost the Australian economy about A$1 billion ($637 million) a year in lost income from tourism, business travel and freight, Merkert estimated.

“The government needs to rethink its approach,” he said. “It’s a no-brainer.”

Qantas is also under pressure over its handling of some A$2 billion of customer flight credits issued during the pandemic. The airline was last month hit with a class-action lawsuit that alleged Qantas failed to refund passengers for canceled flights, and illegally benefited by retaining their money. While Qantas rejected the claims, days later it removed the expiry date on Covid travel credits that were due to run out at the end of this year.

In its bogus-tickets suit, the competition regulator claims Qantas not only sold seats on non-existent flights, it also took weeks to tell ticket-holders that their services had been pulled. The accusations were so serious, the watchdog said, that the penalty should surpass A$250 million — more than double the record for a breach of consumer law in Australia.

Qantas has said it will respond to the regulator in court, though it has acknowledged that pressure is on its brand.

“Our job is to get the balance right between looking after our customers, our people and the business itself,” Hudson said in a video message to staff on Tuesday. “Right now achieving this balance must first start with our customers, and that’s what we will be focused on with our new management team.”

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