Joyce’s revival: The CEO investors love (customers not so much)

Sure, the full year 2022 profit will be a sea of red ink, given it will capture the very disrupted first half of the financial year. And a profit at the underlying EBITDA level doesn’t mean that the net profit for the second half will be positive nor that it will post a dividend – it is a way off that yet.

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But it’s clear evidence that Qantas could experience a hockey stick recovery in profits over this calendar year.

The market lapped it up, pushing the shares up 5 per cent in the first few minutes of trading at the same time as the broader market had fallen 1.3 per cent.

Perhaps an even more staggering financial achievement is Qantas’ ability to reduce its net debt by $1 billion to $4.5 billion during the first four months of this calendar year. From a high of $6.4 billion at its pandemic peak, Qantas’s net debt is now below pre-COVID levels.

So spectacular was this element of the balance sheet that the analysts at Barrenjoey headlined their Qantas report – ‘Net debt in freefall’.

The lift in revenue tells part of the story – the remainder is accounted for by asset sales and slashing capital expenditure and staff costs to the bone during COVID disrupted hibernation period.

The work Qantas has done taking out costs during COVID will become even more evident once international travel returns to 2019 levels.

Joyce has now reversed that hunker down strategy and has revived the airline’s ‘Project Sunrise’ initiative to fly super long haul from Australia’s east coast direct to London and New York.

The domestic leg of a fleet overhaul known as Project Winton has also been kick-started again.

Both involve large capital commitments, but these will be staggered over a decade which Qantas says allows funding to come from earnings while it can maintain its debt range.

While enterprise agreements have already been completed with international pilots around Project Sunrise (after bitter negotiations, the airline is yet to do a deal with domestic pilots but Qantas is hopeful the variations to the agreement won’t create the same level of disputation).

It will be up to the passengers to ultimately make a call on whether Project Sunrise is a financial winner that meets the airline’s target for an internal rate of return in the mid-teens.

Seats on the ultra long haul flights will be more heavily configured to the premium end and Qantas will run the aircraft with fewer seats than other airlines using the same aircraft type.

This suggests customers will be paying a premium price to fly long haul without a stopover – and the higher fares will test that appetite for caviar and French bubbles (if you are flying on business or first class).