The 3 QANTAS controversies explained

Sascha: [00:00:03] From Equity Mates Media, this is The Dive. I'm your host, Sascha Kelley. Qantas has had an interesting month. It started well reporting a record breaking $2.5 billion pre-tax profit. But from there, it's gone downhill. Australia's national airline is now mired in multiple scandals. The CEO is getting grilled at parliamentary hearings and the Australian Government is being accused of prioritising Qantas's bottom line over the concerns of the Australian people. And yesterday all of these controversies came to a head, with Qantas CEO Alan Joyce resigning effective immediately. He's been CEO since 2008 and in his 15 years at the head of Australia's national carrier, he's become known as one of the most effective CEOs. But even he couldn't survive the past month with the multiple scandals and mounting public pressure. Frankly, it's a mess. So in this episode, we wanted to walk through Qantas's three big scandals one by one to fully understand them. It's Wednesday, the 6th of September, and today I want to know what's going on with Qantas and will any of these scandals affect them? Long time to talk about this today. I'm joined by my colleague and the co-founder of Equity Mates is Alec Renehan. Alec, welcome to The Dive. 

Alec: [00:01:21] Sascha, good to be here. 

Sascha: [00:01:22] When's the last time you flew Qantas? 

Alec: [00:01:25] Well, Qantas owns Jetstar and Jetstar is cheap and so I've flown Jetstar a fair bit. But I can actually tell you the last time I flew Qantas. 

Sascha: [00:01:35] And that is super interesting, Alec, because I think before we get to the news, the important context is just how much market power Qantas enjoys. It's massive. 

Alec: [00:01:45] That's right. Australia is the land of the duopoly. It's we have a lot of consolidated markets, but Qantas and our domestic airline market is particularly consolidated. So this is from the Australian Competition and Consumer Commission. That acronym is going to be important throughout this episode, so keep that one in mind. So they have measured market share in different markets, but in the domestic airline market, Qantas has 61% of the market. That's split between 38% for the Qantas brand and then 23% for the Jetstar brand. But together they own almost two thirds of domestic air travel. Now for comparison, let's think about a market which we often talk about as a duopoly and consolidated the grocery market together. Coles and Woolworths own 64% of the Australian grocery market, 36% for Woollies, 28% for Coles. So Qantas by itself is as consolidated, has as much market power as Coles and Woollies together in their grocery market. So I think that sort of puts it in perspective. And in the midst of all these scandals which we'll get to in a second, a lot of the airports have been coming out and speaking out against Qantas. Canberra Airport's managing director Stephen Byron said that Qantas had 66% of the domestic market, so similar numbers to the say. But he also said that Qantas made 80% of the airline's profits. So you can see just how big Qantas is when it comes to Australian air travel. 

Sascha: [00:03:26] Okay, so we've got the context of how big Qantas is. Let's walk through these controversies. 

Audio Clip: [00:03:32] $2.5 billion. That's how much money Qantas made in the last year after a bumpy three years of COVID uncertainty. It's been a bruising few weeks for our national carrier Qantas. The airline got more than a bargained for when it shamelessly weighed into our national referendum debate to barrack for a yes vote. Even spending all of this money flying around one side of the debate to try and influence the outcome of our Democratic vote. Well, Qantas is back in a tailspin this morning. The airline to face court over allegedly selling tickets for flights that had already been cancelled. 

Alec: [00:04:06] There's the big three and then there's a number of small scandals, little spot fires, which are sort of bubbling away. But the big three, so the first one is the triple say, have come out and alleged that Qantas was selling tickets to customers to flights that had already been cancelled. The second is Qatar Airways had requested additional flights to some of Australia's key airports, which was blocked. And the allegation is that it was to protect Qantas. And then the third scandal going on at the moment is an ongoing scandal around flight credits and refunds from COVID, cancelled flights, some that are not as big as those Big three. The Prime Minister's son got access to the Chairman's lounge, which has become a political spot-fire. Alan Joyce, the outgoing Qantas CEO, was grilled about his pay packet. He got $10 million in long term shares as a bonus. And the Nationals Senator Bridget McKenzie was not impressed by that, given all of the other controversies. I also saw some clips from Sky News as I was preparing for this episode. They are shouting at Qantas quite loudly because Qantas has come out and supported the no vote and I think is flying some yes campaigners around or something and that has become a big point of contention in the Sky News world. So there's a lot of flak coming from a lot of different sides. But I think, you know, the three big controversies are the three big controversies. 

Sascha: [00:05:38] And they're the ones we're going to talk about today. So let's start with number one, the allegations of selling tickets to cancelled flights. I've got to say, I know a little bit about this being on the periphery of trying to fly during 2020 and 2021. This was certainly a rumour that was going around, but obviously now that a triple say has come out and taken court action. 

Alec: [00:05:58] Yes. So the idea was say have been alleged and we should be clear at this point it's just an allegation that Qantas sold tickets to 8000 flights. It had already been cancelled on top of that. It also alleges that Qantas cancelled flights and then didn't notify passengers in a reasonable period of time. They said it took on average 18 days after a flight was cancelled to notify ticket holders. But to give you an example, that sort of illustrates the point. Let's take QF 63 flight from Sydney to Johannesburg. The trips they allege that Qantas made the decision to cancel the flight and then for 47 days after that decision was made, they continued selling tickets to that flight that they knew was cancelled. 

Sascha: [00:06:47] Okay. 

Alec: [00:06:47] And that's what they also allege, that it was a 125 days from when Qantas made the decision to cancel the flight to when they notified customers that the flight was cancelled.

Sascha: [00:06:59] Wow. 

Alec: [00:07:00] So that, in a nutshell, is the conduct that the agency are alleging. 

Sascha: [00:07:04] The triple C giving any rationale reason why they think Qantas was doing this? Is there any rational reason we can point to? 

Alec: [00:07:11] Yes. So I mean, it's not up to the agency to explain why Qantas did something. But interestingly, the advocacy chairwoman, Gina Scott, did come out and make clear that these cancellations were not due to factors outside of Qantas's control. It wasn't, you know, air traffic control told them they needed to cancel it or there was weather that told them they needed to cancel it. All pilots were sick. And to quote Jane, a classic Gottlieb quote, two reasons that were within its control, such as network optimisation, including in response to shifts in customer demand, route withdrawals or retention of takeoff and landing slots at certain airports. So this was all about Qantas making sure that they weren't losing spots at airports, or importantly, that they were blocking their competitors from taking spots that they previously had claimed. Or it was about optimising the network to make sure that they weren't flying half full planes. 

Sascha: [00:08:07] The cynical part of me thought it was a cash flow reason, but it's so interesting. What I'm learning about aviation is that there's so many other factors that come into airlines being able to operate internationally. So in other words, the HFC is alleging that Qantas cancelled flights for their own reasons and for things that were going to protect their market share, not because of things out of the blue, out of their control, And they kept selling tickets anyway. 

Alec: [00:08:34] Yeah, that's that in a nutshell. 

Sascha: [00:08:36] Okay. What has Qantas said in response to that? 

Alec: [00:08:38] So Qantas has said they take the allegations by their proposal seriously. So that's true. They noted that the period examined, so they will say looked at a period in 2022. So not like peaks covered, but still COVID affected. Qantas said the period was, quote, a time of unprecedented upheaval for the entire airline industry. But they've also made the suggestion that what they were doing was sort of normal practice for a lot of airlines. 

Sascha: [00:09:10] There were other airlines doing it. 

Alec: [00:09:12] Well, Qantas to suggest that they're not alone, but according to reporting from the Australian Financial Review, the I will say, investigated. Qantas's big rival Virgin and found they had not engaged in similar conduct. 

Sascha: [00:09:23] So that's the first controversy. Let's draw a line under that. Secondly, we're going to go and look at what's happening with Qatar Airways and their request for additional flights. We touched on this a little bit in the episode I did a couple of weeks ago with the ghost Flights, but it's developed since then. This story's got legs and travelled a little bit further. 

Alec: [00:09:43] Yeah. So currently, Qatar Airways offer 28 flights per week to Australia's three main airports, Sydney, Melbourne and Brisbane. In July, Qatar requested an additional 21 flights per week to those three major airports. The Government. Said no. Now that's disappointed a lot of state premiers who were keen to see more international tourism. It also disappointed tourism operators and other businesses in Australia that rely on international tourists. Virgin was also disappointed there was a codeshare partner for Qatar. So if you ever book a Virgin flight and end up on a Qatar flight, it's because that ship lines. It would have really helped Virgin compete with Qantas for outbound international travel for Australians as well. So Virgin were a little bit disappointed, but the Australian Government said that they were reluctant to grant Qatar flights more landing rights as it could potentially destabilise the airline landscape and hinder the recovery of other carriers. And I think you can sort of read between the lines there. 

Sascha: [00:10:49] Yeah, that's very coded language there. So I guess this leads the question, this is an Australian Government decision, not Qantas. Why is Qantas being blamed for that choice? 

Alec: [00:11:00] Yeah. Now the important context here is that Qantas is incredibly powerful in the halls of Canberra. Former treasurer Peter Costello was recently quoted describing Qantas's incredible power and this was seen as a coup for Qantas and I guess they're lobbyists obviously. The Australian Financial Review published comments from the Assistant Treasurer, Stephen Jones, who said the decision was in the national interest and would help keep Qantas profitable, which people were surprised by because, you know, there's an argument that the national interest goes beyond keeping Qantas profitable. Professor Allan Fels, a former chair of the policy, was quoted as saying customers have been put second. So is tourism business freight, many other interests, also other airlines, he said. And then he went on to say, quote, There's no secret for it. It's just looking after Qantas. 

Audio Clip: [00:11:55] If it protects Qantas jobs, it's at the expense of other jobs that would be created by Qatar coming into the industry, tourism jobs, the spending that the extra tourist does. Also, business trade costs go up and that's bad for them and for their jobs. 

Alec: [00:12:16] So Qantas didn't make the decision, but a lot of the reaction and the commentary has made clear that Qantas was the reason for the decision. They've just reported a record two and a half dollars Billion pre-tax profit. So I guess the question is, you know, how much more do we need to look after them? And Virgin came out and said, and let's be clear, Virgin have a vested interest in this, but Virgin came out and said that flights would have been 40% cheaper if Qatar had been able to do those extra flights and bring in more competition and add more capacity and drive prices down. So, you know, you can put the 40% cheaper flights and flights are at a pretty expensive premium at the moment. I think someone said they are 50% more expensive now than pre-COVID. Yeah, so put that there. Qantas's record profit, it all starts to add up to a story that has got people annoyed at Qantas. 

Sascha: [00:13:14] It is piling up. Alec, but that's only two of the scandals and there's one more to go, but let's talk about that after the break. 

Audio Clip: [00:13:26] We've got some breaking news now. Qantas group CEO Alan Joyce announcing he will step down from his post immediately. We knew obviously he was on the way out. The public pressure has become so. Much as the airline scrambles to repair reputational Damage. Alan Joyce is definitely not going out the way that he wanted. 

Sascha: [00:13:45] Welcome back to The Dive. I'm your host, Sascha Kelly. I'm joined by Alec Ryan again today. We're talking about Qantas's many scandals. We've touched on two from the third. Now, Alec, tell me about the flight credits. 

Alec: [00:14:01] Yes. Now this one hits close to home for a lot of people during COVID, a lot of flights were cancelled and money was credited. Qantas didn't offer refunds. They offered flight credits. And you can sort of understand at the time that everyone was freaking out about the airline industry and, you know, would they stay solvent? There was a lot of government money put in to prop them up. But the ripple looked at why customers weren't getting refunds at that time and why Qantas weren't notifying customers of their rights. And actually, in June 2020, the agency's COVID 19 task force raised concerns with Qantas and made them reach out to customers and let them know that many of them were actually entitled to a cash refund, not just flight credits. So this has been a controversy for a little while. Fast forward to 2023. Qantas had about half a billion dollars of flight credits on the books and they were telling customers that they had to use those flight credits before the 31st of December this year or they would lose them. Now add to that it's been an absolute mess trying to claim your flight credits. Who actually has credits? Are they in the system? If people have been trying to do that, they would know the pain firsthand. Yeah, but given all the other controversies we're talking about, the record profit, the, you know, the blocking of competition, the selling flights once had already cancelled, it was seen as pretty egregious for Qantas to then put a time limit on flight credits to sort of use it or lose them bargain. Now, we should say, because of all the other controversies, because Alan Joyce has been dragged into Parliament and had a pretty tough time with the parliamentary committee, they've actually agreed to remove the expiry date on flight credits. So if you have Qantas and Jetstar credits, you don't have to use them before the 31st of December. But that was just another sort of red right to a bull, I guess. 

Sascha: [00:15:58] Yeah, and it's not a small amount of flight credits, 570 million. That's like half a billion dollars worth of flight credits. 

Alec: [00:16:06] Yeah, it's half a billion dollars, which is a lot of money. You could put it in another context. It's 20% of Qantas's yearly profit. 

Sascha: [00:16:13] Yeah, exactly. It's just a massive, massive figures. I like. Kind of the big question at the end of this is like, is any of this going to matter? I mean, this really pretty big scandals that I think would weigh heavily on any other organisation, but they seem to keep just soldiering on at the moment. 

Alec: [00:16:30] Yeah, I think it's too early to say whether this will matter. The problem with an incredibly consolidated market is it's hard for customers to vote with their wallet. It's hard for us to say we're not going to fly Jetstar or Qantas just because they dominate a lot of routes. Yeah, what is likely is that Qantas's lobbying power in Canberra will be weak and I think a lot of politicians will be burnt by this scandal and will be scared from, you know, supporting them too publicly. So the next time, you know, the airline's lobbying machine demands Qatar Airways or another competitor gets blocked or, you know, an airport operator get squeezed to help, the airline, politicians may sort of defer to the air and say we can't do too much here. It is likely and this was something that surprised me. The idea was they don't formally monitor the aviation industry for some reason. It's a weird exception. The airports themselves are subject to monthly monitoring by the competition watchdog, but not the airline. That's where they are. Yeah, it's weird. I don't know why the Australian Airports Association has come out in the midst of this scandal and called for the government to reinstate the power to monitor the airlines. You would think that that is going to be approved, given that the proposals have also come out and said that Qantas is their most complained about company. So it seems like some monitoring might be needed. But I think overall Qantas has suffered some serious brand damage and it's going to take some time for them to sort of recover. But chances are they do recover because two thirds of Australian flights are conscious like Jetstar. 

Sascha: [00:18:12] Yeah, that's a really interesting note to finish on because I think they're such a recognisable brand and such a part of the Australian identity. It would be very interesting to see how they recover from this. 

Alec: [00:18:25] We should say as well. I always feel it's a tough conversation with airlines because so many of Qantas's international competitors like here were mainly speaking about domestic, where they dominate, but internationally so many of their competitors are government backed. You know, like Qatar Airways have the ability to absorb. A lot of losses and, you know, have government subsidies that Qantas don't have. Like it is a tough industry, the international airline industry. But I think we look at what Qantas reported in August with that two and a half billion dollar pre-tax profit and it's hard to feel sympathy for the international competitive set.

Sascha: [00:19:05] Yeah, it's one thing to say look at the competitive market and that's another to say and look at massive profits. Yeah. Makes the conversation a little bit more difficult. Look, Alec, we could talk about this all day, but I think we should leave it there for now. A quick favour from me. You know what I'm going to ask, but I'm going to ask it anyway. Please send this episode to a friend who you think will enjoy it. It really helps us get in front of other fresh ears who might enjoy The Dive. Alec, thanks so much for joining me today. 

Alec: [00:19:34] Thanks, Sascha.

Sascha: [00:19:34] Until next time.