SYDNEY: Australia’s largest airline, Qantas Airways Monday announced an increased investment in efforts to alleviate “customer pain points” as it cautioned that escalating fuel expenses might necessitate fare increases from already heightened levels.
The updated investment plan, exceeding the initial projections, caused Qantas’ shares to decline by as much as 2.5%, hitting a one-year low. This reaction from investors stems from concerns about the airline’s ability to bolster profits amidst consistently high operating costs.
With a new CEO at the helm, Qantas is striving to strike a balance between assuring customers that it is earnestly addressing widespread service issues and informing investors about its strategies to manage escalating costs associated with tight oil supplies.
As a carrier that commands a significant share of the Australian domestic travel market, Qantas has witnessed a decline in its reputation within its home country. The airline’s handling of the post-COVID travel resurgence resulted in a wave of flight cancellations and reports of misplaced baggage.
In addition to these challenges, last month, the antitrust regulator filed a lawsuit against Qantas, accusing the airline of selling tickets for thousands of flights that had already been cancelled in 2022. Qantas also faced legal setbacks, including a union lawsuit where the High Court ruled its 2020 dismissal of thousands of ground staff as illegal.
To address these issues and improve customer experience, Qantas has pledged to invest an additional A$80 million ($52 million) in “customer improvements,” on top of the A$150 million previously announced. This investment aims to tackle various customer concerns, including enhancing contact centre resources, providing more generous recovery support during operational challenges, reviewing longstanding policies for fairness, and elevating the quality of inflight catering.
However, amidst these efforts to enhance customer satisfaction, Qantas remains cautious about its fuel costs. The airline foresees a potential A$200 million ($129 million) increase in its half-year fuel bill, should the 30% surge in fuel prices experienced since May continue. Qantas has pledged to absorb these escalating costs but will closely monitor fuel prices in the upcoming weeks. If the current levels persist, the company may consider adjusting fares to strike a balance between cost recovery and ensuring affordable travel, especially in an environment where fares are already high.
RBC Capital Markets analyst Owen Birrell has predicted that Qantas may absorb the increased fuel costs until its target margins are under pressure, at which point the airline might resort to capacity cuts and higher fares to offset these expenses. The challenging competitive landscape, growing cost pressures on consumers and businesses, and the need for reinvestment in Qantas’ products and platforms make achieving a significant shift in earnings a challenging prospect.
