I recently had the pleasure of taking a joy ride on the last Qantas Boeing 747 left in the fleet, before it was to head off to the plane graveyard in the Mohave Desert. We flew out of Brisbane and did a lap over the Brisbane CBD, Gold Coast, islands in the Bay and Sunshine Coast. It was a spectacular day and it was made even better by hearing the back story about the plane and the crew from the daughter of the First Officer who was in the seat next to me. It got my thinking that Qantas is a business that has taken decisive action in its bid to adapt to what we all hope will be a once in a generation or more global catastrophe. I think the actions of Qantas provide some lessons (or at least some inspiration/ideas) for us all.
Qantas has been affected more than most by the pandemic, with revenue having been almost completely obliterated. The international component of the business is already slated to be closed until at least 31 March 2021, which will mean a whole year of no revenue from that. The domestic component is slowly building but remains a shadow of its former self and recent surges in Coronavirus cases in Victoria have slowed the rebuild. And the frequent flyer component of the business, which many of you may know contributed significantly to profits, has been knocked about. There are some obvious challenges if no one is flying!
So what has Qantas done to adapt? This is not a definitive list but here is what I have observed:
- Retired the last remaining 747s a year ahead of schedule (farewell queen of the skies!)
- Stopped the refurbishment of the A380s where this scheduled work has not been completed and put them all into deep hibernation – I dare say they might have considered a sale but there is unlikely to be a market and some are wondering if they will ever fly again
- Put into hibernation as many other planes as possible
- Shutdown the majority of flights in the short term (flying empty planes is worse for the P&L than not flying at all)
- Focused on using low cost, small capacity turbo prop planes on domestic routes as much as possible given the tiny numbers of people flying
- Stood down a very large percentage of the workforce and subsequently announced redundancies in many areas
- Offered a flexible approach to flight cancellations and tried hard to manage refunds and credits
- Communicated a lot with customers
- Communicated a lot with employees
- Offered significant dispensations to frequent flyers to help them maintain their status and thus stay engaged with the brand
- Explored new ways to engage with “frequent flyers”
- Implemented a capital raising to shore up the balance sheet
Many of these actions are designed to reduce the cost base as much as possible so the cash burn can be sustained until some normality returns. Some have also been very much about trying to maintain strong customer relationships knowing that these are essential for a rebound to occur. Some of the decisions have no doubt been tough to make but I think Qantas has quite rightly taken a long term view balanced with the recognition that if it can’t survive the short term there will be no long term. Virgin Australia is a salutary lesson in that and thankfully it looks like a last minute reprieve will keep some competition in place.
The actions of Qantas in respect of frequent flyers and “status” are particularly interesting to me. Since I became a platinum frequent flyer a few years ago (I average about 100 Qantas flights per year or at least used to!) I have become much more aware of where the profits of Qantas come from. Business travel and business class travel is where the bucks are as I understand it. And I think they have done a really good job to maintain the loyalty of these flyers.
Like many regular flyers I have become accustomed to the small perks that I receive and am a very loyal Qantas flyer. Some might say I’ve been sucked in by the marketing but it is more than that. Qantas are demonstrating to me that on the whole they understand their profitable customers well. For example when the pandemic hit and I started cancelling many of the 35 flights I had booked, I realised it would be impossible for me to retain my platinum status. Just as I was thinking that, an email appeared in my inbox from the head of Qantas Loyalty, Olivia Wirth, letting me know that I would automatically retain that status for the 12 months from the rollover date – in my case 31 September.
More recently, I was thinking that even if I retained my status for that 12 months courtesy of the automatic rollover, I would not retain it for the following 12 months, due to the low probability of international travel. As if by magic another email appeared from Qantas advising that in the following year I’d automatically be given 50% of the status credits needed to retain my platinum status. I know that will be more than enough to allow me to keep it so I’m really happy. And I’ll continue to book flights only with Qantas. Seems like a first world problem right? And it is, but I believe it shows Qantas is really thinking about the pain points of its customers, particularly the customers that drive its profitability.
So how do we convert this to your firm and your clients? There are a few obvious things. I’m hoping that with your own business and many of your clients you have had a hard look at costs relative to revenue, and like Qantas, have taken decisive action to address where appropriate with an eye on the longer term opportunities balanced with the reality of the need for short term survival. And like Qantas I’m hoping you have thought about the pain points for your customers (particularly those that drive your profits) and are proactively trying to help them address them. See my article here which includes some comments on opportunities to help your clients that have emerged from the pandemic. Finally, like Qantas I hope you are looking at the working capital requirements of your own business and that of your clients and shoring that up where possible.
Adaption in tough times is not easy. I encourage you to be alert for changes in circumstances and open to big decisions if needed to ensure your business and the businesses of your clients can adapt and ultimately prosper.