Is there turbulence ahead for Qantas?

There's no denying Qantas has had a blockbuster run in the post-COVID era of travel.

Qantas Airways finished the 2023 financial year with a record profit, underscoring the airline's impressive recovery from the pandemic era. Underlying profit rose to A$2.47 billion, well ahead of the A$1.86 billion loss just a year ago.

For investors, it seems like Qantas' record profits are set to continue - but some clouds on the horizon are worth keeping an eye on for any investors reluctant to weather turbulence.

Qantas' post-COVID recovery

After years of restricted travel, many are still more than happy to bear the brunt of increased airline costs amid surging demand in order to visit family and friends, attend business engagements or simply go on their first beach holiday in years.

As flight routes warmed back up, seats were limited, and household savings were high, providing Qantas with a rapid boost to their coffers following a difficult few years.

This shift in status ensured that the 'flag carrier of Australia' returned to profitability in the first half of FY23, posting a net profit of AUD$1 billion compared to a loss of AUD$456 million just one year earlier. Naturally, this drew investors flocking back to the company, thanks to plenty of optimism from CEO Alan Joyce and a solid outlook from analysts.

While the advertised allure of comfortable lounges, convenient services and world-class in-flight catering and entertainment may have piqued the interest of post-COVID travellers desperate to hit the tarmac, the reality is quickly catching up to Qantas. Costs are a big factor here.

While an increasing cost of living is yet to lessen the appetite of travellers, it's no secret household budgets are getting tighter, and Joyce's plan to put 'downward pressure' on fares by providing extra flights is yet to truly come to fruition.

Qantas' other big challenge is working to provide the prestige customer service that Joyce has touted during these earnings calls, something that commentators online have been quick to dispute.

ACCC taking notice

It's not just shrinking budgets that may shake things up. The ACCC is currently considering a complaint regarding unobtainable and untenable fares advertised on-site.

Meanwhile, the company's much-maligned travel credit program (set up as a response to rapid COVID restrictions limiting air travel) has become the target of a class action involving 'hundreds of thousands' of customers, alleging the airline used ticket-holders' funds as "$1 billion in interest-free loans".

Fair competition issues have also arisen, which may not come as a shock - Australians have had this concern for decades.

However, in the ACCC's final Airline Competition in Australia report in June, the product of three years of analysis, it determined a lack of effective competition has resulted in higher fares and poorer service, with a strong call for government intervention to incentivise better standards.

Investors may also raise an eyebrow at any short-term profits afforded from cost-cutting measures that, according to ground staff, have compromised maintenance protocols, especially after a string of mechanical failures unsettled travellers in January this year.

Friends in high places

Qantas' appetite for corporate advocacy could be a turn-off to customers as well. While Joyce's endorsements of Labor-led causes seem relatively safe, the Federal Government's rejection of Qatar Airways' application to provide more competitive flights to Australia may mar any good intentions.

Some consumers may begin to look towards 'less political' international carriers and budget airlines for their travel options.

The big question is how long will the current surging demand last?

Travellers have been looking to take advantage of the world opening back up and are refusing to give up their holidays. However, discretionary spending is being challenged as the cost of living bites with inflation and interest rates near decade highs.

Qantas, however, clearly believes that demand will continue, ordering 24 new planes to meet demand and saying demand will remain above pre-COVID levels.

Vanessa Hudson to take the helm

A major factor that could alleviate concerns for investors is the knowledge that in November, Alan Joyce will step down as Qantas CEO after exactly 15 years at the helm. A divisive figure at times, Joyce's miracle post-COVID turnaround is often cited as his strongest moment from an investor perspective.

Market watchers will feel reassured in the knowledge that his successor, Vanessa Hudson, Qantas' first-ever female CEO, has been with the business for almost 30 years and was also instrumental in the airline's COVID turnaround. Unions are already cautiously celebrating the changing of the guard following years of extreme tension between airline employees and head office.

Hudson will have her work cut out for her, but if she can bring a more diplomatic approach to worker relations while also improving customer experience and beating away intensifying competitors with more competitive fares, investors will be able to breathe a sigh of relief.

Until then, savvy shareholders will be keeping an eye on the storm clouds that have gathered over the flying kangaroo in the last few months.

A fresh approach to leadership could be just what the airline needs for ongoing success but there are plenty of variables that could stunt Qantas' seemingly bulletproof run.

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