In an exclusive interview with CAPA and Blue Swan Daily this week, Qantas CEO Alan Joyce expressed confidence about the outlook for corporate and SME travel spending, despite a softening share market, weak retail sales and a number of surveys suggesting a significant decline in business confidence.
This market segment is typically a good indicator of where the economy is heading – although these are unusual times. Mr Joyce emphasises that even leisure travel is holding up well.
Business confidence surveys are muted, but Qantas’ lead indicator remains positive
According to NAB, the business confidence index in Australia dropped to 4 in October 2018 – “the weakest level” it had been at in over two years. “Retail and wholesale confidence remain weakest, likely reflecting persistently weak conditions in the industry”, according to the NAB report.
There were some bright spots; it continued: “Conditions declined across most industries with the exception of construction, wholesale and transport & utilities”.
Mr Joyce was much more upbeat on the back of Qantas’ experience, stressing that “while there’s a lot of unsettling news out there in the economy, we’re usually a very good early indicator, and at the moment we’re seeing all segments of corporate and SME performing quite strongly…. we haven’t seen (the SME market) as healthy as it is today.”
With “large corporates”, he says, “we’re seeing really strong growth across all sectors”. Growth in the West Australia market, which ground to a near-halt after the mining boom ended, has picked up as the mining industry enters a new cycle. So, for example, Qantas has placed another two A320s in Perth to respond to growth there.
Leisure markets are also holding up, despite retail slumping – a consumer change to “experiences”?
Mr Joyce also says that it’s not only the business market whose outlook is strong; even leisure traffic is holding up well. He postulates that the diverging trend, away from sad news on the traditional retail front, may be due to a shifting sentiment away from traditional consumption to one that is more about experiences.
Whatever the case, Qantas is finding demand to be strong. Part of this may be due to the fact that – domestically at least – Qantas and Virgin Australia are capping growth, so that no new seats are coming into the market, and both airline groups are getting much more sophisticated at managing revenues, to optimise the price every traveller pays.
Premium Economy is playing a “vital role” in Qantas’ economics
Qantas was one of the industry leaders in introducing a strong premium economy product and this is now proving a particularly tidy earner for the airline on longer haul routes. It is generating positive revenues from corporates where, depending on sector length, company rules might preclude business class travel. For corporates and SMEs, premium economy can offer a reasonable compromise.
The differential between economy class and business class is prohibitive for a relatively cost sensitive traveller, whereas the premium economy intermediate product offers a much more reasonable compromise on price. Business class can cost close to five times the discount economy prices.
According to Mr Joyce, Qantas is even getting a good premium response from the leisure sector, with travellers who normally wouldn’t contemplate the cost of a business class ticket upgrading to premium economy from economy. “We’re also seeing a lot of people upgrading from economy, who would have traditionally travelled economy”, he says.
For all these reasons, Qantas’s new 787s will be configured with “more [P/Y] seats than we’ve ever done before, as a percentage of the total”.
As a result the premium economy product will “play a vital role”, and it’s “making a vital difference on something like Perth-London”, where the premium cabins are generating seat factors of over 90%.
Qantas Airways Chief Customer Officer Vanessa Hudson is scheduled to speak at our upcoming CAPA-ACTE Global Summit & Corporate Lodging Forum in Sydney. To register, visit Sydney18.capaevents.com/registration.