Cleaning up the mess that Alan Joyce left behind

In what must be one of the greatest corporate understatements of all time, Vanessa Hudson described Jetstar Asia as having a “challenged history”.

It is always difficult for executives to clean up their own messes, which is why his successor at Qantas – the more collaborative Hudson, couldn’t get the mop and broom out fast enough.

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This is where the Qantas board should have stepped in and insisted this particular Asian experiment was put to bed. It is a strong indictment of their (lack of) governance that this business was allowed to continue in the face of the structural losses it was sustaining.

Its costs were spiralling, and its competition was firing, and given its position as a budget airline, there was little wriggle room to raise prices.

Hudson now needs to juggle the Qantas finances during a period of very capital-expensive fleet renewal.

There was no room on the balance sheet to sustain losses from Jetstar Asia which will be $35 million this year.

(The closure of Jetstar Asia’s 16 routes will not affect Jetstar International’s operations or those of Jetstar Japan.)

And you would have to think that Hudson, who was formerly Qantas chief financial officer, will be combing through the business looking for other Joyce business follies that she can minimise.

Not only will Qantas no longer need to absorb Jetstar Asia’s losses, but it gets its hands on 13 planes to deploy more usefully. Some will retire existing but older Jetstar aircraft, some will replace aircraft that are leased, others will head west to add to mining routes, and a couple will be used to expand Jetstar’s capacity in the domestic market.

This will reduce Qantas Group’s cost profile and allow aircraft resources to be redeployed to areas that are profitable.

Hudson will be highly aware that the resurgence and relisting of its competitor Virgin Australia will now also compete with Qantas for investors.

The operating environment for our two Australian airlines is as healthy as it has ever been, with rational pricing between the two ensuring that both make healthy margins but that there isn’t much widespread discounting for the flying public.

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That said, there are plenty of bumps to contend with. Qantas said domestic capacity for the group in the second half of the financial year was lower due to Cyclone Alfred in Queensland, which will cost the group $30 million in earnings. And international capacity growth will be cut to 9 per cent because of industrial action.

There is no room for sentimentality from Hudson when it comes to excising Joyce’s former folly.

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