CNBC Transcript: Alan Joyce, CEO, Qantas Airways

Following is the transcript of a CNBC interview with Alan Joyce, CEO of Qantas Airways. The interview was broadcast on Managing Asia on 30 March 2018, 5.30PM SG/HK time.

All references must be sourced to a "CNBC Interview'.

Interviewed by Christine Tan, Anchor, CNBC.

Part 1

Alan Joyce: It's going to be an amazing occasion, pretty historic.

Christine Tan (CT): What on earth do you do in 17 hours? Do you have to beef up your in-flight entertainment?

Alan Joyce: Well we do, we actually have, believe it or not, 1600 hours of entertainment, so on a 17 hour flight you could do it 100 times and still not have seen everything twice. So there's huge entertainment and there's a lot of meals, you'll have three different meals in that length of time that people will be served so there's over, over 720 meals served on the aircraft during that period on that flight. So plenty to eat, plenty to drink and plenty to watch.

CT: So Alan, what's next? Is it going to be Sydney-London, Sydney-New York?

Alan Joyce: Yes so we're, we're actually challenging Airbus and Boeing, we call it Project Sunrise to produce an aircraft that can fly from Sydney and Melbourne to London and New York and that's a game changing aircraft for Qantas. You'll have to fly 21 hours in there and both Airbus and Boeing have an aircraft that can nearly do it today, the A350-1000 and 777-AX.

CT: But you want something better?

Alan Joyce: But we want to get, we're getting these one percents, little bits of improvements, and if by the end of the year we can get the aircraft there, we will then do a tendering process and in 19, if it passes the business phase, we'll put in the order and I think by 2022 we'll be doing it if it passes those few hurdles.

CT: So Sydney-London next?

Alan Joyce: Sydney-London, Melbourne-London, Brisbane-London, potentially Sydney-Melbourne to New York, we're looking at everything in the states, lots of destinations in Europe, it's a game changing aircraft for Qantas.

CT: So really, the sky's the limit here?

Alan Joyce: I think the network changes, the new technologies, given us at Qantas has really benefited us for a first time and has allowed us to do things that we always wanted to do but never had the capability.

CT: Qantas is riding the tailwind of an impressive comeback, hitting record profits after a two billion dollar transformation program. The flag carrier is soaring on strong domestic travel with plans to deepen its international routes. But in this competitive landscape, will its ultra-long haul flights take off?

Alan Joyce: Well, what you're able to do is put a bigger premium cabin in the aircraft. For example, the 787 that's flying from Perth to London, has more premium seats on it than we've ever done before and because you get more business traffic, they want to travel with you because its non-stop, its direct, its faster, that dramatically improves the revenue of the entire aircraft and improves the economics.

CT: For these ultra-long haul routes to really be financially viable, a lot really depends on the price of fuel. What were the economics involved? How do you factor in the risk of higher fuel prices?

Alan Joyce: Well, first of all the new technology like the 787 is really fuel efficient compared to 740s and the A380s. Its 20% more fuel efficient. So we can actually fly today two 787s tail to tail and it's cheaper than flying an A380 by around 5%. That's how efficient those aircrafts are and we know that as fuel goes up, the actual aircraft that we have a problem with has a four engine aircraft. The two engines like the 787 are really good, and what we think, we've looked at all sorts of fuel and modifications and we think the economics of the service works on a range of fuel scenarios and it's better than operating quad aircraft and significantly better than having that aircraft.

CT: But how closely are you watching the price of fuel? What level in fuel price would make flying these long haul routes problematic?

Alan Joyce: Well, you know international is always impacted more than short haul flying but we do look at it as a portfolio the way we operate it and in the first half of this financial year, we had fuel price increase by 68 million dollars yet we improved our profitability by a 120 million. So we're digesting fuel and improving on the economics. We think we're in a very good position to continue to do that and we're obviously keeping a very close eye on it but then when you look at all of the forecasts out there, a lot of people are of the view that still with shale oil and with the production costs in the United States, that oil is going to continue to be in the band it has been in for some time, and we know that we can make very good money in that band.

CT: But is there a level in fuel price that you worry about?

Alan Joyce: So it's all about capacity and supply, if everybody acts rationally with very high fuel price, you can recover it because with the capacity, reductions of capacity, moderations, you can get airfares off to cover the cost of fuel. And we know with our domestic market for example, we're outperforming our competitors there and the ability for us to digest fuel is very strong because they have the same requirement. On some of our international routes, the same abilities there because everybody has the same fuel consumption whereas some routes where people are being subsidized by their governments, being operated by the governments where it's more difficult and they probably worry more.

CT: These non-stop routes you're talking about flying to Europe. Could it ultimately mean you could scale back part of your alliance you have with Emirates…

Alan Joyce: Nope.

CT: Which you struck in 2012?

Alan Joyce: We actually think that will continue to grow. Well, today we just got approval from the competition authorities here in Australia to extend the deal for another five years. And what we're seeing now with the Perth-London starting and Qantas flying back to Singapore, with the A380s and doing Singapore and London, actually we'll put more passengers on Emirates than we've ever done on the Qantas call through Dubai, and the Emirates partnership was a great success. There are eight million people who have traveled on the joint network and we see that growing and continuing to be successful, and it's very complementary to what we're doing in Perth and in Singapore.

CT: So just to be clear, you're going to keep your hubs in Dubai and Singapore? No changes?

Alan Joyce: And Perth. Three hubs.

CT: No changes?

Alan Joyce: Nope, no changes, we'll keep that going, and we just signed off on another five years with Emirates, it's a win for them and it's a win for us. We both love the partnership, we both think it's great, and we both want to continue to grow.

CT: All this part and parcel of your entire strategy to expand your international business…

Alan Joyce: Yes.

CT: Right now the capacity as far as the group is concerned, more than half is into Asia where all the growth is…

Alan Joyce: Yes.

CT: In terms of rebalancing, what would it look like as you aim to add on these additional long haul flights to Europe and the US?

Alan Joyce: Well I still think Asia is going to be where more of the growth is going to come from. So as we fly, we have a huge operation to the U.S., we fly to Dallas, to New York, to LA, to San Francisco and we want to fly to more points in the US, and there has been significant growing over the last few years but that pales in significance compared to the growth in Asia. So when we move the A380s to Singapore this weekend, we'll have an 80% growth in capacity to Singapore because we feel that's where the future of growth is going to come from. It's the Asian, the Chinese, the Southeast Asian, the Japanese, market, its huge growth and that won't change.

CT: So in terms of rebalancing of capacity, will you return to the 30% you had in previous decades?

Alan Joyce: I don't see that happening. I see Asia being predominantly the big growth areas for Qantas group going forward. It's where Jetstar is growing, it's where Qantas is growing, it's where we're investing in businesses like Jetstar in Asia, Jetstar Japan, Jetstar Pacific, we still think there's huge growth there for the group and that will be a lot more significant than the growth to Europe and the growth to North America because that's where the economic future is.

CT: Right now your international business, your international division, pulls in something like 30% of your overall revenue, so where do you see this contribution in the next few years? Is it going to be a key driver of the company's future earnings?

Alan Joyce: It, well it continues to be, you take the Chinese visitors to Australia as an example, this year they've become the largest visitors, 1.2 million Chinese visitors. But on our projections that could grow in the next 20 years to 8 million visitors which is more than the entire world that comes into Australia today. So we know that's huge growth, we know the potential is massive, and Australia today only gets 1% of Chinese visitors and yet it's the No.1 destination that Chinese people want to come to. So if we can tap into more of that market, it's going to be a massive tourism boom into this country.

CT: And so what are we looking at? 50% overall revenue for your international business?

Alan Joyce: So what's great about Qantas is that it's got a portfolio and so we will go where the profits are, and the demand is. And if international continues to show good returns, we will invest there. But we've got an amazing domestic business that's actually the best margin business that we have and we're still investing very heavily there. We've got a low cost carrier, Jetstar that's the most profitable, one of the most profitable businesses that we have, and it has huge growth potential. So what we are in a great position is how to get all cylinders of the Qantas engine firing and who's making decisions where we make the investment. If that continues everything gets the growth. If international no longer performs, the other parts of the business we know will continue to perform. We're a very different airline from a lot of airlines around the world.

CT: You've just announced upbeat interim results three months into 2018. How does the year look to you?

Alan Joyce: So again, we're seeing the same trend that we saw in the first half continuing. The Australian domestic market is performing really well. We've seen strong growth in all sectors.

CT: But fares are still pretty depressed?

Alan Joyce: No, so fares are always going to be fairly economical because that's been the trend around the world. But we are seeing growth in business sector again, and Qantas has seen growth in the SME sector, which is actually improving the yields in those components of it. And the resource sector in Australia, is turning a corner, it's actually had three years of decline and this is the first year we're actually seeing growth. So in the first half, our ASK domestically was actually up significantly by over 8% in the Qantas domestic operation. We think positive ASKs will continue in the second half, not at those levels, because that was a pretty special performance and we're seeing our loyalty program really performing well, it's going to have another record year this year, and we've seen Jetstar continuing to perform well and its likely to have another record year this year.

Part B

Alan Joyce: So at that very key moment in history, it has happened to us a few times in the past. We were the second airline in the world, first airline outside the United States to take a jet and back in 1959. So we've taken these big steps in the past I think we're, we're in front of one big step now.

CT: Well Qantas today is one of the most profitable airlines in the world, a far cry from 2014 when it suffered a $2.8 billion loss. As a result, you put in place a three-year restructuring program, you cut unprofitable routes, you sold off more than 50 planes and in the process you laid off 5000, more than 5000 jobs. As CEO, would you say that was the toughest challenge in your career?

Alan Joyce: It was, I mean we had a very tough period where the company had to make a lot of changes to survive. And what was great about the transformation program was how people got behind it. 30,000 people decided to help work with and came up with the projects, 250 projects which were the ideas of our people on the front line, the ideas of people all around the company, and it was their efforts, their resolve that turned this company around from the record loss to the record profit now. And the last three years, are the best years in our history. I have to say when a company is thriving though, the other things happen. In the last two years, we've hired 2000 people. In the last few years, we've taken a lot of aircrafts and grown domestically and internationally and we've seen the company reinvest in its products and services, here is our newest lounge, the new lounges all around the world. We've seen the company invest a new product on the aircraft, new seats. A company that's thriving and doing well can do all of those things and it's great that Qantas people turned this company around to get it into this position.

CT: But when you deal with jobs, it's really a bit sensitive, because dealing with issues is one thing, they need to protect jobs of the employees, there were many calls for you to resign. As CEO how did you stay focused amidst all this opposition and unhappiness, how did you carry out this painful exercise?

Alan Joyce: Well if you believe you have the right strategy and you believe that the strategy is the right thing for the company, it's going to turn the company around. And you have the support of your board and shareholders, you just have to have the determination and faith to continue and deliver on that. And I had a very supportive chairman, a very supportive board, a very supportive management team, and with that support it gave us the determination to get on and implement that plan and that was the right plan and indeed it has turned the company around.

CT: Well looking back, was there one important leadership lesson you learnt from the entire experience, for yourself?

Alan Joyce: I, I think for me yes, it's to get your people to come with you, and we talk about having the trifecta of a turnaround. So the financial results a lot of airlines have done through chapter 11 and through other restructurings in other airlines around the globe, but we also got our people and improved our engagement with our people through this period. We also improved our customer service ratings and went to record ratings every year during that period and getting all three of them to work simultaneously, made it more sustainable, made all of your stakeholders appreciate what you were doing, and made, I think Qantas more robust for the future and I don't see that in a lot of turnarounds out there. And I think that is the big lesson, that it's a big lesson for us as a business that we need to maintain all three of these areas going forward.

CT: How closely are you watching this growing trade war between the US and China? Potentially what sort of impact could it have on travel and the global aviation market?

Alan Joyce: I think everybody in the business community should be worried about it, mainly because of the impact on global growth. We know that the free trade policies, the open markets have stimulated growth, have encouraged trade and that's been good for the aviation industry and all businesses. And the aviation industry is dependent on all economies and all businesses doing well. People travel more, people put more freight on aircraft, so anything that dampens or restricts or actually puts that growth into negative territory is not good for aviation. We know that in recessions, airlines have suffered. In the global financial crisis, the aviation industry suffered. So what we're all looking at is, the American economy is booming at the moment, tax cuts have been a great stimulus, the regulation removal has been a great stimulus. So the question is, will this trade, potential trade war negate all those benefits and will that be bad for the global economy. And I think everybody should be worried and everybody should keep an eye on it and figuring out what the implications are.

CT: In the U.S., this new Trump tax arrangement is giving U.S. carriers huge concessions, to what extent does this put Qantas at a big disadvantage when trying to compete with these U.S. carriers?

Alan Joyce: Well I, I think it's a bigger issue even for Australia. And the governments are, at the moment having a big debate in the Senate about implementing a corporate tax reduction down to 21% to make it more competitive.

CT: You've been vocal about it.

Alan Joyce: I've been very vocal about it, I've been very active.

CT: You making any headway?

Alan Joyce: I think the government is making good headway and we are talking to it across bench senators, all the business communiteers, I'm on the board of the Business Council of Australia and I think the Business Council of Australia is doing a great job of helping out in this. And what I'm worried about is the Australian economy and the competitiveness of the economy. Because if we're not competitive in corporate tax then investment will be drained from this country to other countries around the world, that will be bad for all of our customers, that will be bad for, all employment, and all growth and all performance so we hope that the government will be able to get it through and I wish that the Labour Party, the opposition will see the sense of this because I think it's fundamentally good for Australia, its fundamentally good for the economy. And when companies do well like Qantas is at the moment, all of its people benefit. We have a pay and policy of 3% that we're implementing today; it's above the 2% inflation. But we've given 220 million dollars in bonuses over the last three years, sharing the benefits of a successful company. If Qantas doesn't do well, our ability to maintain that return to our employees, our shareholders, our customers gets impacted. That's common sense, and that's common economics.

CT: You still pushing for that Transpacific Alliance with American Airlines? What's the latest?

Alan Joyce: Well, yes and we have refiled in the last few weeks.

CT: It was rejected once before?

Alan Joyce: It was, but it was under the Obama administration and it was, we didn't believe that we made a good case back then.

CT: You have a better case now?

Alan Joyce: We do, because we have made it very clear what the consumer benefits of this alliance are, and we can show since the alliance wasn't improved, how our consumers have actually been disadvantaged by not having the joint partnership between American and Qantas. So we've got a good case now, we don't take anything for granted, we'll go through to the Trump Administration, the Department of Transport, it may take six months, maybe longer up to a year, and but we think this time we have a better chance to get them through.

CT: So gut feel you think it'll go through?

Alan Joyce: Well I never take anything for granted but we do believe we have a lot better case, and we're, we're working very heavily together and we wouldn't be applying for it if we didn't think there was a good chance of getting it.

Part C

CT: Alan, you come from a humble family. You were born in a suburb in Dublin, Ireland. Father was a supervisor in a tobacco factory your mother was a cleaner. You went to university, worked for Aer Lingus, then I think sometime in 1996…

Alan Joyce: Yes.

CT: You moved over to Australia, worked for Ansett Australia before being transferred to Qantas. How has your leadership style and management changed over the years?

Alan Joyce: I think, I would say that, being born in Ireland and growing up in Ireland in a working-class family, one of the things that, that and having an education, the first in my family to go, finish secondary education, let alone tertiary education, has taught me the power of education and the help and the formation that it's given you to help make decisions. And I come from a scientific background, which is the way my mind works is I come up with a hypothesis about what the answer is and you try to prove and disprove and you get people to challenge you, and my style is I have the management team, and people around me challenging whether that's right or wrong and that gets great debate, gets great discussion.

So one of the other things I've learned is the power of diversity, having people around you that think differently, that come from different backgrounds, like we have four females on our leadership team, they think very differently and from where their approach comes from. We have people that have come from mathematical background, accountants, some people that have been in customer service delivery and that makes all debates and discussions a lot better, you come up with a better strategy, identify the risks better and you implement better and I'm a big believer through the years of having that diverse collection of individuals.

And the other thing is communication, you know when I'm travelling I always talk to the pilots, to the cabin crew, I talk to people, I enjoy talking to people, customers, staff, shareholders, I think it's the best part of the job. And the other thing over the years I've learned, how important that is to pay attention, to listen, to find out what's happening on the frontline and let that inform you on what you do as the leader.

CT: When you look at the challenges you've had to face since 2014, the difficulties you had to go through, has it hardened your leadership approach?

Alan Joyce: No, I actually think that you, when you need to be determined, you have to be determined but a lot of the job is being social, working and listening, and understanding what people are saying. And I don't think you can do these jobs on your own, and there's anybody who's a dictatorial leader will fail. It is as a team and our leadership team works as a team, people can express their views, I love the debate, I love to be challenged, I love to hear different opinions. So I think if you ever lose that I think you lose the plot and I don't think the company will perform successfully.

CT: When you turned around and you know, you revamped Qantas, how do you make sure Qantas doesn't fall behind again? What are you doing to make sure you're doing things differently this time?

Alan Joyce: So we, we're one of the safest airlines in the world and I think we're there because we're always on edge. We're never happy with our past performance. We're always looking to our future performance. And I've always said to our guys, "let's import what we do in safety to what we do in business. Always be on edge, always be worried about being disrupted." Qantas is very good at disrupting itself before somebody else does. We created Jetstar and the CEO before me said I'd rather cannibalize myself than let somebody else do it. We've created these disruptive businesses with our loyalty program, we're looking at how we've changed long haul travel and putting the longest routes in the world to get to this stage where they overfly hubs, to get to the stage where we do a different proposition, we've got the University of Sydney redefining what we do on an aircraft, and thinking differently and challenge what we've always done in the industry, because we love challenging ourselves, we like coming up with new ideas, we like cannibalizing ourselves if we have to, and creating business that are better and that's what has kept us alive for 98 years.

We don't want to get complacent, we're very conscious about the next disruption around the corner, (it's) about making sure that the airline can cope with everything the world throws at it, that's how you make Qantas robust.

CT: As you sit in your office, what do you worry about most?

Alan Joyce: So as one British politician says, events, and my predecessor used to call it the constant shocks syndrome, and so things that are out of control. Global financial crises, a spike in geopolitical issue, spikes in oil, so things like that that can happen and affect business. And what we do is minimize the risk around it, so we take the edge in, so it gives us protection for fuel. If there was a geopolitical spike, it'll give us time to adjust the business, we look at having a diverse portfolio, having loyalty, having Jetstar International so that if there is changes or variations in markets, we can cope with it. So we're always trying to minimize that risk wherever it is, but it is those events, those world events that can have a big impact on your business.

CT: And finally you're 52 years old, you've been CEO of Qantas for almost 10 years. You going anywhere?

Alan Joyce: No I'm not. I've always said if I'm enjoying it, and I am enjoying it, I think it's a great time to be CEO of Qantas, my shareholders and my board want me to continue in the job, then I'll have to continue. I was appointed young because the board wanted me in the job for a long time and there's only been nine CEOs of Qantas in 98 years. We've survived on that all the time, is because we've had consistency and longevity in strategy, had people that have stuck in the job and had to deliver on what they say and implementing and that's what's successful.

CT: So what's the next big goal and ambition you have for the airline? What further impact do you want to make?

Alan Joyce: So I'd love to see Project Sunrise, where Qantas has these aircrafts that can fly from Sydney and Melbourne to London. I'd like to see Qantas' digital businesses really thrive and grow and we have set targets out for us to get EBIT of that to over 500 million by 2022. I'd love to see Jetstar continue its expansion all over Asia and be more of a Pan-Asian brand and I'd love to see Qantas Domestic continue to be the best plane and airline in the domestic market. Having a company that's thriving, and firing on all cylinders as it is today and continuing to do that is what I'd like to achieve.

It's a great company, it's a great time to be in the company, and it's a great time to be in aviation.

CT: And your Irish eyes are smiling.

Alan Joyce: Haha. Thank you, they're a little bit Australian these days as well.

CT: Haha. Thank you, Alan. Thank you so much for talking to me. It's good catching up.

Alan Joyce: Thank you thank you. It's good to catch up Christine.

END

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