How did we get Qantas so wrong?

Under every impressive airline is a bad business itching to get out and Qantas, despite its recent profit, is no exception.

It's been just over two years since I wrote For the love of Qantas, sack Joyce. The story was more a drunken stumble into a minefield than a tiptoe through the daisies. 'Joyce will go, probably sooner rather than later, at which point we can expect a more rational, less confrontational approach'.

What was that about predictions? Joyce remains in the corner office, happily taking accolades for having turned a $300m half year pre-tax loss into a $921m half year profit just two years later. It's quite the turnaround.

The share price has responded accordingly. Two years ago Qantas shares were trading at $1.12, a fall of 80% since the memorable 2006 takeover attempt of the airline by Airline Partners Australia. Qantas shares closed yesterday at $3.79, an increase of 238%.

That, though, wasn't the peak of my humiliation. Alongside a large profit, Joyce also announced a dividend and share buyback. Airlines do not usually do this kind of thing, especially not one that just two years ago declared a state of emergency and asked the government to guarantee its debt. This is a company near the top of its game and riding its luck.

So, how did I get it so wrong?

First, Joyce got lucky, which in this industry is a pre-requisite to making money. The plunging oil price saved the airline $448m. What's more, there wasn't much in the way of the usual events that bedevil this industry. Volcano eruptions, crashes, staff strikes, bird strikes, pandemics and economic troubles have been largely absent.

Joyce can claim more credit for the second and third reasons for the turnaround. He stopped the capacity war with Virgin Australia, returning the domestic air travel market into a more comfortable duopoly. And he successfully led the airline to $262m in cost savings, part of a $2bn airline transformation program.

Joyce has surprised me. Having stuck for years to his policy of dumping capacity onto domestic routes to foil Virgin's advance, he realised the cost could no longer be sustained. If he wanted the airline to turn a profit (and for people like me to shut up), he had to take the airline to a more 'rational' competitive environment.

That's analyst-speak for major players in an industry tacitly agreeing to compete with each other, but not too much. Once Joyce called an end to the war, Virgin had no reason to continue with it and probably more reasons than Qantas to move on. This was a fight where the only victors were passengers and really, what's the point of that?

Joyce is to be commended for re-examining his stance. Too few CEOs manage to retreat from a tightly held position and then embark on an about-face. Joyce hasn't admitted anything of course, but acknowledging past errors is hardly a touchstone of the corporate CEO. The bigger point is that Joyce eventually saw sense and had the courage to do something about it.

So, having seen the error of his ways, do I see the error of mine? Will I be investing in Alan's new Qantas?

Not on your life. In an industry where the next disaster is only a matter of time, the very best management teams can come unstuck through sheer bad luck. The absence of such disasters, plus a lower oil price, helped boost the recent half-year profit. Their return, plus a higher oil price, could easily decimate the next one.

That's why investing in airlines is so difficult. You need a lot of luck for things to work out because so many factors affecting profitability are beyond the control of management. This is the essential truth of the industry: Under every impressive airline result is a bad business itching to get out.

Only time will tell whether Joyce departs before the poor business reappears but whenever that might be, I for one won't be predicting it.

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