Taking flight

Qantas CEO Alan Joyce delivered the 2020 Shepherd Oration addressing the policy settings needed for businesses to recover from the pandemic.

I was delighted to accept this invitation to be here tonight for two reasons.

First, I am a firm believer that business leaders have a duty to speak up on policy issues that affect their employees, customers or shareholders. The business community has been getting better at this in the past few years – not just on economic issues, but social and environmental issues too, all of which are intertwined.

Second, it’s not every year that you get the opportunity to draw a bigger crowd than Flemington on the first Tuesday in November, especially for a discussion on public policy!

I think that neatly sums up the 2020 that we’re all having.

Fortunately, Australia’s fast and unified response to COVID shielded us from some of the impacts we’re seeing in other parts of the world.

We still face a huge task of rebuilding our economy.

But there are also great opportunities. Major shocks tend to accelerate change. Just look at the increased shift towards e-commerce and a cashless economy.

And crisis makes us more open to doing things differently – as seen from the entrepreneurial spirit of so many businesses that had to quickly pivot in order to survive.

Policy makers have the same challenge and opportunity – to make some wholesale reforms that often sit in the ‘too hard basket’. And that’s because we need structural change if we’re going to accelerate the post-COVID recovery.

There are three that I think should be at the top of the list:

• Putting more flexibility into a rigid, overly complex industrial relations system.

• Finding the right balance between regulation and the free market, especially on competition law.

• And not letting COVID distract us from the significant challenge of climate change.

IMPACT OF COVID ON THE QANTAS GROUP

I’ll expand on what I mean on each of those policy areas shortly, but – for context – it’s probably worth touching on how the Qantas Group is dealing with the COVID crisis.

As everyone knows, no other industry was hit as fast or as hard by this crisis as aviation.

When news on coronavirus started to emerge in January, we dug out comparisons to SARS to estimate what the impact might be on our business.

By March, the speed of the pandemic meant the scenarios around border closures that we thought would take months to play out were happening in a few weeks.

By April, we had shut down our entire international network, grounded more than 200 aircraft and stood down 20,000 of our people. Very difficult, but very necessary, decisions that I could not have imagined making at the start of the year.

Fortunately, the Qantas Group entered this crisis in a strong position. Our balance sheet was in good shape and we’ve been able to tap debt and equity markets to make sure we can withstand a crisis of unknown duration.

Fast forward to today, and we’re seeing some green shoots in most states. We remain hopeful that between Qantas and Jetstar, we’ll be back to 50 per cent of our pre-COVID domestic flying by Christmas.

Some of our key markets in Europe and the United States are likely to remain closed for some time – probably until an effective vaccine arrives. But we already have a one-way bubble with New Zealand and the Government is talking about bubbles with some parts of Asia and the Pacific. We can pivot quickly if that happens.

We’ve also had three parts of the business performing very strongly throughout the year:

• Qantas Loyalty – which is built on Frequent Flyer points – is performing extremely well despite the dramatic drop in travel. People want to keep earning points on the ground so they can fly again when things open up.

• Qantas Freight has benefited from the increase in online shopping, with volumes at levels usually only seen at Christmas.

• And our fly-in fly-out charter operations for the mining industry continue to perform strongly.

Despite these bright spots, we know the domestic market will be different on the other side of the pandemic.

That means we need to be different too.

What worked for us in 2019 won’t necessarily work in 2021 and beyond.

That’s why we’re implementing a three-year recovery program, that will permanently reduce our cost base by around $1 billion each year.

The challenge is to do this without compromising on the things that make Qantas one of the world’s best airlines.

The things that drive customer loyalty.

Our commitment to serving regional communities. To innovate and push boundaries. To be there, as the national carrier, when it counts.

THE PUBLIC POLICY RESPONSE TO COVID

Our response to the COVID crisis has largely been dealing with the travel restrictions put in place to help control the outbreak.

The past few months have shown there’s nothing quite like a pandemic to remind everyone of the central coordinating role of government.

And in the early days, those efforts were superb.

The National Cabinet saw the states and federal government working hand-in-glove. The decisions were swift, sensible and offered a lot of reassurance during what was – let’s be honest – a very unsettling time. It felt like political agendas and ideologies were checked at the door in exchange for getting things done.

The decisions made by the Prime Minister, Deputy Prime Minister and Treasurer are good examples of that. A return to budget surplus was a clear policy objective of their government. But circumstances changed and they didn’t flinch at doing what the economy needed. What Australians needed.

That included Jobkeeper, which has been instrumental in providing a social safety net for millions of Australians – including thousands of people at Qantas.

The Federal Budget showed a continued willingness to support the economy with a huge increase in spending.

Unfortunately, the solidarity of National Cabinet did not last.

Nowhere is this more evident than the rubik’s cube approach to state borders.

At first, decisions around borders were made on the basis of the health risk. And that’s fair enough. But now they seem to be driven by politics and populism.

Before the election, the Northern Territory Government said their borders would be closed for 18 months. After the election they opened in a matter of weeks.

Queensland has dragged its heels on opening its borders to other states, and the day before their election announced it would remain closed to Greater Sydney because of four cases. Four. On a day of zero cases of community transmission, the Premier went further and said the closure would remain until December. As we said at the time, this is ridiculous. Australia will be living with this virus for a long time and Sydney is probably a world leader in managing it.

We were ready to add over 1000 flights between Sydney and Queensland for the month of November, but this remains on hold due to a policy that makes no sense. That will cost the Queensland economy hundreds of millions of dollars a week.

It’s good to see some relaxation of borders over in the West, but their refusal to open up to Sydney is also disappointing.

The Business Council estimates that Australia is losing $319 million a day because of closed borders.

This inertia is destroying jobs and creating a mountain of red tape for business.

I’ll give you a couple of examples:

• When Queensland implemented its border bubble pilots, airport workers, engineers and cabin crew who lived in the NSW border zone could not drive to Brisbane Airport to commence work. They could only arrive by air. So instead they had to drive across the border to Coolangatta, fly to Sydney, and then fly to Brisbane to start their shift. This insanity lasted two weeks. All the while construction workers living in the same region were allowed to enter Queensland any way they liked.

• In WA, we couldn’t fly local pilots and crew to Sydney or Melbourne for mandatory training on our simulators, despite exemptions being in place for other operating crews. Given the 14-day quarantine requirements we were at risk of running out of qualified pilots and crew, putting WA services at risk. It was a month before WA authorities saw the light and it cost us $800,000 as we amended the network and roster.

Since the borders first went up, there have been more than 100 changes to the rules governing their closure.

Each change has a significant impact on businesses.

For Qantas it meant implementing new procedures and training for our crew. Sometimes it has meant operating out of a new terminal overnight.

Some policies have had to be shredded before they were even implemented, as the rules were changing so fast.

And Qantas is far from alone in its frustration.

There have been tragic cases of people unable to access urgent health care, unable to attend funerals, and children unable to go home during school holidays.

If we took the same zero-risk approach to flying as some states have on their borders, we wouldn’t put any aircraft in the sky.

Instead, we mitigate the risks through robust procedures and policies. These are constantly revised and reviewed.

It’s the reason that flying is the safest form of transportation.

Instead of throwing up hard borders to eliminate risk, states should be looking at ways to mitigate the risk and to open up safely.

NSW is a great example of a state that is doing just that.

It can be done.

With Victoria finally taking cautious steps out of lockdown, now is the time to ensure we don’t have a repeat scenario where the whole notion of Federation is undermined.

I have eight airlines in the group, each with its own head of safety. And they can come to an agreement on what is safe so that we have common practices. But for some reason the Chief Medical Officers for each state and territory can’t reach agreement on the medical advice.

We continue to call on National Cabinet and the Australian Health Protection Principal Committee to adopt a national approach to borders. What we don’t want is borders slamming shut again when there is a temporary spike in one state or another.

GETTING THE POLICY SETTINGS RIGHT

Let me turn now to the longer-term policy settings businesses need to get back on their feet.

The Prime Minister has said this will be a business-led recovery.

For that to happen, we need governments to get the policy settings right.

As I outlined earlier there are also some key reforms that can be the catalyst for a strong economic recovery in this country.

Industrial Relations System

First to industrial relations.

At the outset of this crisis, it was great to see the Federal Government, peak unions and employer groups discuss industrial changes to help deal with the pandemic. To put pragmatism before ideology.

Whether this will be effective or not, remains to be seen. We hope it is.

Our lived experience with some unions during the pandemic shows why systemic change is necessary.

Take the Australian Licensed Aircraft Engineers Association.

They took us to court challenging our decision to stand down our employees, claiming that we should be flying empty planes during the pandemic so that their members would still have work to do. They stuck to that argument despite recognising that it would be – to quote their legal team – “unbelievably loss making”.

Fortunately, the Federal Court threw out the union’s claim. But we spent time and money defending this, in the middle of a pandemic.

We applaud the Government for committing to industrial reform. We would argue that these changes need to provide more flexibility and certainty.

Let me start with what we mean by flexibility.

Faced with billions of dollars in lost revenue, we’ve been able to immediately pause wage increases for our executives.

But for employees on enterprise agreements – which cover the vast majority of our workforce – we have to go through lengthy negotiations with unions and then a vote to change provisions that don’t work in a post-COVID world. That can take months or years, despite the complete mismatch between an agreement made pre-COVID and the state of the economy post-COVID.

And flexibility goes both ways.

The pandemic has changed the nature of work for many. More people are now working from home, and the days where everybody works in the office from nine to five every day are a thing of the past.

Many industrial instruments stipulate core work hours – for instance from 8am – 6pm. This doesn’t account for a parent working from home who might want a few hours off during the middle of the day to look after the kids and would prefer to log back on later.

With business-as-usual turned on its head, we need an IR framework that lets employers and employees make adjustments more easily.

Secondly, there needs to be more certainty.

When we invest in aircraft, it’s a 20 or 30 year commitment.

But we can only negotiate enterprise agreements that cover three or four year periods, so there is significant ongoing uncertainty with one of the largest costs to the business – namely, labour.

Business needs the ability to negotiate longer term agreements that better align with long-term investment decisions, to give certainty. It also provides certainty for employees and avoids what is typically a drawn-out enterprise bargaining process – which, with the backdating of agreements, can mean you’re negotiating every 18 months.

The Risk of Over Regulating  

I mentioned earlier that the pandemic showed the importance of government stepping in to fix problems that the market cannot.

There’s a flipside to this: making sure government intervention doesn’t cause problems that the market is best placed to solve.

A prime example is how competition is regulated.

The ACCC has been clear that it wants to see plenty of competition in the aviation sector as we come through COVID.

We agree.

But we think the ACCC is ignoring the substantial challenges all players face – including Qantas.

Virgin has come through administration with a much lower cost base. They’ve been able to walk away from deals – from aircraft leases to supplier contracts to loans – that Qantas can’t.

And now REX plans to enter the Melbourne-Sydney-Brisbane triangle with its own jet services.

For an industry picking itself up off the floor, this is an incredible amount of competition.

And yet the Government and ACCC feel we need a dedicated monitoring team to make sure there’s plenty of competitive tension.

You can understand why our people find it ironic that there is now a team of public servants at the ACCC dedicated to keeping an eye on Qantas, when Qantas itself has most of its workforce stood down given the state of the industry.

We now have ongoing monitoring to the ACCC to comply with, on top of all our other challenges.

There’s a significant risk that this kind of oversight becomes a post box for grievances rather than things in genuine need of regulation. For instance, when REX complained about our plans to fly from Sydney to Merimbula and Orange because they’d previously enjoyed a monopoly on these routes.

I would have thought that bringing competition to regional cities for the first time in decades would be something the ACCC would welcome, not force an airline to defend.

Similarly, the ACCC has been very public with what form it thinks the aviation market should take in recovery – right down to the need for business class and lounges. But surely this is for the market to decide, guided by customer demand? And where does that kind of intervention end?

We agree with the need for competition – but the market has delivered this in spades over the past decade. And there is no sign that’s changing.

The last thing business in any sector needs right now is more red tape, taking time and energy when we should be focused on recovery.

Climate change

The third policy area we need to focus on is climate change.

For much of Australia, the bushfires at the start of this year were the clearest sign yet that we ignore climate change at our peril.

Then COVID hit.

Understandably, people are much more focused on dealing with the near-term impacts of a pandemic than incremental global warming.

But we know the longer we wait to genuinely tackle climate change, the harder it will be.

Other countries haven’t let the pandemic dull their ambitions. In recent weeks China has pledged to be net-carbon zero by 2060. Japan and Korea have committed to reach net zero by 2050.

These are the largest purchasers of Australian thermal coal and gas, and their decision to move away from fossil fuels will have a significant impact on the revenue earned from exports in the coming decades.

Then there is the United States. A Joe Biden victory tomorrow would also see the United States adopt net zero by 2050.

That would mean Australia’s top seven trading partners, accounting for well over half of all of our two-way trade, have all pledged to reach net zero emissions.

The world is becoming more ambitious in tackling climate change, and so must we. Australia’s policy progress has been slowed by deeply partisan debates. We’ve let science lead the way on the pandemic, and it’s worked. Why should climate change be any different?

Qantas has set its own targets – to reach net zero emissions by 2050. And it’s fair to say we’ve made much faster progress towards this goal than we expected – given most of our fleet is currently grounded.

Part of our emissions plan is investing in a Sustainable Aviation Fuel industry in Australia and to work to minimise waste through the circular economy.

Sustainable Aviation Fuels are the critical component in achieving our targets. On average they emit 80% less carbon than jet fuels.

In Europe and the US, they are emerging as a viable alternative – thanks largely to government policy, national and state financial support and major partnerships to develop refineries.

Australia should be doing the same thing. For example, Western Sydney Airport should not open without a biofuel facility from day one.

The government’s new energy plan is a great step in the right direction. And it delivers more of the certainty that business needs. But as it is further developed it must encourage a lot more investment in sustainable aviation fuels. The challenge of COVID hasn’t blinded us to how important this is, and the need to keep investing in lower-emissions technology.

CONCLUSION

Let me conclude.

In less than two weeks Qantas will turn 100.

The timing could not be worse.

But we remain fundamentally optimistic about the future of Qantas, and much of that belief is because we know Australia will bounce back.

We have the opportunity now to ensure that we accelerate the recovery, through smart policy reforms that unlock investment and reflect the new world we’re living in.

Domestic tourism can be a key part of that rebound.

Everybody at Qantas – from the engineers who we have working on plans to bring our aircraft out of hibernation, to our pilots and cabin crew – is itching to get back in the air.

So, while 2020 hasn’t been the Centenary year we’d planned, I know the Flying Kangaroo will be back stronger than ever.

And so will Australia.

This nation has done a remarkable job of managing the COVID crisis. And we have the ability – with the right reforms – to build a much better future.

Thank you.

This is a transcript of the 2020 Shepherd Oration delivered by Alan Joyce on 3 November.