Qantas: Investor Day Presentation 2019 #4 – Innovation, Profit and Cost reduction

UPDATED: 9 Dec 2019

Qantas presented to its investors on 19 November 2019, and its share price shot up a little over 2 per cent to AU$7:10.

That was despite signalling a slowing economy, both domestic and global. But maybe it was in reaction to a promise to improve Qantas’s domestic operational performance from 12 to 18 per cent return and to raise Jetstar’s profitability by even more, from 9 to 22 per cent over the next 5 years.

Alan Joyce, Qantas CEO is a numbers man, so we should not treat those promises lightly.

Business is tight, so cost-cutting is on the cards

Well, it doesn’t look like he’s aiming to improve these margins by substantial growth. In fact, both Qantas and Virgin have been keeping a tight rein on capacity.

If there is no growth, then they are really only left with creating efficiencies (cost-cutting), or increasing market share to reach those profitability goals.

It looks like they are primarily looking at ‘efficiencies’, or as Qantas describes them ‘transformation themes’. Now instead of the usual management consultant type head-count cut, they are heralding some digital improvements, from which they want to deliver AU$400m in savings or ‘new benefits’ in Qantas jargon, per year in the following areas:

Digitisation – which includes using the data they currently collect in a better way, automating business processes, and using robotics, and the holy grail – Artificial Intelligence through machine learning, natural language processing and facial recognition.

Fleet and Network – here they are looking at the increased use of the fleet they have, reducing the complexity of their fleet, matching capacity and demand better by route and cabin, reducing fuel consumption, and using newer aircraft which will cost less in fuel and maintenance while giving a better customer experience.

Ways of working – This is probably what most organisations would call ‘culture’. Qantas wants to be able to tailor, and make more ‘agile’ (ain’t that the all-purpose jargon word of the twenty-teens?) their delivery of services. Integral with this is giving more power to front line staff by providing insights, allowing experimentation, and something they tag as ‘stage-gate funding’. This is another mal-used bit of management consultant speak-muddle. Did you see what I did there – introduced two new two-word pieces of badly defined jargon!

What does it all mean practically

Qantas realistically looks like it is prepared to invest in order to save. That’s a much better view than the cut, cut, cut view of many organisations, which just leads to a reduction in service.

From the examples given in the presentation, although some areas will reduce person to person contact, which I think could reduce service levels, most of the proposed innovations are back office, or as Qantas also says ‘under the wing’ – an expression I rather like.

Qantas has spelt out some of its initiatives, some of which have already been announced:

Fleet and Network – retire the 747’s; reconfigure interiors of A380; purchase A320neo planes; look at A321 XLR as an option; more point to point flights; and they list ultra long haul as separate from Project Sunrise, which is intriguing.

Digitisation – this looks like the major area of innovation and includes:

Using acquired data and arming cabin crew and engineering with iPads which link directly to the front line operations centre. This will allow more anticipatory management of things like delays, as well as decreasing the amount of paper-based reporting – which also adds to their eco drive;

Using telemetry to integrate the airport mapping system with ground services equipment so that controllers can allocate equipment in real-time;

Developing a single Customer ID to better track their customers, and using the data from that in their Employee experience application. I’m presuming that means that they will be able to track all the touchpoints that a customer has had – I hope so that they can track how pissed-off or laid-back you are about your current experience with Qantas

In Automation, Qantas is looking to apply this to regular occurrences like disruption management, flight planning, schedule development. Customers can look forward to chat-bots (Ugh!) on the website and more automation at check-in and boarding. Not sure I am in favour of this – it sounds a bit like scanning and bagging your own grocery goods and Coles or Woolworths! Behind the scenes, automation will be applied to cyber threat hunting. They are also looking at ‘intelligent process’ automation being applied in the back office.

Artificial Intelligence will be used in everything from slot, schedule and crew optimisation through to predictive maintenance, waste reduction, revenue management, dynamic pricing (oh dear), as well as personalisation and biometrics.

Ways of Working – Qantas will introduce single-engine taxiing (to reduce fuel?), make its coaching of staff ‘agile’ – so more direct feedback I imagine.

Return on Investment

Qantas is counting on an ROI of 800 per cent on its investment in digital innovation just in revenue management. It is planning to make this as low cost as possible, by using a combination of capacity they already have in-house and recruiting existing university research and development to assist in this innovation.

2PAXfly Takeout

On the whole, these look like good developments, and frankly, I’m impressed at their view of innovation. My fear is always that the use of technology will affect the human contact that flying currently involves.

[UPDATE] I’m thinking about their complaint response emails. An acquaintance recently complained about flight delays which resulted in him missing half a full-day meeting. He received a tailored ‘cut-and-paste’ response, referencing things not complained about. With AI, this will get worse, with the resulting ‘computer says no’ feeling for customers.

I know that such practical things as on-time arrival and departure, price, comfortable seats, and reasonable food and beverage are important for customer loyalty, but for me, it is the personal contact with Qantas staff and subsequent service that is the biggest inducement to retain my loyalty. I just hope that doesn’t get lost in some of this technical innovation.