The word 'basketcase' does not begin to describe Qantas

Now that Qantas is running at a profit again, the Australian public and the consumer watchdog think CEO Alan Joyce is short-changing them.

That's probably why he got a hard going-over in a hastily convened Senate inquiry into the cost of living earlier this week.

Senators wanted to know when airfares were coming down, which tells you something about how rich Australia is when airfares are seen as an essential part of the cost of living.

And in one sense, it is quite unfair as the price of airfares has come down dramatically over the years. I remember being flown to Canberra and back to Brisbane economy class in 1980 for a price of $600. That would be $3,133 (US$2,030) today, or more than the price of a return flight to London.

But that's the long view.

On a shorter view, it's not unfair, because as cheap as flights are, they could be a lot cheaper. And if they were, a lot of people would be better off because the businesses they own, or are employed by, would be so much more profitable.

Back to the public short-changing. The internet is full of complaints of bad Qantas service-baggage lost, but more importantly, flights cancelled.

Qantas, Australia's national carrier, operates under two brand names-Qantas, the premium brand, and Jetstar, the cut-price version.

A recent popular meme targets Jetstar. It features a photo of recently deceased Russian mutineer Yevgeny Prigozhin with the caption "Wish I'd flown Jetstar"-the joke being that the flight would have been cancelled.

Now the Australian Consumer and Competition Commission (ACCC) is suing Qantas for selling seats on flights for up to 47 days after they were cancelled! There is also a class action against Qantas by other customers for not refunding fares from COVID-cancelled flights.

Then there is their obvious cosying up to the federal government with support for the prime minister's political causes and the granting of membership to the Chairman's Lounge (Qantas's act of grace, and by-invitation-only company largesse, for the rich, influential, and famous) to the prime minister's 23-year-old son.

And the imputed result of this? The federal government blocked the application by Qatar Airlines to double their international flights to and from Australia on the basis that preserving Qantas's profit was "in the national interest."

"The nation (that is, us)" appears to be the government's mantra because it didn't help any of the individuals that make up the nation.

Giant moneybag acquired

Getting a corporate onside for your favourite campaigns seems like a good deal for the government, but what if consumers see the truth-they are subsidising the government?

And see the truth they do.

Qantas needs to take the advertising for The Voice off those three planes if they want to help the Yes campaign or hangar the planes for the duration because all most Australians see is big government cronyism, not reconciliation.

For shareholders, the joke (on them) is that over the entirety of Mr. Joyce's 10-year incumbency, the combined profits and losses basically net out. Yet Mr. Joyce's pay packets have been stratospheric-the only thing to be stratospheric in the entire operation apart from the jetliners.

Oh, and there's this year's profit, which at $1.7 billion strikes the average Aussie as stratospheric and at their expense, although for shareholders it was a long overdue pint of Guinness.

As for Mr. Joyce, he got a year's pay packet worth around $24 million. The size is partly due to his deferring $6.8 million worth of incentives during the pandemic years, a period when the airline posted statutory losses of $6.8 billion. Pure gall and public relations.

To be fair, airlines are a tricky business. There is prestige for some nations in having their own national airlines, Wikipedia lists 107 of them, with barely a first-world country there, apart from Canada and New Zealand.

So a number of airlines are subsidised by foreign governments, which means that when it comes to international flights, rich Australians are subsidised by poor foreigners. This is not good for foreigners but very good for rich Australians, and nothing would be changed if we restrained our overseas travel.

However, it is financially poisonous for Australian domestic airlines flying internationally, like Qantas, as they have to keep shareholders, not autocrats, happy.

Capital costs to hit like a truck

Presumably, governments that own airlines think they are getting a good deal, and possibly they are because they get to keep whatever profits are made.

Australia seems to be getting the worst of both worlds.

We don't have a government-owned airline, but we have a private one that gets the privileges as though it were government-owned, even though it was privatised by the Hawke/Keating government between 1992 and 1995.

However, the financial mechanics aren't necessarily that good. When you buy an airline, you buy a position on the price of oil. Somewhere around 30 percent of airline expenses are made up of fuel. When your profit margin is somewhere around five percent in a good year, fluctuations in fuel costs can wipe it out or magnify it.

Qantas's share price at $6.03 is up about 20 percent this year but still below the December 2019 price of $7.39 (Dec. 19, 2019), which could reflect a rational decision by shareholders that future fuel costs are likely to rise and eat into the profit.

They also understand that Qantas has underinvested in aircraft, with the average age of the fleet now being 15 years (pdf).

To put that in perspective, the average age of the Australian motor vehicle is 10 years.

My own car is 16 years old, and to replace it with a new car, I would need to spend eight to nine times its current value.

I'm ready for the financial shock. Seems like the shareholders of Qantas might be too.

It's an old trick to boost profits, share prices, and executive incentives by running down the capital of a company to boost the bottom line.

Mr. Joyce's successor, Vanessa Hudson, is going to have to find $14.6 billion to replenish the fleet.

"Chainsaw" Al Dunlap made himself famous and rich in the late 20th century by boosting profits at the cost of maintaining assets to a number of companies that later fell, or almost fell, to pieces.

Does flying have a future in Net Zero

The other problem for Qantas, and all other airlines, is net zero and the federal government's National Energy Guarantee (mirrored in a lot of overseas countries).

What our Guarantee demands is that by 2030, the largest 215 Australian companies will have dropped CO2 emissions by 30 percent.

How do you do that if you are a transport company with 30 percent of your costs fossil fuels?

Well, you can buy offsets-pay Aussie farmers to plant trees, for example-but there is a limit to that before good cropland that could feed poor people is feeding rich people's travel habits instead.

And the reason we burn fossil fuels is that we were running out of trees to burn anyway, and that was in the 18th century, so the maths say you can't plant enough to make the difference.

A couple walk hand in hand down a lane lined with oak trees in the Port Arthur Historical Site in Australia on April 18, 2016. (Mark Kolbe/Getty Images)

The aviation industry has put its faith in "Sustainable Aviation Fuel." This is made from recycled cooking oils and forestry residues.

How many fish and chip shops do you need to recycle the grease from in order to fly one person to Europe, let alone a whole plane load? That you can run an international transport industry on it sounds like a load of codswallop to me.

Thankfully, no one is seriously talking battery planes, which, given the battery weight, would only work if you didn't carry passengers or luggage.

Mr. Joyce is probably across all of this, but the senators at his inquisition let him off lightly without asking any of the hard questions.

The hearing reminded me of how degraded not just politics is today but business. I remember when billionaire Kerry Packer fronted a senate inquiry with senators who, next to the current crop, look like giants, but he made them look like pygmies too.

Mr. Packer memorably said about his tax minimisation strategies, "You're not spending it [taxes] that well that we should be donating extra."

Mr. Joyce is not Mr. Packer, but that is part of the problem.

Mr. Packer commanded respect and deserved it because he was an owner. His reward in ensuring his companies ran well came out of his dividends, not his salary. There was no incentive for him to squib on investment for the sake of a short-term share price boost.

Today's princelings are bureaucratic pretenders who have played corporate politics to climb to the top of someone else's capitalistic castle, and they treat the shareholders as serfs.

It's distressing that the federal government has such a weak understanding of the common good and their own power that they abase themselves to the Qantas' of the world.

Meanwhile, Mr. Joyce gets to disappear into the distance.