Project Sunrise looks set to go-ahead and an announcement should be made in a matter of weeks, if not sooner. Qantas has placed a speculative order for slightly modified A350-1000s but Airbus will not hold that order past 31 March 2020.
It is decision time at Qantas and things are starting to heat up. Let’s do a wrap up of what’s going on at the moment.
The numbers stack up
Qantas has long argued that Project Sunrise will only go ahead if the numbers stack up. According to analysts at UBS, the numbers do stack up.
Their analysis, reported in The Financial Review, suggests Project Sunrise could deliver Qantas an additional USD$121 million in pre-tax profit in the 2025 financial year. Qantas wants to start flying the ultra-long-haul flights in 2023.
This estimation is based on several assumptions. First, the A350s will seat just 250 passengers, allowing for a premium seat heavy fit-out. Second, UBS is forecasting fares on Project Sunrise flights will be 10% higher than on existing flights which involve stopovers.
Third, based on a 32,000-kilometer return flight, UBS forecasts average revenue per available seat kilometre (RASK) of USD$0.083, generating a total revenue of some USD$740,000 per flight.
Taking into account the premium seat heavy fit-out, UBS says this is a 29% premium in revenue generated per seat in comparison to existing stopover flights.
UBS also says that Project Sunrise will cost Qantas USD$800 million annually between 2023 and 2025.
The pilots pay deal is not yet resolved
These numbers should have the champagne corks popping in the Qantas C-suites. But one stumbling block remains; a pay deal with pilots. Qantas has long argued that Project Sunrise will only go ahead if the flights will make money. As it seems they will, that argument falls by the wayside.
So far, Qantas has failed to negotiate a pay deal with the pilots union, the Australian International Pilots Association (AIPA). Qantas says it needs to secure a new pay deal with productivity improvements to make Project Sunrise work.
This has been dismissed by some pilots and analysts. They argue that if Project Sunrise is so marginal that it comes down to a pay deal, the idea isn’t viable. The UBS analysis and its revenue projections suggest Project Sunrise is viable and isn’t dependent on the outcome of a pay deal.
The failure to reach a pay deal is despite Qantas reaching a pay deal with its short-haul domestic pilots around Christmas time. That deal gave hope of a break-through here.
But Qantas has a reputation for playing hardball in its IR negotiations, and it appears the Project Sunrise negotiations are following that course.
An interesting email from a senior Qantas manager dropped yesterday
The contents of a recent email from Qantas International CEO, Tino La Spina, has been widely published in Australian media today. In that email, sent to pilots, Mr La Spina suggested Project Sunrise will be going ahead – with or without them on board.
“It’s become clear that Sunrise is something that our international business needs to maximise its long-term success and defend its competitive position.
“We have informed AIPA (and are now informing you) that if we are unable to secure a new long-haul EBA10 agreement with our pilots that meets the Sunrise investment case within Airbus’ time frame, we will be left with no viable alternative but to have Sunrise flying performed by a new employment entity that can provide the cost base we need for this important business opportunity.
“To be absolutely clear, this is not our preferred option. And we know that flagging this will not be well received by many of you.”
According to a report in The Australian today, that would mean approximately 400 pilots would be sourced from overseas and used on Project Sunrise flights.
Qantas may also skip union and approach pilots directly with a pay deal
It seems employing new pilots is just one card in Qantas’ hand.
Qantas says that if it cannot reach a deal with AIPA, it will approach pilots directly and offer terms. According to a report published overnight in The Financial Review, Captains would receive an annual base salary of USD$265,400, first officers would receive USD$175,370 and second officers would receive USD$86,680.
Qantas maintains that it wants to reach an agreement with its existing pilots. Over the past few months both Qantas and AIPA have blamed each other for failing to reach an agreement. AIPA has long said it is in favor of Project Sunrise. A growing airline means more jobs and more members.
One of the sticking points is the salary for second officers on Project Sunrise flights. Qantas wants to pay future second officers less than it will pay existing second officers. AIPA isn’t happy with this.
The union could be left out in the cold and it isn’t pleased
Nor is AIPA happy about the email from Tino La Spina. In response to an inquiry from Simple Flying, AIPA President Mark Sedgwick said;
“Such unnecessary threats will, unfortunately, precipitate a new low in employee engagement at Qantas. Project Sunrise involves multiple safety and regulatory issues that AIPA on behalf of Pilots has been working through.
“The approach that Qantas is now showing publicly has been a characteristic of these discussions and shows how this business would apparently prefer ultimatums at this critical juncture to building consensus.”
So, to summarise, it appears Qantas is going to go ahead with Project Sunrise. While they’ve always maintained it was contingent on the numbers adding up, analysis by USB indicates that the numbers add up.
The variety of options Qantas has for resolving the pilot’s pay deadlock and the fact that they’ve been publicized, suggests the airline is willing to step outside the box to get the long-haul flights off the ground.
The sudden burst of activity suggests Qantas is poised to make a move. It certainly indicates a willingness to ramp up pressure on AIPA to get a deal.
But anyone who follows Qantas and its CEO, Alan Joyce, shouldn’t be surprised. The airline likes to get what it wants – and usually does.