James Gruber: Hi, Angus. How do you view the latest developments at Qantas?

Angus Hewitt: It's been an interesting few weeks for Qantas. They've posted a record profit of $2.5 billion and then it all came down from there. So, ACCC is investigating Qantas for selling on flights that had already been cancelled. CEO Alan Joyce has stepped down about two months early just after he was dragged into a Senate inquiry on cost of living. So, it's been a pretty turbulent few weeks for Qantas.

Gruber: And does it affect your long-term outlook on the company?

Hewitt: Our long-term view on Qantas is unchanged. We think this is about as good as it gets for Qantas and other airlines. Demand has rocketed back post pandemic, but supply is still fairly constrained by the availability of labor, aircraft and parts. This has led to expensive tickets and full planes and tremendous profitability for Qantas. We think that profitability will come under a bit of pressure as competition returns among other carriers.

Gruber: Could also margins come under pressure from costs going up as they try to appease regulators of some of the latest things that have been…?

Hewitt: Right. Yeah, it's definitely a risk. So, the new CEO, Vanessa Hudson, has said that they're going to have a renewed focus on customers. A big part of the issue with the negative press around Qantas at the moment, it really boils down to two things – cost, which I mentioned before, the expensive tickets, but also service. Service levels haven't been up to scratch. They aren't back to where they were pre-COVID. And a lot of this isn't the fault of Qantas specifically. It's issues that are across all airlines, whether that's flight cancellations or delays or baggage handling issues. But the spotlight is probably a bit brighter on Qantas as the dominant player. And as those service levels come back, we expect cost to come back as well.

Another thing worth mentioning is that the new CEO Hudson's first job as CEO is going to be navigating a mountain of capital expenditure. Qantas have a fleet of more than 300 planes, and these planes require significant investment. Qantas have probably under-invested over the last decade. And while this has been good for profitability, this has left a big CapEx bill coming. The pandemic has probably made things worse with the already aging fleet, and we're expecting CapEx over the next five years to be about $17 billion. That compares with about $8 billion in the last five years.