The value of a social licence

Written by Mia Wegener

In a highly developed country boasting stringent regulatory bodies, one would expect adherence towards the idea of a social licence to be something of a given. For the majority of firms, operating with a social licence aligns neatly to operating with common sense – operating according to a logical and practical understanding of what is considered socially acceptable. While maintaining the integrity of one’s social licence does not necessarily come into direct conflict with profitability, it does mean that profit is no longer a complete measure of a business's performance.   

For over a century, the bottom line has dominated corporate decision making. A rise in ESG activism in recent decades has required companies to become more accountable for their social and environmental impact, but, even with this broader equation, the common denominator for most corporations remains profit maximisation.  

By such standards, the Qantas Group represents a marker of success with a market cap of $5.5 billion and an underlying profit of $2.47 billion recorded in FY23. This profit dwarfs the companies’ previous profit record of 1.6bn in 2018 and represents a 90% increase on its last pre-covid profit in 2019. At the same time, Qantas reduced its net debt by over $3 billion since 2021 and increased its operating margin to 13.5% - significantly exceeding the 8-10% range typical for the industry. 

However, if we go beyond these traditional economic metrics, a calculation error in which Qantas has effectively equated shareholders to stakeholders and compromised its social obligations becomes evident. The following illustrate the ways in which Qantas has neglected its social licence; 

Cutting costs 

This record profit was assisted by the $1 billion that Qantas cut in structural costs during the pandemic years. To provide an example, in March 2020 the Qanats Group had 29,400 employees and in 2023 they disclosed 23,500. This 20% reduction in personnel includes the illegal dismissal of 1700 ground staff in 2020 - a feat that occurred simultaneously with the receipt of $2.7 billion in government Covid subsidies to retain workers. These pandemic layoffs and resultant understaffing issues have led to an increase in lost luggage, flight delays, and cancellations.  

Covid credits  

Qantas still owes hundreds of millions of dollars in unused Covid travel credits pertaining to cancelled bookings made between March 2020 and October 2021. Originally, these credits were set to expire December 31st, 2023, whereupon the company would have gained the proceeds in profit. Although pressure from the ACCC persuaded Qantas to eliminate the expiry date, the credit liability remains controversial due to rising airfares meaning that customers have to pay in excess of their credits to receive the same service they originally purchased.  

Fee for no service  

Between May and July 2022, Qantas sold tickets for 8000 flights that had already been cancelled. Passengers who bought the tickets were then forced to purchase more expensive ones after the cancellations were announced. After having cancelled the flights internally, Qantas continued to sell tickets on its website, often for more than two weeks and in some cases for up to 47 days. On average, customers were only informed of the cancellation 18 days after the flight had been internally cancelled, and predominantly only several days before the flight was scheduled to depart. The ACCC has subsequently filed a lawsuit against the company for deceitful conduct and breaches of consumer law.  

Lack of competition

The Qantas group holds 61.1% of the market share for domestic flights in Australia, 52% of the market for flights into Britain and 42% of flights into Europe from Australia when combined with its code sharing partner Emirates. Qantas’ overt market dominance came under further scrutiny in 2022 when Qatar Airways applied to double their capacity and add 28 flights a week into Sydney. The Australian government declined the request, citing the protection of Australia’s “national interest”. National interest in this case, however, remains deliberately ambiguous as according to financial analysts, allowing Qatar to increase its market share would reduce domestic airfares by up to 10% at a time when customers are paying more than 30% higher than pre-pandemic levels.  

ESG consequences  

All of this behaviour is not without consequence. Qantas was Australia’s 3rd most trusted brand in 2018 and has since fallen to Australia’s 3rd least trusted brand in 2023. The proportion of consumers who would consider flying Qantas domestically has fallen by almost 20 points. It is now only 2 points above its low-cost Jetstar subsidiary and 19 points below that of Virgin. Only 39% of customers believe that Qantas is transparent with the market and a total of 4000 complaints directed towards Qantas were received by the ACA in 2022. Essentially, the credibility of the brand has collapsed in the public’s eyes.   

So, reviewing the figures again, Qantas ended FY23 with a 62% increase in profit margins but also ACCC’s title of the most complained-about Australian company for the second consecutive year, a lawsuit facing tens of millions in fines, a CEO forced to leave two months earlier than planned, and a 31% decrease in domestic consumer trust.  

From this it is evident that it is neither sustainable nor desirable for a company to prioritise their financial returns at the expense of customers, employees, and the market. The share price is telling; since the profit was announced in August 2023, the value of Qantas shares has fallen almost 20% as investors respond to the social expectations the enterprise has traded off. It remains to be seen whether this widespread reputational damage risks contributing to declining bottom line results over the long run.