What happens if tomorrow Qantas runs out of cash?

18 replies

TheRealBabushka

Member since 21 Apr 2012

Total posts 2,060

What happens if tomorrow Qantas runs out of cash?

In light of the end of the age of entitlement, what would happen if Qantas goes through its pile of cash and the QSA is left unchanged?

Could Virgin, the airline that is not supposedly Australian enough in some people's eyes, be Australia's flag carrier?

I have to say it's terribly exciting to be done with Qantas and its baggage - to start afresh with Virgin Australia as the new yardstick. It's like pressing the reset button.

watson374

Qantas - Qantas Frequent Flyer

Member since 17 Aug 2012

Total posts 1,293

I would go with the idea that it would be deemed too big to fail, would be bought out by the Federal Government and nationalised, then restructured thoroughly into a new carrier.

Then partially flogged off again.

Think NZ.

TheRealBabushka

Member since 21 Apr 2012

Total posts 2,060

Yes if Labor was in government.

The current government has had to deal with the fallout of its donation to Cadbury. I don't think they could fathom saving Qantas if it fails.

nmalon

Qantas - Qantas Frequent Flyer

Member since 11 Jan 2013

Total posts 180

Totally Agree, I think QF would be renationalised and restructured.

The government could onsell a number of the good businesses to a third party buyer (ie selling domestic business) and keeping QFi under government control.

TheRealBabushka

Member since 21 Apr 2012

Total posts 2,060

So when push comes to shove the unprincipled action will be taken?

Interesting....

watson374

Qantas - Qantas Frequent Flyer

Member since 17 Aug 2012

Total posts 1,293

Pretty much.

trevor

Member since 22 Jun 2013

Total posts 90

As at 31 December 2013 Qantas had A$2.395bn in cash and cash equivalents. Granted, this was a nearly 15% decrease on the previous six months. Something would have had to have gone very wrong for Qantas to have lost all this cash in just over two months. Poor cash flow in the short term isn't a bad thing in itself, particularly if the cash is being reinvested into the business or being paid out in dividends. However, if cash flow is poor and at the same time revenue is weak then this is another question. It is also dependent on whether decline in cash is a long or short-term issue. Is it firm-specific or indicative of the broader industry? Looking at the broader industry, it's clear that Virgin has not been outperforming Qantas either.

Ability to get hold of cash (e.g. a loan) before going bust is important as well. At the moment you'd have to say Qantas would struggle. It has a junk status credit rating, the debt guarantee from the government has been knocked back and the QSA will not be changing anytime soon. Qantas has the options of selling its airport leases and frequent flyer program, amongst other things, some of which have been actioned, as a way of raising cash. And so even if it is unable to take out debt, Qantas would further look to reduce the size of its assets in a bid to raise cash.

Were Qantas unable to meet its obligations, if it ever got that bad, you would hope the government would have no choice but to step in.

It is still sad, however, that things have gone so badly wrong. Up until recently I did not feel management was particularly to blame. However, their pig headedness, obstinance and failure to 1. realise and 2. react to an inept strategy are starting to put even their most loyal supporters offside. Fine to try something, but if it clearly not working then DO NOT keep digging... It is bizarre that things have managed to go so badly wrong and it is a shame that Alan Joyce is unwilling to 1. open up the books and 2. front a Senate inquiry. Bigger things are at stake than Joyce and the Board's renumeration, reputation and credibility (they have long since disappeared, except the remuneration). Namely: a national icon and flagship carrier which millions of Australians rely on for transport as well as employment.

johnaboxall

Virgin Australia - Velocity Rewards

Member since 24 Aug 2011

Total posts 385

Everyone needs to remember that QF is just a business. A large one, that lots of people work for - but a business just the same. If for some reason the management team drive it into the ground (financially) the Government won't buy it out or perform some left-wing socialist charity miracle. The best you can expect is situation similar to the AN collapse. 

QFi isn't our only means of travelling abroad - and they aren't very good at it considering the competitions' efforts. So if they go, life goes on.  If QFd/JQ goes, I'm sure Borghetti has a room full of people working on a contingency plan to wet-lease some aircraft to plug the gaps. Then in twelve months time a new airline will most likely have picked up the slack just as Virgin Blue did in 2001 onwards. 

You can't just bail out a business if it's poorly run and/or has some emotional connection to some old-timers. Otherwise every business from the milk bar to Metcash would be cap-in-hand to the Commonwealth. You can't have that - we live in a gloablised market economy. Whether you like it or not. 

The only losers are the employees (some who tried really hard, some who some of can be partially to blame, and the others should have seen the writing on the wall) and people who hoarded QFF points. 

dazzaredroo

Qantas - Qantas Frequent Flyer

Member since 24 Mar 2013

Total posts 33

Love the hyperventilating....Virgin as Australian flag carrier with its world branding and Branson connection.... not likely.....more than never. QANTAS wont fade away just yet and regardless the chatter will shift to complaints about another product anyway.

whipper

Member since 17 Feb 2012

Total posts 50

Dumbest post ever.  I really don't know where to start it is so absurd. 

TheRealBabushka

Member since 21 Apr 2012

Total posts 2,060

whipper,

What is so absurd about it? Curious to know your thoughts.

spinoza

Member since 01 Feb 2012

Total posts 218

When I first read the question I thought it was dumb because it is inconceivable that Qantas would run out of cash tomorrow. However, if you view this as purely a hypothetical, I can let that go.

If it did magically run out of money tomorrow, it could easily do an equity raise. They would hate doing it since that would destroy shareholder value since the long term share price would be much higher than what they can sell shares for today, but they could in order to survive. 

The next thing I thought was absurb was this age of entitlement being over stuff. Unlike the car industry, which no economically rational person could justify rescuing, IF Qantas magically ran out of money tomorrow, and for whatever capital markets were frozen, administrators would come in to restructure the company. Failing that, the federal government would temporarily nationalise it. It would be economically irrational not to since the industry can support two profitable companies, assuming QF restructures and stops defending the 65%.

(In summary, there are many things QF can do to drastically destroy long term shareholder value if the only goal is to survive. i.e. sell off 100% of jetstar and QFF, sell all planes and lease back)

And while theoretically a new entrance could just come in and fill up all those routes and hire all the old QF staff, realistically that would take years, during which time those 27,000 employees would probably have moved on to other jobs (not sitting around waiting for a new airline to pop up). 

Thirdly, there are a ton of airlines, all of which do some things good and some things bad. Why does it matter who is the flag carrier and who is a yardstick. I'd say QF is the yardstick for premium lounges. CX/SQ is the yardstick for service. What is the QF baggage that is so weighing down the industry?

TheRealBabushka

Member since 21 Apr 2012

Total posts 2,060

Good response spinoza,

Love how you methodically stepped through it. Yes it is purely hypothetical.

QF Baggage = QSA + unionised workforce + romantic notion of being national carrier + Discord between current Board/ management and workforce

The baggage is not weighing the industry down. It is weighing Qantas down.

Virgin = No QSA + Limited unionised workforce (or more business friendly terms) + no romantic (irrational) notions of being a flag carrier + Limited discord between Board/management and workforce = A better yardstick to set the standard for airline operations in the country.

spinoza

Member since 01 Feb 2012

Total posts 218

I think the romantic notion thing is a plus and a minus. It is a plus in building brand loyalty - it is a minus as politicians make stupid decisions that hurt it, or its competition (e.g. QSA, debt guarantees). 

The reason I asked how it is weighing the industry down is because you said it'd be good to press restart. Why and how would it be good? Who would it be good for? 

I think competition is doing its job, because Qantas now IS forced to restructure, cut its costs, reduce union influence, in order to compete with Virgin. I think it is much less disruptive to the economy and to its employees for Qantas to now go through this change, instead of thinking that it needs to go under before a new airline can rise from the ashes. 

trevor

Member since 22 Jun 2013

Total posts 90

fitzy & whipper, the dumbest thing here is your failure to say why the post is so absurd...

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