Qantas gets a second slap down to 'junk' status

By David Flynn, January 9 2014

Qantas has started 2014 facing even tougher times as the second of the world's leading credit rating agencies downgraded the beleaguered airline to 'junk status'.

Moody's today joined Standard & Poor’s in knocking Qantas from medium-risk investment grade to the high-risk junk category, placing Qantas in a precarious financial position.

Moody’s senior vice-president Ian Lewis parked the cause for his agency's downgrade squarely at the doorstep of Virgin Australia as the challenger continued to eat into Qantas' share of the domestic market "far more extensively and rapidly than our previous expectations."

"The cause of the deterioration in the operating profile is largely due to the aggressive competitive actions by Qantas' key domestic competitor, Virgin Australia" Lewis explained.

"Qantas’ domestic business will remain challenged as Virgin’s actions, and Qantas' response to maintain market share, continue to pressure yield."

Also read: Is Qantas still the world's safest airline?

The high cost of 'junk'

The downgrade could see the airline hit with higher interest rates on future borrowings, along with higher leasing and exchange rate hedging fees, due to it being classified as a high risk.

Qantas could also see hundreds of millions of dollars in airfare purchases wiped from its cashflow.

Credit card companies have to date allowed Qantas to include money paid for tickets as part of its $2.8 billion cash balance before flights were taken.

However, airlines in the high-risk category – which includes almost every airline in the world, including Virgin Australia – must put these forward funds into escrow until the flight takes off.

This would compound the pressure on Qantas' now-declared 'negative cashflow' – in plain English, Qantas is spending more than it’s earning. 

Qantas facing a record loss

Qantas is expected to face a record loss this financial year, with analysts forecasting the beleaguered airline will post a 'loss before tax' of $868 million.

In an investor note issued late last year Merrill Lynch dramatically lowered its projection for Qantas' 2013-2014 financial year from a previously pegged loss of $150 million, in response to Qantas' flagging a loss as high as $300 million in the six months from July to December 2013.

Read: Qantas warns of $250m-300m loss, 1000 jobs to be cut

Like Moody's, Merrill Lynch analyst Matthew Spence singled out pressure on Qantas' domestic operations as coming from Virgin Australia "aggressively chasing corporate market share, continued excess capacity, and weak underlying demand."

Conditions are not expected to improve in the first half this year, which is historically the weaker portion of the financial year, with oil prices, foreign exchange rates, passenger demand and increased capacity cited as "key swing factors" in pushing Qantas further into the red.

Qantas reported a $244 million 'loss after tax' in the 2011-12 financial year – its first since being fully privatised 18 years ago – although twelve months later it managed to rebound to a thin post-tax profit of $6 million.

The airline could offset its high expected losses through partial sales of profitable business units including Jetstar Australia and the Qantas Frequent Flyer scheme.

Read: What if Qantas sold its frequent flyer program?

Another option is to sell its terminals at Sydney, Melbourne, Brisbane and Perth airports back to the airport authorities.

Although the leases on those sites have many years left to run, Morgan Stanley analyst Julia Weng recently estimated "the collective value of these terminals could be more than A$500 million."

Qantas can also count $30 million from the already-announced March 2014 closure of the airline's Avalon maintenance base in its favour.

One analyst has even suggested that Qantas should hang onto its lucrative frequent flyer scheme but sell as many as 42 billion (yes, billion) frequent flyer points for a $500 million cash windfall.

Read: Analyst says Qantas should flood the market with frequent flyer points

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David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Virgin Australia - Velocity Rewards

01 Mar 2012

Total posts 169

If it was any other company give the amount of turmoil that it has been through, management would be falling on their sword. A forecast loss such as that has made their position untenable.

Qantas - Qantas Frequent Flyer

17 Aug 2012

Total posts 2221

Joyce and his management team have repeatedly shot themselves in the foot. All they need to do now is shoot themselves in the head.

As a customer who has had nothing but good experiences with Qantas, this news is little short of tragic.

Etihad

23 Jan 2013

Total posts 175

If Qantas collapses then another airline will take its place. 

Time to stop shedding tears for this faux Australian icon. 

06 Dec 2013

Total posts 10

We've seen it before. Difference is Qantas is majority Australian owned as Ansett was. Virgin Australia is 0% Australian owned. Any airline replacing Qantas will also be 0% Australian owned.

Which one is a faux Australian icon?

Given management and ownership is Australian, then Qantas is still more Australian than Vegemite.

Virgin Australia - Velocity Rewards

31 Jan 2012

Total posts 108

I have shares and im Australian

Etihad

23 Jan 2013

Total posts 175

I see Australian jobs as more important than Australian ownership. 

At least Virgin isn't shifting it's workforce overseas at the rate Qantas has been. In fact, quite the opposite is occurring at Virgin. 

Virgin Australia - Velocity Rewards

24 Aug 2011

Total posts 736

Ansett was 100% owned by Air NZ after News Corp sold it to them in 2000. 

20 Feb 2012

Total posts 128

guess the EK deal has been very successful

diverting the hub from lucrative and fast growing Asia to stagnant Europe was bound to give a brilliant return!!


in other news QF no 1  archrival  CX is going to make a healthy profit .

of course state pal QF is blocking CX  and other airlines form expanding to Aussie- else the loss would be greater.

06 Dec 2013

Total posts 10

CX already has more destinations in Australia than any other international country. No blocks here.

20 Feb 2012

Total posts 128

wrong CX wants to expand and is not allowed to while the Chinese carriers are allowed the same

 

that is where the block is

12 Dec 2012

Total posts 938

Wrong. The Hong Kong-Australia bilateral is different to the China-Australia bilateral.

CX has used all the HK-AUS flight slots Hong Kong is allowed under the HK-AUS argeement.

There are still slots available for Mainland China based airlines to operate into Australia.

 

If CX wants more flights to Australia, then it either needs to get the rights from the PRC to base out of the mainland (and thus get access to the mainland slots) or get the HK Government to negationate with the Australian Government for more slots.

20 Feb 2012

Total posts 128

exactly negotiate with the Australian govt that does everything as according to QF

the bilateral would have been expanded a while ago if QF had no issues with CX expanding

CX is not even as large as EK/SQ to Australia

06 Dec 2013

Total posts 10

CX flies to 7 Australian locations.

That's the most is flies to.
Second highest is 6 to China and 6 to Japan.
Other countries do no accept as many flights.

As stated - Cathay Pacific flies to more Australian airports than any other country it flies to.

There is no more possibility to expand.

20 Feb 2012

Total posts 128

wrong CX has many countries where it flies to more than 7 ports!!!

 

and expansion can ocur in the form of increasing frequency which QF wants to block

12 Dec 2012

Total posts 938

Only China and the US, and ONLY if you count cargo only ports.

20 Feb 2012

Total posts 128

yeah but the mian point is on frequency not destinations .

 

it does not really matter how many destinations CX flies to etc

12 Dec 2012

Total posts 938

Which it can not do because it has already used the entire Hong Kong route allowance to Australia.

CX can't have more flights to Australia because *HONG KONG* doesn't have any more route allocations to give to CX.

20 Feb 2012

Total posts 128

Australia has capped it at 70- and refused to increase it during bi lateral talks last year- and everyone knows why- QF did not want it. HK is willing to raise it but Australia refuses to raise the cap.

Hong Kong pretty much never restricts home airlines on routes they apply- its the overseas countries with bizarre restrictive and protectionist laws

Wrong.  (Sorry I just felt like saying Wrong again). 

Qantas - Qantas Frequent Flyer

20 Aug 2013

Total posts 25

DB, I was thinking exactly the same thing haha

Qantas - Qantas Frequent Flyer

30 Dec 2012

Total posts 65

Inodes - What 7 Cities does CX Fly To? As I can only count 6.

CNS, BNE, SYD, MEL, ADL & PER.

Also, if you look at frequency, I believe EK Takes the Cake as EK operates to the above cities (excl CNS). In terms of frequency, they are unmatched. 3x Daily to SYD, MEL & PER, 2x Daily to BNE & Daily to ADL - a Total of 12 Flights.

CX goes 4x Daily SYD, 3x Daily to MEL (incl 1 via ADL), Daily to BNE & CNS (with additional direct BNE Flight 4 times a Wk). Lastly PER Daily - So thats 9 (as the flights to BNE-CNS / CNS-BNE are the same Aircraft, as is MEL-ADL).

Am thinking of booking a holiday overseas with QF, however bit concerned Mr Joyce May pull his little trick of grounding the airline if he does not get his way...Any valuable and constructive replies would be welcome..looking at going to Europe.

06 Dec 2013

Total posts 10

OneWorld: Fly Cathay Pacific. You won't be dissapointed.
StarAlliance: Choose Singapore Airlines.

QF NZ

28 Jul 2013

Total posts 27

I was QF platinum for a number of years, retired and now have no loyaltl except to my comfort and bank account. My wife and I go to Europe for a month each year, business, Three facts.

1.  Impossible to use QK points, they have stuffed the system

2. Flew Thai / Austrian this year $6100 each, great.

3.  Have just booked SQ SYD - MUN for next June $ 6660 each, 380s, 777ERs, Nothing better than that.

How come the new international airlines are expanding and QF has been contracting for years. Time to wake up and join the  real world. .

14 Feb 2012

Total posts 37

Qantas is asking far too much for their premium cabin.  My partner and I flew Thai in 2013 to Europe, fully flexible First Class just over $10k.  Qantas at the time was twice the price (seriuosly).  Anyway, just before I booked Qantas came out with a deal at just on $11k, I thought wow.....then I read the terms and conditions, basically I would have been buying a cheapo airfare, not flexible, (actually I think it was non-refundable) any changes meant I'd have to pay the difference between the orginal and the new fare.......Instantly I booked Thai....why pay that sort of money and be mucked around if something changed.

A side note to this, I just had another look for the same time this year (yes we're going again) and Qantas is a far more reasonable $15k however Thai is still $10k so I know which one I will being flying this year, unless someone can explain to me why Qantas is $5k better than Thai.

 Wow! The relentless negativity in this post and others relating to Qantas is astounding.  It seems to be a recurring theme in these posts and personally I think it is sad to see that as Australians' we're not that supportive of our national carrier.  I personally don't have a preference for Qantas or Virgin, or any airline for that matter, as I'll usually go with the best deal at the time.  **For the record I do not work in the industry, though I do take an interest.  That said, and with my limited knowledge of all things airline, I have to say that I think Qantas has come a long way in recent years. They have lifted their game and I personally have certainly noticed a difference when I fly with them.

As a small business owner I understand the challenges this organisation has faced, and will continue to face in the future while they attempt to transform and move forward their business, in a very competitive and constantly evolving environment.  It's difficult.  Qantas is a well-established organisation and as such have to manage the expectations of a heavily unionised workforce, where perhaps other newer players don't yet have this challenge.  It’s also clear to most of us out here in the real world that there is significant employee cultural and legacy issues at Qantas. Additionally some would say that they've struggled with their choice of aircraft and their ageing fleet in recent years has not helped the situation, though they seem largely on track now.   As an additional liability some would argue that the government has enforced fairly restrictive conditions on their business model.  I'm sure there is another 100 or so contributing factors as to the reason why Qantas is currently struggling.

I guess the point I'm trying to make is that you attract more flies with honey. Perhaps some of you could drop the negativity towards this Australian icon and start supporting it?  I'm pretty sure that everyone reading this would not want to see Qantas staff lose their jobs.  We would all hate to see Qantas disappear from our skies.

12 Dec 2012

Total posts 938

What's worse is people continually attack QF for what it does, eg sending some heavy maintenance overseas, but when VA does the *exact same thing*, no one cares.

10 Mar 2011

Total posts 531

Well said and completely agree. 

10 Mar 2011

Total posts 531

and what's more... it amazes me how many people here seem to be experts in aviation management based on their comments.... yet none of them are actually trying to run an airline and probably not even working in aviation at all. It's always so easy to pass judgement when they're not in the drivers seat. 

QFF

12 Apr 2013

Total posts 1446

Well said.

19 Jan 2012

Total posts 427

Some of us HAVE worked in aviation...and run businesses

QFF

12 Apr 2013

Total posts 1446

My comment actually was replay to DB, not to AusFlyer

Qantas - Qantas Frequent Flyer

02 Jul 2011

Total posts 1380

Per, AFR,

Deutsche Bank pegs loss at a slightly more reasonable $611m.

UBS outlays three options for asset sales but says all are pretty difficult to achieve - Sydney terminal (complicated by current jockeying about what the airport will look like and more importantly which airline in which terminal), Frequent Flyer (complicated by QF need to retain majority and consolidate the cash), Jetstar Offshore (complicated that is is not yet profitable and the various different partners)

Qantas - Qantas Frequent Flyer

25 Jan 2013

Total posts 246

So the first thing to note is that according to this article Qantas could claw back $530 million from the sale of airport terminals and the closure of it's Avalon Base. That is, in the next six months they could go from $150 million in the red to $380 million in the black, (assuming nothing else major happens).

My view is that Qantas is not acknowledging the market as it is at the moment. It's playing to luxury when times are tough. From a psychographic perspective that never works. When times are tough consumers want good value. Case in point, CX. Sure, you can pay more and get the full business class treatment, but they also do cheap tickets very well. That is without compromising on service or nit picking as JQ does.

The way JQ says they offer cheap fares and the charges embaressing fees is just wrong in my books.

Qantas - Qantas Frequent Flyer

02 Jul 2011

Total posts 1380

Selling assets is not real profit  - you can only do it once. It may get the credit agencies at the back but for example selling the terminals will mean in the future you need to pay a lease cost to Sydney Airport

Ummm not acknowledging the market... QF fares are blindingly cheap at the moment.

Qantas - Qantas Frequent Flyer

27 Jul 2012

Total posts 3

Joyce is manipulating political support to endorse Qantas buyout by Emirates!

Joyce should go!

Qantas

10 Sep 2011

Total posts 162

And failed miserably - Fairfax reports that Tony Abbott now requires all travel by public servants below $50K to be signed off at the Departmental Secretary level, and all above to be signed off at Ministry / PM.  If this goes for more than a few days it will be the kiss of death to Qantas.

19 Jan 2012

Total posts 427

Nah, Abbott has failed to impose such restrictions on his colleagues so the travel rorting without any substantive accountability will continue whilst lining the pockets of the airlines (mostly QF) and keeping the Chairman's Lounges ticking over...

it would help their bottomline if they stop carrying jetstar on their back, by bearing all the jetstars costs on qantas, thereby making jetstar look profitable and qantas a loss making business.

for example, all the new aircrafts are purchased or leased and paid by QF, but Jetstar gets to use it. but the profits stay "within" jetstar, not passed back onto QF. so Jetstar is the perfect business model, all profits and no high overheads from owning new hardware like the dreamliner.

its all tactics by the board.

and to the average person it looks like Jetstar is the way forward and Qantas needs help.

But in reality, if they carved up Jetstar and ran Jetstar on its own, Qantas would return to profit and Jetstar would suffer, because it would have to sign its own leases and pay for it from its own pocket.

i have read the analysts report on Qantas and Jetstar, and its not the same message the QF PR machine is spinning and gulibble media is lapping up and reporting without actually doing some investigation.

JBH
JBH

Qantas - Qantas Frequent Flyer

01 May 2012

Total posts 118

Bloomberg reports QAN just cut to junk status by S&P

06 Dec 2013

Total posts 10

QF needs to take a look at management and re-evaluate the way they do business.
Maybe they need to take a page out of JAL's book.

JAL was bankrupt and ready to go under. In a short period of time they looked at how to rectify the problem and turned into the world's most profitable airline.

Qantas - Qantas Frequent Flyer

02 Jul 2011

Total posts 1380

JAL had the equivalent of US Chapter 11 protection.... It cancelled leases, sacked employees, reduced pensions and wages.

Qantas can't do this under Australian law.

BTW. JAL barely made a profit last qtr, ANA made a loss. And JAL also had to stump up (like Qantas) more money for Jetstar Japan

14 Feb 2012

Total posts 37

And finally we have the answer.  The Australian laws will not allow Qantas to do the things it needs to do for a turn around. Legacy staff and legacy costs will kill the airline.  Ask any of the FA's currently working on the 747's, they are all desperately trying to hold on to their places because being moved onto the A380 means they go onto a different (less attractive) agreement.

I'll write the end of the story for you.  Qantas will go bankrupt, it is as sure as sunrise.  No airline (including Emirates) will want them, why buy all the problems.  Another airline will start up (maybe Rex will get a backer to buy a heap of 737's) and we'll all be disgusted yet another Australian airline is gone.

As a side note, when I stopped flying Qantas it had nothing to do with Alan Joyce, in actual fact when I stopped flying them internationally he wasn't even at Jetstar. In the last 2 years I've stopped flying them domestically too, since Virgin introduced business class I have had no need for Qantas anymore.  Maybe my expectations are too high but I find the Qantas service below par however I don't seem to have the same issues on Asian airlines.

Qantas - Qantas Frequent Flyer

18 Oct 2012

Total posts 122

DB comments of  "I personally don't have a preference for Qantas or Virgin, or any airline for that matter, as I'll usually go with the best deal at the time"  

I think that is the point , whether we like it or not, we dont support the flying kanga, that includes me. This cant be seen as being negative . Its a fact of cosumerism. Price point , destinations , it makes a diferrence. 

The government (us) didnt show any compassion for Ansett there was  no uproar by the punters (maybe several weeks) so i would think the same as for QF, Holden , Ford ,ect All businesses that profits and losses are incurred for ,are infact for the share holders soley , after all they are the owners last time i checked , So They need to first see how they can manage this crisis as all businesses including my own would have to, 

LNP will not want to put gov money into this as it will set a precedent .(it will be the last resort ) 

19 Jan 2012

Total posts 427

But it's not the LNP that's in power in the federal house of reps (that's a QLD thing), but the "Coalition" -  just as fractious as the ALP, but sometimes better at hiding their differences.

But on issues of QF the Nationals will diverge from their Liberal bedfellows.

Let the political fun and fumbling begin!

Qantas

10 Sep 2011

Total posts 162

The best way of supporting a business is giving them business.  Tony Abbott is working hard to destroy Qantas, Virgin, Rex, etc., through bureaucratic incompetence.  https://www.canberratimes.com.au/federal-politics/political-news/pms-travel-clamp-sparks-backlash-20131206-2ywze.html

Virgin Australia - Velocity Rewards

31 Jan 2012

Total posts 108

Even playing field Mr Joyce now both VAA and QF have junk status. Be careful what you wish for.

Cathay Pacific - Asia Miles

25 Apr 2013

Total posts 544

Save them, Borghetti! God's sixth commandment is "Do not murder" - even if Qantas are your enemies, save them out of crisis! (Give them money - sharing is caring, right?)

Cathay Pacific - Asia Miles

25 Apr 2013

Total posts 544

I meant Branson - apologies.

Yoda: Dangerous and disturbing this puzzle is...The dark side clouds everything. Impossible to see the future is...Blind we are, of creation of this clone army we could not see...

There is something about all of this that is not quite kosher...things don't seem to stack up...

Does anyone feel the same way?

05 Dec 2013

Total posts 6

How much does the Qantas fleet contribute to their problems? I have visted their website and they have 12 a380s. Given the massive list price, all those seats to sell to break even, it must be tough. Seems to rely a lot on 747 and 767 as well (higher fuel costs) what vintage is a Boeing 717?

Velocity

04 May 2011

Total posts 22

I think most people sentiments are pointed at AJ, he has no loyalty from his staff, makes stupid remarks ( bike/bmw comment plus he was winning 10-0 against VA.. that one was less than 14 days ago... has he really loss 300 m in 14 days). Strategically he is very poor plus his relationship management is apalling CX and BA!!!!

His communications people must sit back rolling their eyes.

The manner in which he and a few of his mgmt team approach competition really demonstrates how weak they are..... if we dont get the ball we are not playing anymore! Qantas staff are great in most parts and JB has snagged a few of the best

19 Jan 2012

Total posts 427

Yep. Joyce is devoid of leadership skills. Period. He needs the sack. Preferably pay back the $15 million he has earned to save the jobs of the staff he wants to sack. The chickens have come home to roost even faster and more dramatically than even I was expecting.

  • He needs his staff on board - what does he do - he alienates them
  • He needs his loyal customers on board - he's alientad them
  • His big vision - Asian expansion - is a spectacular failure
  • The company dabbles in side shows instead of addressing the core business 

Perhaps, he has also hidden the true parlous state of the company - maybe the ASX will have something to say about that...

20 Feb 2012

Total posts 128

Asian expansion??

what expansion?

19 Jan 2012

Total posts 427

The one in AJ's brain...perhaps an intracranial business aneurism...seriously, how can you possible go from (small) profit to predicted massive annual loss in  a few months without a trending analysis giving you the warning signs...

Velocity

04 May 2011

Total posts 22

Platy.. You are spot on

australia should be proud of VA and what JB has achieved 

14 Feb 2012

Total posts 37

Agreed....VA is the airline to fly now.

There is no better motivation than revenge, good on you JB.

Qantas - Qantas Frequent Flyer

01 Oct 2013

Total posts 93

Au contraire, I don't think his communications people are sitting back rolling their eyes - Olivia Wirth got the promotion, even after such bad PR handling over the whole 2011 shutdown fiasco. If this month's campaign to the government means anything, they've completely delusional for years.

QF management are inept, from top to bottom. The board needs to go - Joyce first.

Qantas - Qantas Frequent Flyer

09 Sep 2013

Total posts 177

Another good option is Malaysian (from Perth anyway), they have led the way for the past three years for early bird business specials to Europe - $4500 in 2010, have just paid $5500 this year, and the same for next year. They are One World, and points accrue to our QF FF scheme.  Would prefer to fly QF, but they are nearly double the price, with awful connections such as arriving after midnight back in Perth, as against mid afternoon for MAS, which makes it hard to justify.

Qantas - Qantas Frequent Flyer

25 Sep 2013

Total posts 1136

Service on MH is a little inconsistent though. 

05 Dec 2013

Total posts 3

Qantas management have changed the face of Qantas. Alot has effected Qantas in recent years from maintenance issues to Alan Joyce grounding the fleet. Qantas has done well in recent years but alot of that has been mainly due to the lack of competition. Virgin Australia has changed things for the better with better management & in my opinion better customer service. I have noticed increasing passenger numbers on the Virgin flights I have taken in the last couple of years especially in the last 12 months. Management at Qantas needs to look in their own backyard whats gone wrong & stop blaming Virgin for the situation they are in.

I used to be a QF supporter, was not a fan of Virgin at all, when it was Virgin Blue. I was happy to pay extra to fly QF than Virgin.

But I wasn't one of those Chairman Lounges' customers, and little by little QF started to lose me as a customer, by taking my business for granted.

After the collapse of Ansett, Qantas became the vampire incharge of blood bank, it could suck whatever it wanted to from customers and we didn't have a choice.

So when Borghetti took over Virgin and he set about changing the business, I gave Virgin a go, and never looked back.

Virgin does not have the One World network and capabilities, the Lifetime Gold FF offer (hope they introduce it) and their FF points upgrade system is very basic for international flights need further work.

But every experience I've had from customer service, helpdesk, to ground staff at the airport and onboard, has been excellent.

I don't blame the QF staff, I blame the QF board and management, who took their customers for granted with their "treat them mean and keep them keen" attitude.

They still control 65% of the domestic market, so what they are complaining about?????? Virgin only has 25-28% of the domestic market and is targeting 30%.

Virgin also has under 20% of the corporate and government market, Qantas has inexcess of 80%.

So what is Qantas doing wrong????

Etihad

23 Jan 2013

Total posts 175

Good question, air travel. 

With 65% of the domestic market and 80% of business travellers, Qantas should be doing well. 

Could it be that they've overextended themselves and failed to reinvest at the levels other airlines have done so in recent years? 

Im reminded of the seven good years and seven bad years parable. In the good times, Qantas seems to have revelled in their near monopolistic success. But they have apparently failed to stockpile for the inevitable lean years. 

The lean times are now here. Qantas now begs for taxpayer handouts. 

Velocity

04 May 2011

Total posts 22

a quick reminder to all those who have a crack @ VA for being foreign owned... 40% of Qantas stock is onwed by foreign funds and VA has created 3000 Australian jobs opposite to Qantas

undertheradar Banned
undertheradar Banned

28 Oct 2011

Total posts 662

answer me this..how much VA stock is owned by foreign funds?? and please explain what/where the 3000 OZ jobs VA have created..

19 Jan 2012

Total posts 427

 From IBISWorld:

In 2013 Virgin Australia Holdings Limited had 8423 employees in Australia including employees from all subsidiaries under the company's control.

19 Jan 2012

Total posts 427

And from VA 2013 Annual Report, Australian based staff (not including NZ) listed as:

  • 6735 in 2011
  • 7813 in 2012
  • 7904 in 2013

19 Jan 2012

Total posts 427

Very little of VA is owned by foreign funds given that it is mostly owned by airlines (NZ 25%, Etihad 22%, SG 22%, Virgin) plus Virgin Group 10%.

Whereas that has aided VA's recent capital raising, it also creates a potential management juggling act keeping those stakeholders content...

Qantas - Qantas Frequent Flyer

25 Sep 2013

Total posts 1136

It is reported Qantas may sell off its frequent flyer program to raise funds.  I guess now is as good a time as any to burn those points for award bookings.

19 Jan 2012

Total posts 427

Three worrying aspects of this situation...

Firsty, this is effectively the third year of losses (on the assumption that last years paper thin profit was subsidised by a substantial payout from Boeing for the 787s running late). Those losses are also escalating.

This means there is a "structural deficit" in the organisation!

Selling the family jewels (FF scheme, terminals, etc) may ease immediate cash flow worries but doesn't fix the underlying problems.

Secondly, Joyce has played his cards out already

  • An extensive review of the international operations
  • The tie up with Emirates to combat international competition and create a "virtual" network
  • Turning away from BA
  • Forcing mediated workplace agreements
  • Flooding the market with domestic capacity on the golden triangle to combat domestic competition
  • Pulling equipment from regional routes to boost capacity on the golden triangle
  • Attempting (and failing) to set up a premium airline in Asia
  • Attempting (and partly failing) to set up mini-me Jetstars in Vietnam. Japan, Hong Kong which has seen JQ Execs arrested in Vietname and leased aircraft lying idle due to the mismanagement of the set up of JQ HK.
  • Partly "going it alone" rather than embracing the benefits of OneWorld (duplicating lounges, not recognising incoming members with full FF earn rates,, etc)
  • Allowing dilution of QF brand by putting QF passengers on JQ
  • Promoting JQ product (often over QF product) on booking engines
  • The effective subsidy of JQ by QF
  • Deferring aircraft replacement for QF

...whatever the cost/benefit of each of these, Joyce has played his cards and ended up with a significant structural deficit, not to mention an 80% drop in share value, cash flow/loss issues sufficiently troubling to warrant downgrade in credit status to "junk", in an operating environment of increasing competition in both the domestic and international marketplace.

Joyce has also spectacularly underestimated VA: for example, in the first 6 months of business class on VA there was NO response from QF. At that time Joyce was too busy picking fights with his staff to react to the principal threat to the business.

The third worry is that given the lost cost carrier mindset in Joyce and the Board, the temptation for service cuts will be huge, as wil. devaluation of the FF scheme, etc...

Perhaps the institutional investors are waiting until Joyce has revealed Plan B before deciding whether to tap him and Cifford on the shoulder...

It's hard to see how QF isn't ripe for aggressive private equity bid and the ensuing asset strippping, etc...

09 Jan 2014

Total posts 1

Japan has been applying an assertive Monetary Easing Policy, which drives the YEN downwards successfully. The immediate result shows that their Export and Tourism industries have picked up swiftly. Japan is now enjoying healthy export growth and has much more tourists visiting Japan.

With the sound and robust stimulation by Japan’s Monetary Easing Policy (which in fact mainly injecting more printed notes into the market by their Central Bank), the Nikkei has soared from 10,398 to 16,291 just in 2013. Nikkei marks its best performance in forty years, and also the top performer among Asian markets in 2013. Analysts name this “Nikkei Ends Year on a High in Quiet Asia”. Can we see the power of an aggressive Monetary Easing Policy now?

Australia can consider this as a viable option to improve our economy outlook and, our export can be improved instantaneously.

A lower $A can improve our Export opportunities, save the Australian farmers and manufacturers and reduce our trade deficit.It can also help to improve our Tourism industry, which has been damaged due to high $A.  The recovery of our tourism industry can help to save Qantas.

Another though is to engage a linked currency with USD, (e.g. A$1:US$0.80), which can give overseas investors good confidence in our economy stability.

19 Jan 2012

Total posts 427

A lower dollar and some increase in tourism are unikely to fix QF's underlying issues...and they may also fuel the competition.

(The merits of printing money and linking currency could no doubt be debated at length in a suitable forum).

Virgin Australia - Velocity Rewards

15 Aug 2012

Total posts 171

They are deep in trouble when they're talking of selling divisions of the business as this won't solve the issue at hand, spending more than earnings. I encourage you all to look back at airlines like Pan Am as this strategy didn't work. They were just kicking the can further down the street.

Qantas have to make big changes and they need a union to be understanding otherwise Qantas could quite possibly at some point become a memory. And they need all staff to pull together to get this business going.

This requires leadership of the highest calibre, have they got it at the moment? Not sure.

19 Jan 2012

Total posts 427

Yes, they are in deep trouble, but a reality check - the "union" is several. Joyce played out his hand when he shut down the airline effectively forcing "union" negotiation or compulsory arbitration if direct negotations failed.

Also the whole Jetstar ploy was essentially to circumvent existing "union" by resetting the award structure, despite the evident downside of parasitising the existing QF operation.

So the "union" issue is done. Played out. And in any case it ain't really about "union" but workplace awards according to the everyday reality of local salaries (no different to any other Australian business) .

And if Joyce had any leadership skills he would not denigrate his staff publicly (or one-on-one). Which he does according to all the folk I know who work for him (all except one A380 captain luxuriating on the international pilots award). 

So Joyce can't blame "union".

Bottom line. It's hard to imagine how the staff are going to be inspired to pull together with Joyce and Clifford at the helm. He has trashed any goodwill with staff and customers alike.

High caibre leadership is about creativity/inspiration/unification (read Branson, Mandela), not the the fear-uncertaintly-doubt variety that has pervaded our politics and business of late (read Abbott).

Yep - they ain't got the high caibre leadership!

Yep - it ain't gonna happen until Joyce gets the boot and is put out to pasture to spend his $15 million in abject disgrace.

Roll on February to see if there are any realistic ideas left in the QF camp once the current review is completed.

JBH
JBH

Qantas - Qantas Frequent Flyer

01 May 2012

Total posts 118

QAN = PE/asset-strippers delight.  QFF points, use them.

Virgin Australia - Velocity Rewards

15 Aug 2012

Total posts 171

PLATY, enjoy your posts and let me clarify. Major changes are needed because one off sales won't solve the problem.

You are right, there are many things that need to change, but they need very good leadership at management level and  a constructive relationship with the union as I foresee the need for complex negotiations as difficult decisions are made.

Read between the lines, I don't think Joyceis up to it.

19 Jan 2012

Total posts 427

Thanks, and, absolutely, Charles....the next question is how long will it take the for the necessary changes to be implemented and take effect...hopefully before the private equity spectre shrouds QF in its penumbra. 

Virgin Australia - Velocity Rewards

06 Aug 2014

Total posts 20

Time for Qantas to be wound up. It will be a sad end to a long saga. It's now the only option Qantas  has. It can't keep losing huge amounts of cash nor can it keep relying on government handouts! The long term effects of any bankruptcy are enormous & for an airline can be insurmountable. This is now not a case of if, but more likely when.


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