24 August 2011 - any predictions?

[medhead]

In these economic times $500m is decent, especially when most other airlines are doing much worse. In terms of the sharemarket listed qantas group the fact is that Joyce is in the media talking about the capital return of qantas international. That must mean that the capital is on the books of the subsidiary.

It terms of financial performance I think I'm referring to the half year update that was posted here recently. Sorry for the confusion. The growth of qantas was much better that jetstar in those numbers as I recall.

 

[dajop]

Qantas Frequent Flyer 328
....

And herein lies another challenge, QFF maybe a decent cash cow now, but if too much damage is done to the QF brand through Jetstarisation, can also see collateral damage to the QFF (credit card) revenue stream. Although QFF do have an awful lot of people locked in with direct sweep and EDR.

 

[markis10]

So if you look at their 2010 annual report you will see how much money each group made, listed below, and surprise surprise Qantas the airline was the 3rd best performer with a paulty 67m in the group with Frequent flyer the best and Jetstar the 2nd best performer. Now yeah I know you going to say Qantas did so poorly because it has been lumbered with Jetstars costs and debits, if you do think that please stump up some evidence...

Qantas 67
Jetstar 131
Qantas Frequent Flyer 328
Qantas Freight 42
Jetset Travelworld 14
Corporate/Eliminations (114)
Underlying EBIT 468
Net finance costs (91)
Underlying PBT 377 (profit before tax)



Herin lies the problem. .

Herein lies the problem, why are you using year old figures, more recent figures dont stack up with what you or Joyce are saying with QF international out performing JQ int on monthly traffic numbers, and thats after the half yearly update:

Compared to the figures you are showcasing from the 2010 annual report, we see QF heading for a significant increase in profit

 

[ajw373]

Herein lies the problem, why are you using year old figures, more recent figures dont stack up with what you or Joyce are saying with QF international out performing JQ int on monthly traffic numbers, and thats after the half yearly update:

Compared to the figures you are showcasing from the 2010 annual report, we see QF heading for a significant increase in profit

The figures I used were the last full year results. The figures above are half year figures for the 6th months ending 31st December 2010. Since then Qantas has put out an profit update indicating the full year result is likely to be $500-550m, which will include $95m from Rolls Royce. So based on that the company as a whole has more than likely made a loss in the 2nd 6th months of the fiscal year. Of which $200m (for the whole year) will have come from Qantas international. So what does that say? Guess we have to wait until 24th August to find out.

 

[ajw373]

And herein lies another challenge, QFF maybe a decent cash cow now, but if too much damage is done to the QF brand through Jetstarisation, can also see collateral damage to the QFF (credit card) revenue stream. Although QFF do have an awful lot of people locked in with direct sweep and EDR.

The damage to the brand is not being done through Jetstarisation, it is being done by the main company not being able to reform to match the current enviroment. Though as you point out it will, if not solved soon effect the QFF scheme which is THE money making part of the company.

 

[TonyHancock]

And herein lies another challenge, QFF maybe a decent cash cow now, but if too much damage is done to the QF brand through Jetstarisation, can also see collateral damage to the QFF (credit card) revenue stream. Although QFF do have an awful lot of people locked in with direct sweep and EDR.

Yep. I think this is the area where QF is losing the plot. I'm not sure I would want to choose QF for my travel if my redemption options were reduced to JQ international flights. :-|

 

[ajw373]

In these economic times $500 is decent, especially when most other airlines are doing much worse. In terms of the sharemarket listed qantas group the fact is that Joyce is in the media talking about the capital return of qantas international. That must mean that the capital is on the books on the subsidiary.

It terms of financial performance I think I'm referring to the half year update that was posted here recently. Sorry for the confusion. The growth of qantas was much better that jetstar in those numbers as I recall.

The assets are indeed owned by the various subsidiary companies, in fact when it comes to aircraft in particular Qantas owns dozens of leasing companies which own (and finance the aircraft separately from Qantas limited) who in turn lease the aircraft to Qantas Limited to operate by their various brands. Have a look at the Australian Civil Aviation register and see who really owns the aircraft.

However as these are all 100% owned subsidiaries they are all considered to be assets of the main company. And whilst I would love to make $500m, it is still no matter which way you look at it a poor return on the massive capital invested in Qantas, which makes Qantas a poor (short term) investment.

 

[markis10]

The figures I used were the last full year results. The figures above are half year figures for the 6th months ending 31st December 2010. Since then Qantas has put out an profit update indicating the full year result is likely to be $500-550m, which will include $95m from Rolls Royce. So based on that the company as a whole has more than likely made a loss in the 2nd 6th months of the fiscal year. Of which $200m (for the whole year) will have come from Qantas international. So what does that say? Guess we have to wait until 24th August to find out.

That's the ironic thing, we don't need to wait, the monthly traffic numbers since those 1st half figures were posted only show an increasing QF contribution versus a declining JQ int position not helped by Japan etc, yet all of a sudden it's QF in the target zone? Why take so long to act given those bad figures you quoted, and who is flying the free A330s when it comes to book value that were compensation for the A380 delays, I don't believe the villain is QF, but it's being painted that way because JQ is not the shining star it should be.

 

[medhead]

However as these are all 100% owned subsidiaries they are all considered to be assets of the main company.

umm that doesn't really gel with how the demerger of WMC was organised. In that case there were payments between the separate entities for transfer of assets and debit, IIRC. But still if the assets are owned by the parent, how can they say anything about return of capital for subsidiaries, as the subsidiary does not technically own the asset.

 

[Jobu]

That's the ironic thing, we don't need to wait, the monthly traffic numbers since those 1st half figures were posted only show an increasing QF contribution versus a declining JQ int position not helped by Japan etc, yet all of a sudden it's QF in the target zone? Why take so long to act given those bad figures you quoted, and who is flying the free A330s when it comes to book value that were compensation for the A380 delays, I don't believe the villain is QF, but it's being painted that way because JQ is not the shining star it should be.

The figures quoted in the above posts were for Qantas, not Qantas International. The Domestic business is by all reports going very well...

 

[markis10]

The figures quoted in the above posts were for Qantas, not Qantas International. The Domestic business is by all reports going very well...

No one is saying QF domestic is an issue, that will be next years agenda as the fleet age bites, my issue is that if QF international has been bad for so long, why only act now, when the figures show a big turnaround in the last 12 months while JQ has gone the other way?

 

[Jobu]

Well there is the article quoted a few posts ago. His theme is the maintenance staff and pilots are resistant to change and they are trying to destroy qantas.

Are you referring to this article:

Aviation Business: Qantas CEO puts the airline's future on the line

I couldn't see him rubbishing the airline in that article - I thought what he said made sense.

The comment about maintenance being least efficient and most expensive in the world. How would he know what other airlines maintenance costs?

They are disclosed in the annual reports of those companies. Very appropriate to benchmark against your industry and best practice.

 

[Jobu]

No one is saying QF domestic is an issue, that will be next years agenda as the fleet age bites, my issue is that if QF international has been bad for so long, why only act now, when the figures show a big turnaround in the last 12 months while JQ has gone the other way?

Sorry I didn't notice any figures which showed an improvement in QF International. I just saw figures for QF, which I can only assume based on AJ's comments is made up of a very strong performance from QF Domestic and a loss making performance from QF International.

I think one of the things that AJ has been given credit for by some of the institutions is bringing the issue to the fore as apparently Dixon never disclosed the full extent of the difficulties and financial performance of QF International, or the extent to which it is subsidised by the domestic business, even though this is not a new issue.

 

[medhead]

Are you referring to this article:Aviation Business: Qantas CEO puts the airline's future on the lineI couldn't see him rubbishing the airline in that article - I thought what he said made sense.

Oops, sorry, probably more this one Qantas International faces 'tough' changes, warns chief executive Alan Joyce | The Australian

it is basically the same story anyway. In the aviation business story i think it is negative of qantas LAMEs to say that the union is out of touch. By extension, as the union members have voted for action, that means qantas staff are out of touch, as a minor example. There has also been a series of media comments from Joyce over the last couple of months and I think the national press club presentation was rather bad.

They are disclosed in the annual reports of those companies. Very appropriate to benchmark against your industry and best practice.

I've never specifically looked at an airline annual report but in other industries I find the annual reports don't really contain enough information to do detailed benchmarking. I'm also not sure that an annual report would be available for non publicly listed companies :?:

 

[Jobu]

I've never specifically looked at an airline annual report but in other industries I find the annual reports don't really contain enough information to do detailed benchmarking. I'm also not sure that an annual report would be available for non publicly listed companies :?:

Both Emirates (Annual Report | Facts & Figures | The Emirates Group) and Singapore Air (http://www.singaporeair.com/pdf/Investor-Relations/Annual-Report/annualreport1011.pdf) publish annual reports and disclose details and discussion of maintenance costs, eg page 44 for Emirates and page 66 for SQ.

 

[medhead]

Great to know, thanks.

 

[Moopere]

Qantas' poor old bingo ladies serving up from the Qantas "what bogans think rich people eat" menu

Good post, which I agree with entirely.

The above though, I just had to comment as it made me laugh uncontrollably

 

[ajw373]

umm that doesn't really gel with how the demerger of WMC was organised. In that case there were payments between the separate entities for transfer of assets and debit, IIRC. But still if the assets are owned by the parent, how can they say anything about return of capital for subsidiaries, as the subsidiary does not technically own the asset.

Even if they don't own the asset they know full well how much of that asset is tied up in various subsidiaries, so of course they can say what return certain parts are giving. As I said look at the civil aviation register and see which Qantas company owns the A380's. (for example). If you do you will see it is a Qantas owned leasing company. IIRC all A380 are "owned" by the same company, whereas other aircraft like the A330's are owned by several different Qantas and non Qantas owned leasing companies. Also have a look at the annual report and you will see the assets of all subsidiaries are reported as belonging to the parent.

If ever the a subsidiary were to demerge and be sold off you would see the assets incorporated into that sale moved onto the books of the subsiduary. Again IIRC this was one of the problems the receivers of Ansett had when Air NewZealand cast Ansett off.

 

[harvyk]

The damage to the brand is not being done through Jetstarisation, it is being done by the main company not being able to reform to match the current enviroment. Though as you point out it will, if not solved soon effect the QFF scheme which is THE money making part of the company.

It's QF trying to match the current environment which is causing the problems... What we are seeing is a LCCification of the airline industry, that is both a good thing (in that it lets people who previously could not afford to fly to now do so) and a bad thing (traditional carriers are taking a hammering thanks in part to BFOD policies, and to fight back are starting to look like LCC's themselves).

QF (and all full service carriers) need to realise that their traditional market still exists. People are still willing to pay the extra and get good service, and that a plane doesn't need to only be a method of getting from A to B. It's just they need to make sure people still realise the value in doing so, big hint to the airlines, a muffin and a can of coke doesn't cover paying 3 times the price to fly the same route, the same aircraft type at a similar time.

 

[Moopere]

1-Premium - The big Asian and Middle Eastern Airlines

2-Mainstream - Qantas, Luftnhansa, BA etc

3-Budget.

Being in that middle rung is a tough proposition.

I think this point of view is really relevent to the current discussion (8 pages on since it was first made).

I see this happening across a broad section of retail actually. The market for price driven goods/services is expanding; interestingly, the market for luxury goods is also expanding (I think Mercedes in Oz had their best year ever in 2010), both the top and bottom markets seem to be cannibalising the middle market.

If your business exists in the middle market you have to decide what you want to do. Go down to the price concious slugfest or move up into the luxury market. No doubt, there will always be a market remaining in the middle, but it seems to be shrinking and only a few players will be able to do that well and remain in business.

JQ is firmly in LCC land, along with all the joys for passengers that this model implies - its an important market and one the QF group needs to service. QF, traditionally a middle player is probably right in its apparent judgement that its an unsustainable market to be in today. Move up or move down. Hard to see the case for moving down and potentially coming into conflict with JQ, so logically, if QF is to continue to fly as an operational airline (rather than simply an umbrella company) its going to move up.