.
And I really hope the Sydney Swans win the 2020 Grand Final.
But like the Virgin to SQ points transfer that opportunity also died 6 months back.
BAIN will be finished here in the next 6 months and lose a small fortune in the process. Get those gift cards NOW I suggest, or buy a new toaster etc.
Velocity will cease to be a cash cow *
SUPER* fast of course, which BAIN fail to realise, as the only reasons folks bother to actively acquire points via Velocity cards, ebay spends, partner offers, FlyBuys etc, (all of which earns Velocity their money) is to ASPIRE for a lay flat biz flight award sear to Perth, Hong Kong, Fiji, LA, Japan or NZ etc, and none of that is ever going to occur going forward, and the public are smart enough to work that out VERY fast.
Like many other older heads, who lived through the Ansett collapse and lost the lot, I moved my million + Velocity points to SQ 6 months back, and urged others here to consider doing the same. THEY still have long haul lie-flat seat planes flying to burn points on - that much is already evident.
I'm not so sure the 'sky is falling' quite the way you believe - the actual relative financial position of VA vs Q is heavily in VA's favour. Q's legacy costs (eg: over 2 million sqm of leased property globally, approx 90% on airport) are a festering sore. Q has already begun trying to sub-let 40% of their HQ long term lease for 47,000 sqm without success vs VA who have seen its leases wiped & reset for a fraction of the space & cost. Just one example of a financial advantage held by VA.
Q's fleet is significantly older (& has more expensive maintenance due to the high Airbus proportion) than VA Mk II's fleet. Something that the ratings agencies have previously identified as an issue with Q due to the
massive capex requirement that Q is facing. Q's fleet age (National Jet, Qantas Link, JQ & Q) is just over 14 years (
after the retirement of the B747-400s), the grounded A380s are relatively young in comparison at just 11.2yrs.
VA Mk II's fleet is under 9 yrs old - a major cost advantage both operationally & maintenance-wise. The lower-level maintenance/check requirements (if & when more flying is required) have a two-fold benefit. Firstly the cost of the maintenance performed is lower and secondly the time out of service is shorter. Then factor in the increased risk of going out of service due to parts failing - all this adds up to several % higher operating margins & less customer inconvenience.
I am more worried about losing my QFF points value than VFF points - at least VFF points were cash backed.
Bain now has the lowest cost per rpk & one of the simplest fleets in the world that operates within or to Australia, unlike Q which has around 50% of its fleet grounded & much more so by value due to the higher cost international fleet. If Q had not done the rushed 26 June Institutional equity raising then as of 30 June 2020 Q would have had a negative NTA of > $1 billion. After raising that $1.34bn (after costs) Q's NTA was under $300m or 5 cents per share - and that is
after pocketing $515m from the Federal Govt through to June 30 including $267m from JobKeeper. Q also took $10m from the NZ & Singaporean Govts.
Shame our Fed Govt does not show the same support to the foreign carriers currently our 'new-Australian' flag carriers!
Before looking at any of the many cash drains (which Q has not spoken about since April btw) Q had over $5bn of revenue received in advance but cash & securities etc of $3.5bn. In March/April AJ talked frequently about VA not surviving (a bit like you above) & how Q was aiming to reduce its operating cash burn to around $40m/week by late June. Interestingly enough - since then there has been no announcement, not even in the results release nor Annual Report, about what Q's weekly cash burn is.
The $500m retail equity offer failed, initially in July, raising $77m despite being extended. Then Q issued $500m worth of 10 Year unsecured bonds at over a 5% coupon to raise cash - odd that it has been talking about that $1bn undrawn bank line of credit (at much lower cost?) that never gets touched. Unusual to pay 3x the cost to get cash from elsewhere. Issuing a bond does not increase NTA.
Q's NTA could have been eroded to zero by mid August by the operating cash burn even if it had reduced to $40m/week. That Q has made no announcement on achieving that target suggests the reality is much worse. The deeper the digging into Q's financials the more precarious things look.
For example
Q is assuming that due to not flying internationally until July 2021 will see
QFF points predominantly stockpiled, not used for non-flight redemptions & overall redemptions will plummet (by more than 50% unadjusted, or by $800m worth vs 2019/20). Now given 3 months of 2019/20 were similar to the current environment for redemptions - that seems a heroic or perhaps wishful call IMHO. This is especially so if you remember how Q restricted QFF redemptions earlier.
Then Q has to
pay out the first 6,000 redundancies (announced to be completed by 30 Sept, but nowhere near completed as of today, perhaps 2,000+ left to be decided, let alone paid out) costing $575m in redundancy costs + another $150m+ in accrued annual & long service leave, potential cancelled flight refunds > $2bn seemingly (Q mentioned that refunds requested but not paid by 30 June were removed from the $5bn "revenue received in advance" liability and lumped into 'current payables'), fuel & FX hedging losses totalling around $600m which got removed from 'operating costs' despite being related to operating costs when entered into & the profits earnt in the first half were taken into operating profits, $400m bond maturity, an extra $12m/month from September due to JobKeeper dropping down, around $200m required for Defined Benefit & SGC contributions...
Meanwhile Q stated (by not stating nor writing down the value of 298 of its fleet by even $1) that there is no reduction in the value of its fleet other than the 4 x 747-400s retired early ($23m) + the 12 A380s. If Q had written down the rest of the grounded International planes, spares, etc that it has officially stated it does not expect will fly until July 2021 - then Q's NTA would quite likely have been significantly below zero. AKA more debt than assets to pay it with - even if those assets may be somewhat over-valued.
Q's debt to equity ratio would also have been in 'imminent fail' territory as if not for the June 26th raising, would have seen equity around $200m vs liabilities (debt) of $18,500m, or 93x. Thanks to the raising (equity ended at $1,526m) the D/E ratio ended at 12x. With such low equity - any writedowns or operating losses can quickly become life threatening. Perhaps think of it this way - for every $3.65 institutions contributed in cash to buy a new share (cash = tangible asset) - just 4 days later they had only 17 cents Net Tangible Assets per share as at 30 June 2020. What is the old joke about becoming an aviation millionaire?
Remember earlier this year it was Q that restricted redemptions on QFF before VA did.
Perhaps, from an AFFer's perspective, a better measure of
how desperate Q is for cash is the feedback from AFF posts detailing
offers up to 20% additional travel credit if you push for a full cash refund. Equally that Q refused to pay out cash refunds at all until the ACCC was forced to act in June, even now Q does not appear to have any way to claim a full cash refund online &, from a relative's experience last Friday, are denying the partial use of the travel credit to pay for domestic flights (could not argue due to family emergency) - despite Q previously saying that could be done. Others report that Q automatically sent an email containing a flight credit for the 5+ months of flights cancelled through to March 28th, earlier this month. In clear breach of the ACCC directive to make customers aware they are entitled to a full cash refund & offer the choice.
The ACCC says it is pleased Qantas has begun contacting its customers to tell them they are entitled to a refund for domestic or international flights cancelled or suspended due to COVID-19 travel restrictions.
www.accc.gov.au
Contrast that with Woolworths' strong cash position. Woolworths is about to eliminate the 5% discount for buying gift cards via affinity schemes this week to 3% and then reportedly remove it altogether in November. No cash flow problems there!
Bain
Much talk about stripping VA Mk II - there are no assets to strip. VA Mk II does not own land, buildings, readily saleable assets. But then again neither does Q - to generate enough franking credits for the buybacks Q has raided everything, even selling off Q catering last year. Q raided the franking credits for its ill-fated Nov 2019 buyback so much that it is actually will register $141m worth of franking
debits with the ATO (p76 of the 2019/20 Annual Report).
What Bain does have is VFF which historically earns a fraction per account compared with QFF.
Q's 13+m QFF accounts generate over $90/account in revenue/year vs VA's 10m accounts providing a little over $40. That's the oyster that Bain is looking to cultivate - so for once - Bain's best interests & our own are very closely aligned.
Bain needs a functional domestic airline not a LCC. It also needs to offer international flight redemptions - so as it has announced, it is discussing (negotiating) with potential partners currently. Who knows how that will turn out but it would certainly be an interesting move if on November 30th they announce Qatar as a partner. Qatar is currently the largest operator into/out of Australia.
Summary Time series
www.bitre.gov.au
Certainly Bain can get it wrong, but with VFF cash-backed via a trust structure, I know which points I think are more at risk. Time for some shopping cards thanks QFF.
