Qantas cuts jet orders,capital expenditure

[Nigelinoz]

ASX Announcement here:
http://www.asx.com.au/asxpdf/20110615/pdf/41z70sxg68v449.pdf
This is part of its statement to the ASX:


Cheers
N'oz

 

[oz_mark]

Any clues on which narrow bodies? A320's, 737's?

 

[TheInsider]

Any clues on which narrow bodies? A320's, 737's?

Obviously it will be the 737's, just because they would be going to Qantas!

 

[oz_mark]

The release says 'Qantas Group'. The 43 aircraft that were previously to be delivered in 2011/2012 for the Qantas Group were

A380 - 2
A320 - 15
A330 - 2
B737 - 15
B717 - 2
F100 - 4
Q400 - 3

 

[samh004]

I would hope the Qantas group would choose Qantas over Jetstar when considering cancelling orders, but if recent trends of short sightedness are anything to go by...

 

[ozavanti]

I wonder if it would be the A320's that are delayed as this might allow for Qantas to look at the A320 neo due to come into service in a few years time.

Especially given that Boeing have said that the 737 will not be re-engined, but more than likely be a clean sheet replacement instead.

 

[QF029]

I would hope the Qantas group would choose Qantas over Jetstar when considering cancelling orders, but if recent trends of short sightedness are anything to go by...

You mean they should cancel for Jetstar or Qantas?

 

[samh004]

I wonder if it would be the A320's that are delayed as this might allow for Qantas to look at the A320 neo due to come into service in a few years time.

Especially given that Boeing have said that the 737 will not be re-engined, but more than likely be a clean sheet replacement instead.

Good point raised. I'd hope that would be the reasoning.

You mean they should cancel for Jetstar or Qantas?

Focus on Qantas orders, cancel Jetstar orders.

 

[ric_melb]

I think he means cancel Jetstar orders not Qantas orders, but it doesn't necessarily read that way!
Will be interesting to see which planes are cancelled. Doubt that it will be the planes they intend to use for mining areas, as mining is still booming.

 

[QF029]

Presumably they'll cancel whatever gives them the least financial benefit.

 

[oz_mark]

I think he means cancel Jetstar orders not Qantas orders, but it doesn't necessarily read that way!
Will be interesting to see which planes are cancelled. Doubt that it will be the planes they intend to use for mining areas, as mining is still booming.

I also thing that as the 738's are generally replacing older 734's, it may not be them, so it may be the A320's. But unfortunatley, it just talks about the group order.

 

[markis10]

I also thing that as the 738's are generally replacing older 734's, it may not be them, so it may be the A320's. But unfortunatley, it just talks about the group order.

Focus on Qantas orders, cancel Jetstar orders.

Considering that QF are actively looking for QF Mainline redundancies I suspect the changes will impact the 738 deliveries more so than the A320 ones, it will also put more pressure on Boeing in the bigger picture re the Dreamliner delays. A320s could be leased to other operators very easily in the current climate, not the case with the 738s.

 

[gumpy]

How does this strengthen QF in the domestic market? It strengthens their cash flow...

With VA coming on so strongly I personally wouldn't hold off the new planes... I'd put in more orders to try and make the QF product more competitive... retire the old air planes, sell them that helps cash flow as well...

also I'd tell Boeing to go shove the 787 up their (you know what) and order some 777's and fix the International Business which Mr Jones is saying is struggling...

edit: woops Joyce

 

[QF029]

Alan Jones? Is he still on the payroll?

 

[eastwest101]

You know - I was thinking about this a few days before the announcement and starting a new thread - titled "Capacity Reductions" or "Cutting Growth" in the industry.

It would be along the lines of that with the GFC now far enough away to look at the effects on carriers that parked planes out in the desert and brought on early retirement due to high fuel prices in and then GFC, has it really worked out that capacity reductions really work?

Would be interested in peoples opinions and examples or comparisons to how the airlines that expanded, stopped growing or cut back capacity went? Did it really work for them or not?

This latest announcement would seem to fit in with the pattern we have seen since Sept 11, fuel price crunch and then GFC.

 

[missafternoondelight]

I don't claim to be an expert on the inner workings of airlines, but I manage a few networks of passenger buses. Every time we add capacity, we attract more passengers, without fail. However, after a significant increase in capacity, our KPIs for that year take a blow. Two of the main measures are passengers per service kilometre, and revenue versus expenditure by route - both of these drop instantly after a capacity increase, then usually take some time to increase to the levels experienced prior to the capacity increase, and eventually exceed that. It is difficult to tell how long it will take before the capacity increase will yield growth.

If things are a bit shaky with shareholders, there's an argument for ensuring that the balance sheet shows a firm profit, which equals a bad time for absorbing a few negative KPIs with view to long term growth. Erring on the side of caution for a while and choosing to sit tight until the time is right might be the strategy.

Nevertheless, increasing capacity is really the only way to continue to grow the business in the long term. I guess a lot comes down to timing.

 

[Vinny]

Presumably they'll cancel whatever gives them the least financial benefit.

Which asks the question why were these ordered anyway without being cancelled or postponed much earlier? Jet* was going to receive the first of the newer planes anyway. The downturn is nothing new, in fact about three years old now. The current QF share price is around $1.88 from $3.83 in January 2003. And dropping.

 

[oz_mark]

There is a report in The Age that says it is 6 x a320 and 6 x 737

Sent from my HTC Legend using AustFreqFly App

 

[RSD]

I guess it also comes down to Qantas and Virgin repositioning themselves in the market - QF were a full service airline that now has a LCC boss, Virgin were a LCC that now has a full service boss and are working overtime to become a full service carrier.

 

[eastwest101]

I don't claim to be an expert on the inner workings of airlines, but I manage a few networks of passenger buses. Every time we add capacity, we attract more passengers, without fail. However, after a significant increase in capacity, our KPIs for that year take a blow. Two of the main measures are passengers per service kilometre, and revenue versus expenditure by route - both of these drop instantly after a capacity increase, then usually take some time to increase to the levels experienced prior to the capacity increase, and eventually exceed that. It is difficult to tell how long it will take before the capacity increase will yield growth.

If things are a bit shaky with shareholders, there's an argument for ensuring that the balance sheet shows a firm profit, which equals a bad time for absorbing a few negative KPIs with view to long term growth. Erring on the side of caution for a while and choosing to sit tight until the time is right might be the strategy.

Nevertheless, increasing capacity is really the only way to continue to grow the business in the long term. I guess a lot comes down to timing.

I think that missafternoondelight has a couple of really good points there about KPI's, balance sheets and capacity. I guess the trouble with increasing or decreasing capacity for a high cost legacy carrier is that the costs and benefits are very "lumpy" accounting items, as indeed - are the capital costs in acquiring new aircraft.

But if we take the "balance sheet always wins" approach - and with it being cheaper to retire aircraft and outsource contract out/lease for expansion - then the problem is that the logical extension of that approach is to ground as many aircraft as possible, bump up the load factors and help KPI's and outsource or lower your fixed and variable costs as far as possible. Ultimate solution - stop flying all together, and simply put all your shareholders money in a fixed term bank account! The ultimate risk free airline for shareholders.....

I know I jest there at shareholders expense, but I think the interesting thing here for QF management and shareholders - is that QF may face increased competition (from above Ethiad/Emirates, in their backyard Virgin Australia and from below Tiger or JQ?), and how that plays out, as well as other factors like exchange rates, fuel prices,and inbound vs outbound tourism, plus the overall business cycle in Australia.

Speaking of exchange rates - wouldn't the current US$/AU$ exchange rate almost make new aircraft a "no brainer" at the moment? Not sure how the costs of lease vs outright ownership are viewed - and whether Airbus or Boeing have pro's and cons or punishment or reward for new orders or cancellation of orders.