Qantas results 28Aug .

[RAM]

Re: Qantas dives to record $2.8 billion annual loss

QANTAS has posted a massive $2.8 billion net loss as it wrote off a big chunk of its fleet and moved to take as much pain as possible in the previous financial year.

The net loss was almost double the worst expectations of analysts although the underlying pre-tax loss of $646m was better than consensus estimates.


The net loss of $2.84 billion for the year to June 30 compared with a $1 million profit a year ago.


The loss included a massive fleet writedown of $2.6 billion, including its flagship A380 fleet and its ageing Boeing 747s.


The airline said the write-off represented the difference in the value of the dollar at the time of purchase and today’s value of 93c.
The average value of the fleet at time of purchase was 68c.

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Accounting Standards require annual depreciation etc. As some of fleet currently going was bought when AUD was in high 70s and low 80s (think B747-400s) this does not ring true.

Normally the depn is structured to wipe out taxable income up front (reducing balance not straight line). So given avg age of fleet these numbers seem very odd indeed.

UNLESS

Q has always claimed to have got a good deal on buying the A380s, well they claimed a great deal actually.

Perhaps this claimed 'saving' (List price - deal price) was booked as a profit (curiously coinciding with the period of JQ getting set-up).

AND instead of the normal way of depn they have straight-lined it suit the parlous state of their books.

Consider list price A380 = USD 368m (when order placed)

Normal 'discount' as launch customers (no delay) 38-46%. But there were delays so cost price may have been reduced even more (offsets).

12 x 368 x .60 = $2,650m COST. Avg age as at 30.6.14 was 4.3 years, so on reducing balance (spreadsheet time)

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[TD="class: xl24"] $ 2,649.60 [/TD]
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[TD="class: xl24"] $ 1,729.44
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[TD="class: xl24"] $ 2,649.60 [/TD]
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[TD="class: xl24"] $ 1,887.95 [/TD]

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[TD="class: xl24"] $ 2,649.60 [/TD]
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[TD="class: xl24"] $ 2,000.25 [/TD]

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[TD="class: xl24"] $ 2,649.60 [/TD]
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[TD="class: xl24"] $ 2,148.46 [/TD]

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B747-400 fleet (13 planes) WDV between $220m and $500m in total.

So why did Q not do write-downs for FX fluctuations along the way? Rather than wait until now?

It is hard to see how you can get to $2.6bn further write downs when the B747-400s and A380s (B767s WDV below $100m) should not be shown much above $2.2bn to $2.7bn at best and the other airbus and B737s were not long dated purchases (and indeed at AUD/USD rates above current for a chunk).

Was Q accounting in a different way?

Q has been leasing a good swag of aircraft on top of the outright ownership - so lease payments were fixed at start of lease. So that makes the FX impact on 'Fleet' purchases even less.

I SUSPECT that just as AJ changed the fuel hedging approach that he also changed the lease-FX hedging approach and what we may be seeing is nothing to do with fleet mgmt but everything to do with until now carried forward mgmt mistakes on FX hedging.

They took a punt (pardon the combined pun on AJ and FX!!!!!!) on the avgas price - and lost hands down rather than their prior hedging policy nearly 100% to lock in operating costs.

I wonder what the reaction would be to "Qantas loses $2.6bn after tax on FX bet gone wrong" ?

Of course I could be totally wrong...

 

[Himeno]

The ASX docs state that the QF holding of JQ HK is going down from 33% to 25%. Did they find a 4th shareholder, or have the other 2 increased their share?

 

[Lonely Flyer]

Now if they are not inclined to provide more J awards straight up how about buy PE and get an instant upgrade to J for 45,000 points.

Obviously the number of upgrades available on one flight needs to be controlled but more generously available than full award seats.

 

[dougieboy]

The alchemy of Qantas accounting in all its glory. I remember the days at uni studying accounting 1A and 1B when I believed accounting was transparent and Whitney Houston never smoked crack. Life has shown me otherwise. Interesting theory about the list price/deal price differential and the FX/Avgas hedging being carried forward after betting the wrong way (god knows what skeletons and litany of mistakes the QF board have made over the years). Very little transparency indeed and the write down does appear to be ridiculously high for 20+ year old aircraft. They could have thrown domestic mainline passengers 1 787 bone to be used in the domestic fleet I'm sure there would be no problem filling bums on those seats and higher yielding too. A worthy distraction to pacify the screaming toddlers here that simply want a new toy to play with (myself included). C'mon!

 

[moa999]

Ram, there might be something in there, but the reality is the average aud over the last 20 yrs on either a straight line out curve basis would be well below the current spot

 

[Mr_Orange]

Just got the email from Lesley Grant - QF Loyalty must have been reading my post from 2.51pm above...

Great to see the upgrade for the QF Lounge in BNE - I wonder what they plan to do?? (off to ring my QF local contact to see what he can tell me).

I'll be interested to hear what snippets you can share.

 

[JohnPhelan]

Very little transparency indeed and the write down does appear to be ridiculously high for 20+ year old aircraft.

Which "20+ year old aircraft" did you have in mind?

QF has very few aircraft of that age (mainly 767s, and only a few of them at that - which I'm pretty sure were already fully depreciated anyway).

 

[Melburnian1]

It will be interesting to see if per dollar of revenue Virgin Australia's result is worse.

Notwithstanding the claimed forthcoming financial improvements, some of which may be accounting 'tricks' and others more genuine, is there not a case to be made that all staff from the senior management, Board and pilots down are overpaid?

This is a private enterprise business that has not paid a dividend to shareholders since March 2009.

One wonders how self funded retirees who have money tied up in the stock feel about the loss of capital value and the lack of dividends.

If QF continues to perform this badly, surely it will fold within a decade. Perhaps that assumes that companies and investors are rational.

 

[dougieboy]

Which "20+ year old aircraft" did you have in mind?

QF has very few aircraft of that age (mainly 767s, and only a few of them at that - which I'm pretty sure were already fully depreciated anyway).

Sure no problem - take your pic!

747-400s: OJA/OEB/OJI/OJL/OJM (all currently in service and 21-25 years old)
767-300s: OGI/OGJ/OGL/OGM/OGN/OGO. (20+ years or older).

There are a few that just miss out on the 20 year mark, but hey they are a bit on the tooth as well.

You make a good point they would be fully depreciated by now anyway. Perhaps at the time they were valued they were plated with gold ha ha go those gas guzzlers/most expensive staff cafeteria in the sky. Goodness gracious me, I still love the old bird, old being the emphasis.

 

[Hermes]

Now if they are not inclined to provide more J awards straight up how about buy PE and get an instant upgrade to J for 45,000 points.

Obviously the number of upgrades available on one flight needs to be controlled but more generously available than full award seats.

It didn't take them long. Log in to QF, do a search for Classic awards MEL-LHR in J with QF9/10 and you are offered only Y. No offers for J or PE, not even with the info icon telling you your MEL-DXB leg will be in Y. Here endeth the usefulness of FF points to book a J seat to London.

 

[ajw373]

Why does Jetstar get the new aircraft? It,s like the kids get the new planes & dad gets the old ones!

Never mind of course that Qantas has and continues to receive new aircraft too. In fact if I recall over the past 5 years Qantas had received more new a/c than Jetstar. But that of course does not suit the perception that the Qantas fleet is old.

 

[Blackbird]

Since Lesley assures us the QFF program is to stay in house, can she tell me how to book a Classic award seat in J, MEL-LHR return, for next April/May? Go to the QF website and look at QF9/10 for those months and you will see the info icon beside every date. Click on it and it says "you will be in economy for the MEL-DXB leg" (and ditto return). Why do we have FF points if we can't ever get a seat?

Try booking a paid J fare to LHR.
It is possible to book QF1 or QF9 all the way but you have to dig real deep on the page to find it.
Costs more than the EK code share too.

 

[Captain Halliday]

Never mind of course that Qantas has and continues to receive new aircraft too. In fact if I recall over the past 5 years Qantas had received more new a/c than Jetstar. But that of course does not suit the perception that the Qantas fleet is old.

I haven't been one on those the argue/complain about the age of the fleet. Personally I don't much care. However, I do wonder if the destinction people are making is "new aircraft" vs "new type"

If QF is a premium/full service carrier then why not give the 787s to QF for the SE Asia and trans con services? That way if you want to travel on the "new type" you have to fly QF and pay the premium price.

 

[RickyT84]

If QF is a premium/full service carrier then why not give the 787s to QF for the SE Asia and trans con services? That way if you want to travel on the "new type" you have to fly QF and pay the premium price.

IIRC, the 787s were given to JQ first because of its amazing cost efficiency (in terms of operational costs and fuel) which helps JQ to stay competitive price wise. This would have freed up the A332s and allow them to be returned to QF mainline which would then allow then to retire the 763s.

 

[JessicaTam]

I think it was A320's. A reporter asked if any A320neo's could possibly go to mainline, CFO said no, all to Jetstar.

?

I must have misheard. Thanks for the clarification.

 

[JohnPhelan]

Sure no problem - take your pic!

747-400s: OJA/OEB/OJI/OJL/OJM (all currently in service and 21-25 years old)
767-300s: OGI/OGJ/OGL/OGM/OGN/OGO. (20+ years or older).

Thanks for illustrating my point so clearly. If we take the soon-to-depart 767s out of the picture, on your figures, it means QF has 5 aircraft - out of a jet fleet of 139 - that are 21 years old or older. "Very few" indeed.

This myth about QF having an old fleet needs to be called out as cough every time it is raised.

Average age of the fleet is 7.7. years and this will drop further as the 767s are retired within the next four months.

 

[markis10]

Thanks for illustrating my point so clearly. If we take the soon-to-depart 767s out of the picture, on your figures, it means QF has 5 aircraft - out of a jet fleet of 139 - that are 21 years old or older. "Very few" indeed.

This myth about QF having an old fleet needs to be called out as cough every time it is raised.

Average age of the fleet is 7.7. years and this will drop further as the 767s are retired within the next four months.

Sorry but that is the Qantas group age, QF mainline is 9.2 years, the 717 fleet is 16 years while networks fleet is now 24 years. You did want the cough called out

 

[Anna]

Yesterday I had emails from Stephen Limbrick ("Executive Manager Customer and Commercial Relationships") and Lesley Grant both propagating the QF spin that "the worst is over".

Time will tell but for the moment I am not buying that spin. Seems to me that each move QF makes to cut its costs, also cuts its revenue. I'll believe "the worst is over" when they reinstate QFi to ADL and PER.

 

[JohnPhelan]

Sorry but that is the Qantas group age, QF mainline is 9.2 years, the 717 fleet is 16 years while networks fleet is now 24 years. You did want the cough called out

And I repeat: 5 aircraft - out of a jet fleet of 139 - that are 21 years old or older (exlduding the departing 767s). "Very few" - which was my point in the first place, in response to a poster who was going on about the "20 year+" age of aircraft, perpetuating this myth about QF having an old fleet.

 

[codash1099]

Here's the pilots' solution. Much of this echoes the comments that have been made here on many occasions.

Pilots’ solution to Qantas woes | The New Daily