Qantas results 28Aug .

[harvyk]

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

My favourite line in the whole article...

It doesn’t actually matter very much if management is primarily to blame or not for the challenges Qantas faces. Regardless, it is their job to sort it out.

Who cares what has happened in the past, their job is to deal with the here and now and make strategic decisions to take the airline into the future. Tackle what they can control and change, and stop bleating on about how unfair things are (eg LCC's, gov't owned airlines, the QSA) which are outside their control. All that whinging does is reduces people confidence in QF's management and their ability to run an airline.

So whilst AJ might be the best CEO QF has ever seen internally, the fact is that he has now got a very poor public image, the relationships with various groups has been trashed, and all we hear from the guy is how unfair and tough things are.

 

[medhead]

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.

I thought the Limbrick one was spam or a virus for a little bit. I was also surprise that the Loyalty CEO was telling me about the fleet. Shouldn't that be something for the boss to pass on?

 

[GoldCanyon340]

I thought the Limbrick one was spam or a virus for a little bit. I was also surprise that the Loyalty CEO was telling me about the fleet. Shouldn't that be something for the boss to pass on?

Lesley might be the next boss.

 

[opusman]

Lesley might be the next boss.

Wow, imagine the enhancements that could happen then.

 

[Foreigner]

There's little doubt many airlines will face competitive challenges and feel pressures on yield.

 

[JohnK]

ime 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.

I hope you don't regret your Asia Miles experiment.

 

[RAM]

Ok had a bit more time to look at the market (ASX) releases. It really strikes me as "take the medicine now" (with large operating loss this year anyway, wipe out some "structural" asset value costs (ie. write down the optimistic valuations of aircraft) in order to reduce costs in subsequent years). The "positive" initial market reaction is actually good news that investors think they may finally be "righting" the ship. Frankly, some of this should have been done years ago.

Some interesting tidbits (to me anyway):

- $566 million of yield and load factor decline from market capacity growth running ahead of demand
I think they clearly got caught out throwing capacity at the 65% line and then demand froze (budget, election etc etc)

- a large number of the "responses" are already announced but yet to show an impact
eg. Aircraft utilisation increases, staff layoffs (and associated costs bourne this FY but costs of carrying those staff will be permanently gone in subsequent FYs to try and improve annual profit)

- they worked out they were crazy if they spun off QFF

- restructure into 4 "arms" not unexpected in an effort to "match" VAH's structure

- well done keeping QFd profitable!

- in the summary of group revenue / expenses / pax carried you can clearly see they've basically gone sideways over 12 months

- JQ asia lost 40m, JQ japan -70m (which they try to appear to "include" JQ costs associated with JQ HK) - I'm not unsurprised they dont want to admit how much JQ HK is costing them.....

- 2200/5000 FTE gone --> cost $430m

- Debt/equity (gearing) goes from 46:54 to 62:38

- fleet changes were largely announced previously, but all seem like sound strategies - again why wasnt some of this done years ago?



All in all, very interesting, and I cant actually help but think maybe they are finally getting their house in order! Maybe after a year or two of stabilisation, they can look to grow QFi again.

Unfortunately the smoke & mirrors seem to have worked. You have been taken along the 'journey' and missed the pathway.

Look dispassionately at what the results announced (and I strongly believe possibly going to cause a class action against Q) and look at the bottom line:

OTHER INFORMATION
June 2014 June 2013 Restated1
$ $
Net Assets per ordinary share 1.31 2.60
Net Tangible Assets per ordinary share 0.72 2.29

Qantas is approaching irretrievable levels. It's NTA fell over 68% in the latest year. Even worse the new 'wide-body fleet valuations are above market values' or as it was put in the notes to account are now near to mkt values.

Qantas cannot afford to sell QFF as it would see the lenders move in. The value of QFF is greater than NTA.

The more I go into the accounts the worse this is looking.

Now here's the clincher;
"The size of the impairment loss recognised is largely the result of wide body aircraft being purchased through a period where the Australian dollar was significantly weaker against the US dollar compared to recent years."

Well think back three years when the AUD/USD at 30.6.11 was $1.0611, or 30.6.12 at $1.0075. The write down required would have been between 3.4bn and 4.2 billion.

Why was the miss-match not picked up by the audiors?

 

[RAM]

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

Yes that is true but with a 25 year old 747-400 the wdv is either 100% (ATO ruling 20yr useful life for Commercial Aircraft), so looking under Accounting standards the asset value must reflect either WDV or mkt value - either way the avg age of all the b747-438s is 15.3 years, on a per plane depn basis (spreadsheets can be useful) then the 7 youngest ones should be depreciated by a min of 69% of original cost and the balance between 89 & 100%.

Remember that Q was the launch customer for the 400ER and the list price was $120m in 1988 (ordering time). On normal launch customer pricing the Q should have paid much less than 80m say. The AUD/USD exchange rate in June 1990 was 79.18 btw. The purchases in 2002 were list price S180m and AUD .5646 - so if Q nearly got the bottom of the AUD/USD exchange rate for the entire

Regardless of the movement in the AUD/USD - if they have depreciated 69% of the original cost/value, say take a worst case (and remember Q has always been a major FX hedger/speculator) then say they bought a 747-400 when AUD/USD = 0.50 (no they didn't but for extreme arguments sake), USD 160 wdv by 69% = USD49.6m and convert original cost to AUD 320m, written down by 69% would leave $100m AUD, adj for current FX (USD49.6/.9424 30.6.14 rate)= AUD52.6m a difference of just AUD48m.

Now this example is for the youngest 747 and using at least a 10% worse FX rate than the time of placing the orders. For the older planes the difference would be less than $5m at worst. The numbers do not appear to add up no matter how you slice and dice.

What it looks like Q has been doing is capitalising the cost of 'new' seating without apparently writing down the scrapped old seating, capitalising the new interiors in a similar fashion etc. Is this a new take on a Ponzi scheme in the sky?

Qantas has been storing and scrapping its old B747-400s since 2008 - so there is no way it can claim that it did not know they had a zero value. However by storing them it could avoid recognizing their effectively zero value. Currently Q is paying for 13 B747-400s to be parked in the States at VCV and maybe a couple at Marana.

[TD="class: tdtexten, width: 10%"] 25547 [/TD]
[TD="class: tdtexten, width: 9%"] 936 [/TD]
[TD="class: tdtexten3, width: 15%"] 747-438[/TD]
[TD="class: tdtexten, width: 18%"] 15/10/1992[/TD]
[TD="class: tdtexten, width: 18%"] VH-OJR [/TD]
[TD="class: tdtexten, width: 30%"] Named City of Bathurst - Stored 11/2010
Scrapped 02/2012 as Marana[/TD]

Boeing 747-400 Prices Tumble as Fuel Costs End 23-Year Reign - Bloomberg
[h=1]Boeing 747-400 Prices Tumble as Fuel Costs End 23-Year Reign[/h]By Bloomberg News Jun 14, 2012 2:00 AM ET
Ten-year-old passenger 747-400s are worth a record low $36 million, about 10 percent less than similar aged planes last year, according to Ascend Worldwide Ltd., amid high fuel costs and a cargo slump that has damped interest in converting aircraft into freighters. Forty-eight of the 404 humpbacked passenger 747-400s worldwide have also been placed in storage, according to the London-based aviation consultancy, as the once “Queen of the Skies” is shunned for 777s and Airbus SAS A380s. “There’s not a lot of demand for the 747,” said Paul Sheridan, Ascend’s Hong Kong-based head of risk analysis. “They’re mostly being broken up for parts.”

All Q's 747-400s (of the latest tranche) but 2 were over ten years old then. It was common knowledge that there were no buyers to be found at anywhere near book value, yet Q did not write them down then - why? Why didn't the auditors question it?

With Q NTA/share at 72 cents as at 30.6.14 down from over $2.30 - things are looking dire. Suppliers will be doing an "Ansett" - pay cash in advance of refueling the plane. No term credit but COD.

I would like Red Roo to tell me where I've gone wrong on the figures but I've used the ATO draft rulings, calculations, mkt historical AUD/USD rates, published price lists for the aircraft etc.

I am not saying to assume the 'brace position" but book those reward seats while you can - remember how quickly the end came for Ansett!

 

[moa999]

The NTA shift is a direct result of the asset write down.

From the commentary it wasn't questioned as part of a consolidated cgu (eg. Am sure the market value of the QF terminals is well above book value - just waiting to be unlocked).

As I'm sure is Qantas Loyalty where Virgin has just provided a very nice base

 

[RAM]

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).

And that is the point - the Q results state that all this write down is from QI. Well QI has some in its active fleet that came from other carriers (such as Asiana) so the Q delivery date is misleading as the aircraft is significantly older.
Named Phillip Island

[TD="class: tdtexten, width: 15%"]24/06/1993[/TD]
[TD="class: tdtexten, width: 30%"] Asiana Airlines [/TD]
[TD="class: tdtexten, width: 20%"]HL7416
[/TD]

[TD="class: tdtexten, width: 15%"]29/05/1998[/TD]
[TD="class: tdtexten, width: 30%"] Qantas [/TD]
[TD="class: tdtexten, width: 20%"]VH-OEB
[/TD]

So a plane shown as delivery to Q 29/5/98 is really a 22yr old aircraft, and remember back in June 2012 the value of ten year old aircraft was falling rapidly (and Q scrapped a number of 747s) but parked more.

The 7 767s taken out of service in the last year were all 20yr+ veterans and the remaining 10, again we have three 'interesting ones' that look like 2006 acquisitions but delving a little more shows that Q purchased them in 1991, they went to Australian Airlines in 2002 and back to Q in 2006. So rather than being called 8 years old they are in fact 23.

That really does ruin the average age of the fleet does it not? Incidentally there are between 12 and 15 767s 'stored' at the graveyard as well - all those monthly fees seem like a Q habit. Paying for new Airbus' to be parked in France and deceased Boeings in the States - is this a pattern?

Add in the over 20yr B747s and you've got a good number of planes, especially if the accounting is opaque on the parked planes. The quoted figures for fleet age are based on listed delivery dates not the true delivery dates btw.

 

[RAM]

Originally Posted by JohnPhelan
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.

So if they're fully depreciated (ie: a zero value) then how could they get written down further? They cannot. So if the total value of the written down QI fleet is no more than 3.1bn then write of $2.6 or $2.8b would mean writing the A380s down to just $30m each. If that is true then DON'T BUY ANYMORE - GET B777-300ERs - they have a second hand value!

If true then that is less than a 10 yr old B747-400 was worth in June 2012.

{Time for the Ghostbuster's song to play softly in the background}

 

[RAM]

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.

Well unfortunately your recall is off the mark. In 2013/14 Jetstar received 7 A320s and 4 B787s. In the last few weeks they've received another 2 B787s. All up 13 planes out of now 73 planes - so 18% of current fleet is less than 1 year old. Q would have had to receive 23 planes - they have not. A joke going around is that QI's fleet has more flying hours than their pilots! Unfortunately it is rapidly becoming true.

Q got 3 A330-200s, 6 B737-838s (domestic) but all is not what it seems. All 3 of the A330s were actually Jetstar cast offs. So instead of Q getting new A330s it is getting one from 6/2002 !!!!! VH-EBB, and one from 2/2011 and one from 9/2011.

So QI got on avg 6 year old planes in 2013/14 and Jetstar got brand new ones.

Those are the facts unfortunately.

Q mgmt appear to be deliberately loading the cost structure of QI to make it fail and at the same time doing everything they can to give Jetstar as much assistance as possible. Why you may ask?

 

[mannej]

A joke going around is that QI's fleet has more flying hours than their pilots! Unfortunately it is rapidly becoming true.

I would have thought with the 747's and the 767's leaving the fleet, that reverse would be true.

Q got 3 A330-200s, 6 B737-838s (domestic) but all is not what it seems. All 3 of the A330s were actually Jetstar cast offs. So instead of Q getting new A330s it is getting one from 6/2002 !!!!! VH-EBB, and one from 2/2011 and one from 9/2011.

So QI got on avg 6 year old planes in 2013/14 and Jetstar got brand new ones.

Those are the facts unfortunately.

Q mgmt appear to be deliberately loading the cost structure of QI to make it fail and at the same time doing everything they can to give Jetstar as much assistance as possible. Why you may ask?

Yes QF are getting the hand-me-downs, but currently aren't the 332's being used for QF domestic, not Qf international? Yes this may change when the refurbs happen.

You make mention of EBB, did it not start off as a QF bird, so really it is the prodigal son returning (not really pertinent to the conversation though).
Photos: Airbus A330-201 Aircraft Pictures | Airliners.net

 

[RAM]

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.

You have said it!

The most efficient use of a long haul plane is for it to fly long haul, turn around time is at the margin for 7, 8, 9 to 14 hour flights. The B787-8 can replace the B767s it has around 240 passengers in 3 classes vs 216 in 3 classes for the B767.

So it could and should have been used to replace the 23 yr old B767s instead of Jetstar passing a 12 yr old A330 to Q (hospital pass is it?). Result Jetstar gets 14-16% fuel saving where as Q could have got 25%+ fuel saving. But as the older the aircraft the longer and more expensive the maintenance - so the downtime is greater. Q would have gained significant additional flying time by replacing the 23 yr old B76s with the new B787s.

Q's fleet avg age would have dropped by 2 months for each B767 replaced by a B787 - that is a big impact!

Jetstar's 6 B787s would have dropped the avg age of the entire Q fleet by 1.3years.

They would have dropped the avg age of the QI fleet by 3.2 years - that would have been a significant benefit to QI's bottom line from 1/4 lower fuel burn per seatkm and likely a 70-78% fall in maintenance costs for the replaced aircraft.

Makes you think (shame the board apparently don't - or what is their hidden agenda if they do?)

 

[ajw373]

Well unfortunately your recall is off the mark. In 2013/14 Jetstar received 7 A320s and 4 B787s. In the last few weeks they've received another 2 B787s. All up 13 planes out of now 73 planes - so 18% of current fleet is less than 1 year old. Q would have had to receive 23 planes - they have not. A joke going around is that QI's fleet has more flying hours than their pilots! Unfortunately it is rapidly becoming true.

Q got 3 A330-200s, 6 B737-838s (domestic) but all is not what it seems. All 3 of the A330s were actually Jetstar cast offs. So instead of Q getting new A330s it is getting one from 6/2002 !!!!! VH-EBB, and one from 2/2011 and one from 9/2011.

So QI got on avg 6 year old planes in 2013/14 and Jetstar got brand new ones.

Those are the facts unfortunately.

Q mgmt appear to be deliberately loading the cost structure of QI to make it fail and at the same time doing everything they can to give Jetstar as much assistance as possible. Why you may ask?

The fact is over the last FIVE years as stated Qantas has had more new, not talking second hand NEW aircraft compared to Jetstar. You want up say one year to suit your argument then fine but doesn't make it a fact as you assert.

But even if the reverse was actually true management need to allocate the resources to where they believe the investment will benifit their shareholders. If that is Jetstar than so be it. Qantas is not a benevolent society it is a business.

 

[ajw373]

The B787-8 can replace the B767s it has around 240 passengers in 3 classes vs 216 in 3 classes for the B767.

So it could and should have been used to replace the 23 yr old B767s instead of Jetstar passing a 12 yr old A330 to Q (hospital pass is it?). Result Jetstar gets 14-16% fuel saving where as Q could have got 25%+ fuel saving. But as the older the aircraft the longer and more expensive the maintenance - so the downtime is greater. Q would have gained significant additional flying time by replacing the 23 yr old B76s with the new B787s.

Parts cut

Makes you think (shame the board apparently don't - or what is their hidden agenda if they do?)

That was what the plan was though the A330's were coming back to Qantas too. Nothing wrong with the A330's they are perfect for the mission Qantas and other Asian airlines fly them on.

Though it seems you have convientaly forgotten that the 787 is several years late and the world had changed since first ordered. So rather than the board having a hidden agenda maybe they have done their job worked with what they have for got and enacted plan B.

 

[RAM]

The NTA shift is a direct result of the asset write down.

From the commentary it wasn't questioned as part of a consolidated cgu (eg. Am sure the market value of the QF terminals is well above book value - just waiting to be unlocked).

As I'm sure is Qantas Loyalty where Virgin has just provided a very nice base

Well not to let an optimistic post go unchallenged....

Why won't Velocity eat Qantas Loyalty's lunch in the future?

When actually did the frequent flyers become Qantas Loyalty? Sounds more like a psycho move to try and keep people, well, 'loyal'.

With all the CCs offering 10,000 FF points or more for opening a new account - it does make me wonder whether Q has been dropping the price it charges for the points. Also the ability to redeem the points for the vast bulk of FFers on flights is only getting worse. Q has been increasing the 'taxes and charges' component (please no more threads on this rip-off) year-in-year-out to the point where it can be cheaper buying with cash a VA flight than paying the T&Cs on a FF domestic flight.

I am sure Woolworths will be seeing JB every few months suggesting that WoW give their customers a choice of which airline they earn points with - after all isn't that was EDR should do?

With the rapidly disappearing QI routes then the value equation for the typical redeemer is quite bleak.

 

[RAM]

Yes QF are getting the hand-me-downs, but currently aren't the 332's being used for QF domestic, not Qf international? Yes this may change when the refurbs happen.

You make mention of EBB, did it not start off as a QF bird, so really it is the prodigal son returning (not really pertinent to the conversation though).
Photos: Airbus A330-201 Aircraft Pictures | Airliners.net

Spot on, but it was listed a 'new' aircraft to Q in FY13/14. Absolutely a prodigal plane just not what the type that would have me trying to book it. Now a B787 would be a different manner.

It is hard to say (without me giving up sleeping) which A330s are D and which are I but the slated changes for 2014/15 suggest that's where a number are going (and guess where they will be coming from I suspect!)

 

[RAM]

That was what the plan was though the A330's were coming back to Qantas too. Nothing wrong with the A330's they are perfect for the mission Qantas and other Asian airlines fly them on.

Though it seems you have convientaly forgotten that the 787 is several years late and the world had changed since first ordered. So rather than the board having a hidden agenda maybe they have done their job worked with what they have for got and enacted plan B.

Well I would rather have the operating profile of a new engined/new built A330 than 12 yr old ones. The B787 is late but it was late for Jetstar. So what did Q mgmt do? They bought new A330s and new B737-800s for them in the meantime - they did not lease 12 year old ones did they?

To argue that it is OK to put old aircraft on Q and brand new on Jetstar is to stack the deck. Jetstar gets the low/no maintenance period and Q gets them just as the first major maintenance hits - if that is not cost shifting I do not know what is.

 

[RAM]

The fact is over the last FIVE years as stated Qantas has had more new, not talking second hand NEW aircraft compared to Jetstar. You want up say one year to suit your argument then fine but doesn't make it a fact as you assert.

But even if the reverse was actually true management need to allocate the resources to where they believe the investment will benifit their shareholders. If that is Jetstar than so be it. Qantas is not a benevolent society it is a business.

Sorry but I tried to show you the proportion new for Jetstar in the last 12 months is virtually equal to the proportion new for Q in the last 5 years. Q's new proportion as a % over the 5 years is just 3.2% more than Jetstar's new proportion for the last 12 months.

Go check the fleet line by line and you will be disappointed.

At the same time go through the media releases in 2011 and 2012 and see what they say about all Q routes (D&I) getting increased fuel surcharges whilst only 'some' Jetstar routes got increased surcharges.

Then have a look at what Jetstar was flying to HNL - and you will see the fuel burn per seat was higher than the Q plane in 2011/12. They both used the same avgas yet Jetstar's fuel surcharge was a fraction of Q's - that is cost shifting.

Then have a look at the commissions paid at the wholesale level on Q flights v Jetstar. My favourite example was the HNL route again - the commission paid (only on fare component not T&Cs) was higher for Jetstar.

That is a rather uneven runway from anyone's perspective.