Qantas slashing jobs and possibly selling FF program?

[russ]

Whilst I agree the 65% rule was silly, Qantas isn't the only one playing dirty here. In your analogy, they didn't more in next door to the small grocer and steal customers, it happened the other way around.

If QF is silly enough to set a 65% line in the sand when it is capital constrained, the obvious competitor strategy is to inject more capital into the market and watch QF squirm. Nothing dirty about that, just plain commonsense!

 

[cove]

It is not always a good idea to buy shares in a company when the market for them is slumping. That said Qantas shares are priced down for a capital raising and at some stage that may happen. Last time I bought QAN shares at around 97 and that turned out to be a good trade. It looks like another opportunity will occur but no one ever knows what the low will be this time.
Restructuring the business will probably see some board of directors changes and there would be no super glue on the chairs of the directors nor the top employees.
We still enjoy the Qantas product and a market share of about 65% is a good starting point for a new management team to get involved.

 

[777]

Not to be difficult, but that green grocer they opened up next to wasn't a competitor a few years ago, just another player. Then they became a competitor and aggressively started a fare war and tried to lure customers over from next door, posting losses and have since had some bigger brothers pour cash into them to offset their losses.

Whilst I agree the 65% rule was silly, Qantas isn't the only one playing dirty here. In your analogy, they didn't more in next door to the small grocer and steal customers, it happened the other way around.

But Virgin didn't start a "fare war." If anything they've been trying to do the opposite -- they are trying to raise fares and yields as they move upmarket. They have increased frequency/capacity on golden triangle and East coast to PER routes but this is more about ensuring they have competitive schedules.

 

[Aussie_flyer]

But Virgin didn't start a "fare war." If anything they've been trying to do the opposite -- they are trying to raise fares and yields as they move upmarket. They have increased frequency/capacity on golden triangle and East coast to PER routes but this is more about ensuring they have competitive schedules.

I dont believe that. Virgin have been heavily discounting domestic all year. Sale after sale, discount code after discount code. Qantas have usually been following.

 

[amaroo]

hahaha gotta chuckle from me....

 

[777]

I dont believe that. Virgin have been heavily discounting domestic all year. Sale after sale, discount code after discount code. Qantas have usually been following.

Yes, but that's in response to both airlines growing capacity. Virgin don't want a price war they want to raise yields. They do, however, need to increase capacity on key routes to move into the business market. Qantas's strategy of matching virgins capacity 2 for 1 is driving down prices on what should be the trunk and triangle routes.

 

[gwilli1]

it came down to AJ got caught with his pants down , as JB was one step ahead off him … SNAP !

Not to be difficult, but that green grocer they opened up next to wasn't a competitor a few years ago, just another player. Then they became a competitor and aggressively started a fare war and tried to lure customers over from next door, posting losses and have since had some bigger brothers pour cash into them to offset their losses.

Whilst I agree the 65% rule was silly, Qantas isn't the only one playing dirty here. In your analogy, they didn't more in next door to the small grocer and steal customers, it happened the other way around.

 

[grussellt]

At the moment the doomsayers appear to have the advantage and Qantas has stated that it will not generate cash in 2014. However remember that the Group generated net cash of $372 million in 2013 and started this year with cash available of $3.4 billion comprising cash of $2.8 billion and undrawn debt facilities of $630 million. I think we can all take off our parachutes and enjoy another glass of (slightly cheaper) champagne! An accounting loss in 2014 will not be life threatening.

 

[777]

At the moment the doomsayers appear to have the advantage and Qantas has stated that it will not generate cash in 2014. However remember that the Group generated net cash of $372 million in 2013 and started this year with cash available of $3.4 billion comprising cash of $2.8 billion and undrawn debt facilities of $630 million. I think we can all take off our parachutes and enjoy another glass of (slightly cheaper) champagne! An accounting loss in 2014 will not be life threatening.

Are those debt facilities still valid post the credit downgrade though? And how much of that cash is forward bookings they're not allowed to access now? I genuinely don't know but those figures were based on an investment grade rating they no longer have.

 

[Sojourner]

Another thing that is really confounding is the sharebuy back that Qantas has been undertaking up until as late as October. Given the difficulty for QF to raise capital, why the heck would you blow your capital and go out and buy back shares on the market, only to have to go out to Uncle sam a few months later cap in hand asking for money? I was really confused at the time, knowing VA's intention to increase capacity to make it more viable as a carrier for corporate customers, QF would have to surrender yield and flood the market with excess capacity given it's 2 for 1 strategy which was obviously going to cost money.

Now I wonder if his strategy was to accelerate the drain of capital to go cap in hand to the government.


I gotta say though, if the best strategy AJ can come up with is a loss making 65% line in the sand and going cap in hand to the government for taxpayer dollars, then they really need a new CEO, and probably board for that matter. If the government really does feel compelled to bail QF out, I hope one of the line in the sand conditions is that they toss out the chairman and CEO. I just don't like someone who tries to blackmail the Australian public as he did with the shutdown in 2011 as a strategy should be rewarded.

 

[Danger]

The Fin Review has a front page article today that a "corporate raider" is leading a group keen to approach Qantas with a plan to buy their planes and then lease them back to them in a deal that could apparently be worth over $5 billion. The group would want the government to guarantee the lease payments by Qantas. If Qantas went under the group would own the planes and lease them to other airlines.

 

[grussellt]

Are those debt facilities still valid post the credit downgrade though? And how much of that cash is forward bookings they're not allowed to access now? I genuinely don't know but those figures were based on an investment grade rating they no longer have.

The $2.8 billion is cash and short term securities. Forward bookings are about $3 billion and are shown separately. I don't think too many debt facilities will be withdrawn but interest rates may rise. The highest leverage is from leasing.

 

[openseat]

An article I read in the Weekend Australian this morning speaks of a source who believes that the fundamental mistake of Dixon going for the A380 rather than down gauging to the 777 had the effect of baking in a high cost structure for QFi. I realise it is a hoary old chestnut, but one can only wonder how QFi would have performed much better moving to 777 earlier on.

 

[samh004]

An article I read in the Weekend Australian this morning speaks of a source who believes that the fundamental mistake of Dixon going for the A380 rather than down gauging to the 777 had the effect of baking in a high cost structure for QFi. I realise it is a hoary old chestnut, but one can only wonder how QFi would have performed much better moving to 777 earlier on.

Certainly a discussion for another thread, but with a few A380's outstanding, could QF not transfer their orders to the A350 XWB instead, probably the -900 version, instead of going to Boeing in a separate order. Better late than never, and could be what's needed if the A380 is the problem (other than retiring the 747's and 767's).

The thing they need to work on is making a route work, and I'm not sure the A380 is the key there anymore.

 

[Melburnian1]

samh004, how though does QF solve its high cost structure on Asian routes (BKK, HKG, MNL, PVG and SIN) where its competitors (TG, CX, PR and SQ among others) have better frequencies and/ or lower overall costs, and in many cases newer aircraft or better aircraft (the latter includes B777s which to my mind are among the best planes in which I have ever travelled)?

 

[moa999]

samh004, how though does QF solve its high cost structure on Asian routes (BKK, HKG, MNL, PVG and SIN) where its competitors (TG, CX, PR and SQ among others) have better frequencies and/ or lower overall costs, and in many cases newer aircraft or better aircraft (the latter includes B777s which to my mind are among the best planes in which I have ever travelled)?

Melburnian1,
I tend to agree with you and think QF (and indeed VA and JQ) will always struggle into Asia due to the cost structure issues, and is longterm going to be much better going down the code sharing path.

 

[markis10]

The Fin Review has a front page article today that a "corporate raider" is leading a group keen to approach Qantas with a plan to buy their planes and then lease them back to them in a deal that could apparently be worth over $5 billion. The group would want the government to guarantee the lease payments by Qantas. If Qantas went under the group would own the planes and lease them to other airlines.

Wonder how they work the value out given most of the fleet are already leased, many to QF group entities but quite a few to CIT etc, including most of the newer planes.

 

[sydstar]

Having stepped off QF9 recently, QF do have a lot if things going for them. This was my first QF380 in some time and found the hard product to be good (surprised by the food and the snack bars are a great idea) and the crew were definitely a step up from the 747/330 in terms of service delivery (motivated and all smiling). This was QF at its best, so I'm not all doom and gloom

There is a need for the board to go. Fresh ideas and action are needed. It appears the left hand does not know what the right is doing. All decisions seen to be reactive instead of proactive.

And I just can't see the Libs having another AN on their hands.

 

[dajop]

Whilst I agree the 65% rule was silly, Qantas isn't the only one playing dirty here. In your analogy, they didn't more in next door to the small grocer and steal customers, it happened the other way around.

Probably the best analogy would be that originally Coles and Woolworths co-existing. With Aldi a minor player. Coles goes bust due to mismanagement and a botched foreign takeover, and closes their stores and Woolworths gets 85 per cent of the grocery market overnight. Aldi expand haphazardly for a while, lists a local subsidiary , but not really making a dent in Woolies market share, especially after Woolies opens a new no frills supermarket chain to go head to head with Aldi. Then German parent pumps more money into the local subsidiary, and really goes after Woolies (links up with BP etc) and invests a lot in new stores offering a bigger range of products than original Aldi concept, taking on losses as it expands to capture market share. But Woolies decides it wants to defend 65pc market share and try to drive Aldi out of business whilst accruing hefty losses.

 

[777]

Probably the best analogy would be that originally Coles and Woolworths co-existing. With Aldi a minor player. Coles goes bust due to mismanagement and a botched foreign takeover, and closes their stores and Woolworths gets 85 per cent of the grocery market overnight. Aldi expand haphazardly for a while, lists a local subsidiary , but not really making a dent in Woolies market share, especially after Woolies opens a new no frills supermarket chain to go head to head with Aldi. Then German parent pumps more money into the local subsidiary, and really goes after Woolies (links up with BP etc) and invests a lot in new stores offering a bigger range of products than original Aldi concept, taking on losses as it expands to capture market share. But Woolies decides it wants to defend 65pc market share and try to drive Aldi out of business whilst accruing hefty losses.

You missed the bit where Woolworths spends 3 years insisting it is doing everything perfectly and has it under control... http://www.australianfrequentflyer....qantas-relaxed-about-virgin-revamp-32670.html