LINDSAY Fox and Solomon Lew are going ahead with their bid for Ansett and in two weeks will begin training Ansett pilots for new Airbus aircraft.
They've decided to ignore the government backflips because they believe their formula will work. It's one many others will need to consider in this environment.
The bid is subject to creditor and court approval. Before we look at why the new Ansett will be so different from the old – and how it plans to take on Qantas – it's important to understand why its government relations became such a mess.
The government stance is that it shouldn't give Fox and Lew special help because this would have to be extended to everyone else. I don't challenge the principle, but it was a rocky road getting there.
With an election looming, transport minister John Anderson wanted a solution to the Ansett crisis. The only one on offer was the Fox-Lew bid. Just what Anderson indicated the Government would deliver will be debated for a long time, but the principle Cabinet eventually adopted wasn't at the top of the agenda.
Publicly, Anderson spoke of a Qantas market share of about 65 per cent and there were hints of lots of government business. Fox and Lew believed he'd deliver – and that they were entitled to help.
The weekend before the poll, Anderson indicated the Prime Minister would be involved in a relaunch announcement. Suddenly, this was withdrawn. The Ansett deal was announced a few days later – without the Government. But Simon Crean was there, which didn't go down well.
Anderson likes to please. But he can't always deliver. He might have been able to if Fox and Lew were the only bidders and liquidation the only option. Once Corrigan entered the race, the game changed.
Qantas and Virgin have warned Lew and Fox to expect aggressive pricing when they relaunch Ansett next month.
Just as the old Ansett and Qantas made life miserable for Compass, so Fox and Lew can expect to be tested.
Why would two wealthy men decide to take on Qantas? Why go against a government that, at best, has misled and, at worst, prefers a rival bidder?
As Fox and Lew have gone deeper into the business, they have become even more enthusiastic about Ansett's prospects. They believe their business model is better than anyone has used in Australian aviation and that their rivals will eventually get sick of giving away airline seats at fire-sale prices.
The first part is to secure new aircraft on terms no one else can better – way below Qantas's. And they'll offer passengers internet, TV and phone access.
Second, they've secured world-class work practices. The unions agreed because staff will get 5 per cent of the operation.
Third, they have a great brand on which to superimpose a new operation.
Fourth, the new Ansett will operate only on main routes. The combination of these factors means it will be able to break even with 20 per cent market share and make money at 25 per cent. The old Ansett probably needed 50 per cent to break even.
The big cost is taking over the old Ansett terminal contracts. The terminals were designed for a bigger airline. Fox and Lew will have to pay for space they won't need.
Just what profits Ansett delivers will depend on how they use the excess.
Neither man wants to actually run the new airline. They've set up the model and invited other international airlines to run it.
The plan includes a minority equity for the manager. So the new Ansett would have four shareholders – Fox and Lew with up to 40 per cent each, the manager with 15-20 per cent, and 5 per cent for staff.
Singapore is the favoured manager but it will want to ensure creditors back the proposal. Staff dominate the secured creditors and shouldn't be a problem. Among the estimates of what unsecured creditors will get, 15c in the dollar seems a likely outcome. Many unsecured creditors, including holders of frequent-flyer points, would benefit from Ansett resuming operations.
Qantas has had to provide 90 per cent of air traffic since Ansett collapsed and has locked in corporate customers. It will continue to make good profits from its domestic operation but will need to lower its cost structure to meet the competition.
If Qantas decides Fox and Lew are a long-term threat, it may go for the throat.
Wirraway From Australia, joined Mar 2001, 1321 posts, RR: 1 Reply 2, posted (11 years 5 months 2 weeks 3 days 7 hours ago) and read 586 times:
Survival of the fittest in airline dogfight
By Robert Gottliebsen
QANTAS chief Geoff Dixon may not have liked the outcome of recent airline turmoil but one of his senior pilots has written to me saying the "failure of Ansett was the best thing that ever happened to Australian aviation".
The Qantas pilot wrote: "I enjoyed your article of December 5 in The Australian regarding the Fox/Lew consortium.
"1. Since the demise of Ansett, Qantas has locked up the majority of business travel in this country. Qantas jets are flying around with few, if any, empty seats up the front and plenty of full-fare paying corporate middle managers down the back. This will continue in the near to medium term. While I agree Fox/Lew will succeed, there is too much doubt for most corporations to take that risk. This means good yields for Qantas and makes it easier to compete with the low prices sure to be charged by the new Ansett and Virgin Blue.
"2. You quite rightly pointed out the sweetheart union deals as a reason Ansett will survive. I agree. These deals will be used by Geoff Dixon to push for similar deals at Qantas. Dixon is at war with Doug Cameron and the AMWU (and will) negotiate similar deals as those enjoyed by Ansett, lowering Qantas's costs.
"3. Meanwhile, back at Ansett and Virgin Blue: These two are fighting for the holiday and occasional business travel market. I believe this will be around 30 per cent to 35 per cent. One of these two will not survive. I think Virgin will fail as it is overextended and has cash-flow problems. Virgin's attempted deal with Lang is evidence of this. Also, Ansett's membership in the Star Alliance will provide Ansett with customers from United and Singapore Airlines and they will get the upper hand. Qantas has been sitting back, offering some competition, and waiting for these two to settle things . . . Qantas will take as much of the market as the ACCC will allow.
"4. This leaves the Australian market back where it was two years ago, but better. A lean, strong, profitable Ansett competing with a strong Qantas providing first-class aviation service to Australia at a sustainable price.
"5. The winners: The Australian public Qantas and Ansett."
My comments: The failure of Ansett would have been a disaster for Australia but for the fact that it occurred in the same week as the September 11 terror attack on New York. That enabled Lindsay Fox and Solomon Lew to get replacement aircraft at an incredibly good price.
It also enabled a new work practice agreement that will end the "waterfront mentality" in the Australian airline industry. But to get that workplace agreement, Fox and Lew had to offer 5 per cent of the new airline to the staff. There is no certainty Lew and Fox will win because Lang Corp's Chris Corrigan will try to use Ansett's creditors to undermine the bid because he can see the potential of Ansett. Ansett will be destroyed.
If Qantas is going to match the new Ansett on labour costs, then it will need to come to a similar arrangement.
In 2002, Australians will be bombarded with a myriad air transport choices. Our domestic tourist industry is going to receive an enormous boost.
The Qantas pilot quoted above believes that Virgin will not be able to survive a revamped Ansett. But Fox and Lew are offering a business class service different to Virgin's. Virgin has tackled our market intelligently. As long as it contains it size it may survive and prosper.
The only thing standing between the new Ansett and a start-up on January 31 is the meetings of creditors. In short, the Qantas pilot is likely to be right.
Robert Gottliebsen writes daily for The Australian and hosts Business Daily on Sky News channel at 8.30pm and 11.30pm
Mx5_boy From , joined Dec 1969, posts, RR: Reply 3, posted (11 years 5 months 2 weeks 3 days 6 hours ago) and read 568 times:
It's funny mate how all of a sudden the analysts and media take a different direction. At one point they were backing DJ, now they are backing AN.
One thing is for sure, it's all going to be a dirty dog fight till the bitter end of either one, whoever has the monetary backing. If DJ pull back their ambitious plans somewhat and stick to the model they have maybe a new AN won't kill them off.
But that's not how our aviation market has tended to operate.
Wirraway From Australia, joined Mar 2001, 1321 posts, RR: 1 Reply 4, posted (11 years 5 months 2 weeks 3 days 6 hours ago) and read 561 times:
As Robert Gottiebsen said "Virgin has tackled our market intelligently. As long as it contains it size it may survive and prosper."
VB realise how far they can go with the terminal
limitations and will proberly cease growing at 25
aircraft, afterall Virgin Express has been operating
for years with only about 18 planes (not 100% sure
of the exact number), and should be able to remain
Mx5_boy From , joined Dec 1969, posts, RR: Reply 5, posted (11 years 5 months 2 weeks 3 days 6 hours ago) and read 558 times:
The only problem is how dirty everyone plays. You only have to look at QF cashing itself up that it's ready for a fare war. Whilst it's nice to think the three of them could try and fit in, it isn't going to happen.
So it's going to come down to who has the largest cash reserves to pull this off. At least in the near term.
Wirraway From Australia, joined Mar 2001, 1321 posts, RR: 1 Reply 6, posted (11 years 5 months 2 weeks 3 days 5 hours ago) and read 553 times:
Well Fox/Lew better pull their finger out as Virgin
Blue have already announced a 250000 seat sale
for Feb/Mar, You cannot at the moment book an
Ansett flight after Jan 31st, you can also expect
Qantas to offer cheap flights over the same period
as a welcome to Ansett III.
Mx5_boy From , joined Dec 1969, posts, RR: Reply 9, posted (11 years 5 months 2 weeks 3 days 2 hours ago) and read 517 times:
A perfect example of capacity dumping. We have a range of issues here. QF are being presumptious about the whole F/L thing. Smart thinking would make them prepared rather than pre-emptive.
F/L will sit back with limited capacity and lose 500K a week whilst DJ & QF are losing far more by pushing capacity far more than is sustainable. You can sell cheap ticket's but there would be a public outcry if they are withdrawn or cancelled because of unsustainability.
The resurrection of Star will sustain F/L in the short term over the 'cheap tickets' strategy of QF/DJ. A good look at the business plan makes sense, but they also know that DJ / QF can easily access it.
The fact that QF/DJ are doing these things shows they are scared of Tesna. No-one actually knows what the whole deal will be with the new AN but F/L are no fools when it comes to money.
They can sit back with limited capacity and a route strategy with excellent terminal facilities and "star" and watch as the others pull stunts like this.
Don't forget that they are also aware that most of AN's corporate accounts have gone to QF. They will not get those back without having to wait a year to 18 months. Meanwhile the strategy is to keep AN flying in the meantime and gradually through QF's ineptness and DJ's lack of terminal facilities will win the war.
And they have SQ behind them no doubt.
BTW- Cityflier is rude nasty and cruddy. I would not be surprised if QF have just done it not only to capacity dump but from people complaining about the awful service. (To give the flight staff some variety..)
Tesna will be flexible with lower fleet costs than both DJ & QF. And have access to better terminals. Add the Star equation and it will be intersting to say the least.
I wonder if QF would like to publish their 'loads' on city flyer?