Okay folks I've left this one alone but now i must speak up, this one is too serious.
Firstly, lets call this out for exactly what it is. AN
OLD FASHIONED CORPORATE RAID. This is not Dixon
with some alternative version of how things should be run. This isn't fund managers who love Qantas so much
they want to see 787 service to every city on the globe. Don't fall for that.
Some of you here have business experience and it will be very obvious what's going on here, but a lot of other
people here come from backgrounds that don't involve wearing the business hat. So let me spell out a few things.
but it call comes down to one thing. THE SUM OF
THE PARTS IS
WORTH MORE THAN
THE ORIGINAL WHOLE.
Think of it like this. QF
has lots of assets. Frequent Flyer. Jetstar. Real Estate and of course, the easiest
one to deal with but one that is the life blood of any airline, cash in the bank. (absolutely essential to have a reserve
in a business that is traditionally known to make losses some quarters that are known to be made up for on other quarters).
Now we have already heard talk of 'returning equity to shareholders' This means splitting things up and paying it back to itself (the shareholders )as a dividend.
Let me pain the picture.
Firstly you sell off frequent flyer...probably to one of their investment funds. Then you float jetstar on the stock exchange. Now to give you some idea how profitable this can be, a lot of companies have what we call a price earnings ratio of around 12 in Australia. It was even higher again in China or in the USA. So lets say we can give jetstar a $500 million a year profit. That would probably at a guess value it around $6 Billon alone. Thats before maybe we stripped 3 billion out of the bank at QF
. Sold of other facilities like real estate, catering etc. Get the picture. Now to keep you all fooled, Mr Dixon and friends would order another 30 787s and say they're for service to all these destinations everybody wants to fly etc etc etc, knowing too well they'll never be delivered.
So, if it costs them maybe 2 billion to do it, and at the end of the day they're left holding worthless Qantas shares they don't give a rats ass... they are well well well ahead. If you guys want to see the play book go back to the 80s and see what happened in NYC with Eastern and Continental etc. It was a bloody mess, but Gordon Gecko and friends walked away with billions.
Meanwhile, jetstar management, who would walk away with both the international route authorities given to them, dedicated terminal facilities, and an established brand and market so its not like they're some new start up carrier struggling to make their presence felt, would start redirecting aircraft. After all, if the average fare was siginificatly higher on trunk capital routes, why would you push more of your frequency on lower performing routes? You wouldn't. So you'd immediately see, for example, half the flights going to the gold coast or hobart immediately on trunk routes that have higher fares. That would have the effect of trashing yeilds on these routes. QF
, now without cash to fight back, and stuck with a higher cost structure, would start losing a significant amount of its domestic profitability.
what happened when it let 'GO' start competing with its trunk domestic routes. They got rid of the thing because it wasn't just competing with the other LCC, but it was stealing traffic from BA
itself. A key part of the JQ
strategy has been to limit JQ
's presence on QF
routes to avoid this happening. So Game over there. Next, QF
in order to stay competitive would probably have to drastically slash its costs. That means it would be priority to get rid of legacy staff. make no mistake. Currently those conditions are slowing being phased out, But if QF
had to start competing with JQ
instead of working with it, well... lets just say it created its own predator. And there would be nothing to stop JQ
start offering a J class product either. And If this got up and was successful, well Emirates would lose any interest it had in the company too. Emirates would be after the QF
frequent flyer program, but bust that up, and there goes all the appeal of it. Meanwhile Virgin would sense its old rival on ropes and you watch it start gaining both corporate contracts and start service to places like Hong Kong. See the picture? By pulling QF
apart, you'd be removing its strengths, leaving it heavily debt burdened with higher costs than everybody else and little ability to reinvent itself. And if you think what I am saying is crazy, Geoff Dixon has already tried it once before. He's already proven he's not above it.