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Qantas16
Posts: 755
Joined: Tue Jul 19, 2016 3:51 am

Re: QF announces record profit for FY15/16

Sat Aug 27, 2016 9:50 am

Gemuser wrote:
Qantas16 wrote:
Gemuser wrote:
I assume you're joking, but wouldn't that be amazing to watch? Would absolutely destroy NZ/VA/UA/DL/FJ on the Oz-USA market. I'm not sure if QF could realistically run a JQ 700 seat A380 + a QF A380 though, not everyday on the same route. Maybe a F/J/W only 789 and then an all-Y JQ A380.... Certainly nothing like that (to that scale) had been done before and would be interesting to see how the market reacts.

I am NOT joking! IMHO it would be completely possible and would use the existing A380s to their full potential. There would be a need for VERY good product differentiation to prevent it cannibalising other QF services because the aim is to grow the market AND make a profit. A 700-850 seat A380 would be cramped sure but if made not too cramped and run on the ULCC principle I believe it would work. It would attract NO premium traffic, but that's the "out of the box" thinking IMHO the QF Group needs. Other differentiations could include a business unfriendly schedule, say arrival after it possible to check into your hotel (late afternoon?) and a departure a couple of hours after you have to vacate your hotel (lunch time?), not connection friendly, other things premium passengers want. It would be a pure tourist/VFR service, maybe extend it to LHR?
QF may have to make some adjustments as. Maybe drop Y and have Y+ as their base product at close to todays Y prices with the JQ service taking the bottom feeders. You can make money on them IF your costs are low enough and JQ AND the A380 should do that. Done properly I can see both a QF & JQ AQ380 from SYD/MEL daily, BNE maybe less than daily, maybe not.
Obviously there are aspects to this I have no information on and much would have to be worked out, but IMHO it could be done AND NOT damage the QF brand.

Gemuser


Given QF International is currently profitable, and likely a lot of this comes from North American operations, what incentive do they have to shake the market like that? QF have a very comfortable with AA to feed passengers on both ends, and this seems to work. Now if QF were making a loss and getting slammed by competition from UA/VA/DL/NZ then maybe this would be something to look at. But as it stands, I just don't see the incentive. There is an obvious possibility it would make more money for them but it's such a huge risk on such a lucrative market that I can't see them doing it. I struggle to think of an action more dramatic than that that has been taken by an airline before (well maybe grounding your whole fleet due to an industrial dispute ;) )
 
Gemuser
Posts: 5079
Joined: Mon Nov 24, 2003 12:07 pm

Re: QF announces record profit for FY15/16

Sat Aug 27, 2016 10:10 am

Qantas16 wrote:
But as it stands, I just don't see the incentive. There is an obvious possibility it would make more money for them but it's such a huge risk on such a lucrative market that I can't see them doing it. I struggle to think of an action more dramatic than that that has been taken by an airline before (well maybe grounding your whole fleet due to an industrial dispute ;) )

The WHOLE idea is to grow the market! Done perfectly there would be NO impact on QF services, it must be stress that this is aimed at NEW traffic. Of course, nothing is ever perfect but it should be possible to do and make more money than other alternatives. It should just about wipe out all competitors price sensitive traffic, maybe QF [&AA] would have to make Y+ their minimum fare, at a level only a little above current Y fare, every body else goes JQ.

Gemuser
 
travelhound
Posts: 2008
Joined: Fri May 23, 2008 9:13 pm

Re: QF announces record profit for FY15/16

Sat Aug 27, 2016 11:40 am

It would take a whole lot of market share away from other airlines as well. We are talking about replacing existing A380 flights with 787/777X flights with no loss of passengers and than transferring those A380's to Jetstar and increasing the seat count by 40%.

So in effect some markets would have an increase in capacity of 140%.
 
Gemuser
Posts: 5079
Joined: Mon Nov 24, 2003 12:07 pm

Re: QF announces record profit for FY15/16

Sat Aug 27, 2016 11:54 am

travelhound wrote:
It would take a whole lot of market share away from other airlines as well. We are talking about replacing existing A380 flights with 787/777X flights with no loss of passengers and than transferring those A380's to Jetstar and increasing the seat count by 40%.

So in effect some markets would have an increase in capacity of 140%.

It would take passengers away from other airlines IF they didn't respond appropriately [whatever that is]
I am talking about replacing existing A380 with NEW A380
A 40% seat count increase - at an appropriate price, achievable with a hi-density A380, what's wrong with that?

Gemuser
 
qf002
Posts: 3663
Joined: Tue Jul 05, 2011 11:14 am

Re: QF announces record profit for FY15/16

Sat Aug 27, 2016 1:51 pm

Gemuser wrote:
Obviously there are aspects to this I have no information on and much would have to be worked out, but IMHO it could be done AND NOT damage the QF brand.


I think JQ A380s could work for the couple of months a year when demand peaks but I just can't see how your scheme works the other ten months of the year when the volume just doesn't exist. It's already a pretty mature market and fares are already about as low as I think they can realistically go outside the peaks.

The better option would be some 400-450 seat 789s which could then be deployed into other markets throughout the year. To be honest though, I think a route like SYD-LAX is too far for JQ's pricing advantage to mean much (especially when fuel is as low as it is).
 
redroo
Posts: 570
Joined: Tue Jun 07, 2016 10:28 pm

Re: QF announces record profit for FY15/16

Sat Aug 27, 2016 9:53 pm

I would be very surprised if the either order more A380 or replace the existing fleet with A380 in another 10 years. The A380 is equally loved and unloved within QF.

I think QF future is more frequency and point to point flying with the 787. Focused on connecting the capital cities directly with frequency to the cities Aussies want to go to and avoiding the hubs.

SYD-SFO x7
MEL-DFW
MEL-SFO
BNE-LAX B744 can become BNE-LAX, BNE-SFO and BNE-DFW over time with 787.

The fragmentation across the pacific dilutes the case for 1 big flight per day to LAX on A380.


And then if I was dreaming...

PER-LHR
PER-JNB
SYD/MEL/BNE-LHR (if it has to occasionally refuel in ASP or DRW, but be non-stop 80% rest of year, go for it)
SYD-ORD
SYD-JFK
PER-DXB (really want QF metal to DXB not EK)
BNE-DXB (really want QF metal to DXB not EK)
SYD-DXB (replace with 787)
MEL-DXB (replace with 787)
PER-FRA
PER-CDG

Long term the fleet becomes 787 for all domestic and international wide-body operations. Focused on connecting the capital cities directly with frequency to the cities Aussies want to go to and avoiding the hubs. Ideally one configuration, but they will probably end up with a high-J and a low-J / high-Y configuration that works well for domestic and less premium heavy international routes.
 
Gemuser
Posts: 5079
Joined: Mon Nov 24, 2003 12:07 pm

Re: QF announces record profit for FY15/16

Sun Aug 28, 2016 1:22 am

qf002 wrote:
Gemuser wrote:
Obviously there are aspects to this I have no information on and much would have to be worked out, but IMHO it could be done AND NOT damage the QF brand.


It's already a pretty mature market and fares are already about as low as I think they can realistically go outside the peaks.

You miss the point! Fares are NOT as low as they can go, nobody is operating second hand, paid for, hi-density A380 and no LCC is operating A380s, so costs can be reduced to unprecedented levels and that can grow the market to unprecedented levels. I certainly do not have all the answers, but I see no obvious impossibilities.

Gemuser
 
User avatar
allrite
Posts: 2610
Joined: Wed Aug 08, 2007 11:28 pm

Re: QF announces record profit for FY15/16

Wed Aug 31, 2016 3:11 am

Gemuser wrote:
I agree! Take the 8 on order and reconfigure the oldest 8 to 700 to 850 all Y seats, transfer them to JQ to start LAX services from SYD/MEL/BNE at rock bottom prices and watch the market explode! It need not take any premium [including Y+] traffic off QF if done properly. With no capex, except maybe for reconfiguration and JQ's cost structure they should make money hand over fist.

Gemuser


I wonder if airfares are any real barrier to potential passengers from Australia to the US. I have award bookings for the US and it looks like I'm going to cancel them because, on the land side of things, the US seems simply too expensive a destination compared with the alternatives.
I like artificial banana essence!
 
Gemuser
Posts: 5079
Joined: Mon Nov 24, 2003 12:07 pm

Re: QF announces record profit for FY15/16

Wed Aug 31, 2016 4:44 am

allrite wrote:
Gemuser wrote:
I agree! Take the 8 on order and reconfigure the oldest 8 to 700 to 850 all Y seats, transfer them to JQ to start LAX services from SYD/MEL/BNE at rock bottom prices and watch the market explode! It need not take any premium [including Y+] traffic off QF if done properly. With no capex, except maybe for reconfiguration and JQ's cost structure they should make money hand over fist.

Gemuser


I wonder if airfares are any real barrier to potential passengers from Australia to the US. I have award bookings for the US and it looks like I'm going to cancel them because, on the land side of things, the US seems simply too expensive a destination compared with the alternatives.

Elasticity of demand says consumers always want more at lower prices. Of course making money at that price is the sellers problem. The USA is actually quite cheap compared to Australia SUBJECT TO THE EXCHANGE RATE! and cheaper than Europe. Of course the airfare is just one component of the cost of going but as air fares get cheaper it becomes worth while to more but shorter trips. This is exactly what has happened with the cheaper fares we have now. Back in the 1970s most people would not consider a holiday trip to Europe of less than six months due to the high cost of the airfare. With the really cheap fares a hi-density A380 & LCC cost base would make possible IMHO we would see more shorter trip by Australians.

Just my $A0.02 worth

Gemuser
 
travelhound
Posts: 2008
Joined: Fri May 23, 2008 9:13 pm

Re: QF announces record profit for FY15/16

Wed Aug 31, 2016 7:15 am

I remember reading an article about Jetstar decreasing flying to Hawaii and increasing flying to Bali on the basis the total cost equation for holidays favoured Bali. For Jeststar they could package holidays deals at a price point where customers were wiling to pay. Conversely, the Hawaii holiday packages were at a price point where the customer would consider other holiday options (for example a cruise).

As such, a Jetstar A380 fleet with 650+ seats would really need to stimulate demand. I'd suggest even with very low fares the A380 flights would have to steal passengers from existing Jetstar markets to survive.

If we consider Jetstars current fleet of 787's have a combined total of 3000 daily seats, I can't see Jetstars current market base been able to absorb an additional 3000 daily seats with the introduction of five 650+ seat A380's.

I think another 4-5 787's before year 2020 would be more than enough additional capacity for Jetstar.
 
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KarelXWB
Posts: 26968
Joined: Sun Jul 15, 2012 6:13 pm

Re: QF announces record profit for FY15/16

Wed Aug 31, 2016 8:43 am

travelhound wrote:
KarelXWB wrote:
travelhound wrote:

I am not saying QANTAS will be ditching the aircraft. I am just saying they will have CA{EX to spend on other aircraft once the A380's are paid for.


I'm not fully understanding this. How do you continue operating an aircraft without spending additional money?


The CASA website (Australian civil aviation authority) shows all twelve QF A380's to be financed/owned through a QANTAS managed syndicate finance facility. These syndicates were put in place to purchase the aircraft from Airbus.

In referring to A380 CAPEX I am specifically referring to the syndicate finance facilities. I am not referring to other A380 related CAPEX such as engine and aircraft spare parts, interior upgrades, etc.

If I remember correctly the air frames are financed separately to the engines, APU's, interiors, etc, so as you say QANTAS will be using some of their CAPEX to keep these aircraft flying once the syndicate loans are paid out.


Thanks, now I understand.

travelhound wrote:
PW100,

I am simply stating a matter of fact. Aircraft of all types are very expensive types of equipment. They need to be paid for.

The intent of my post was to create discussion about QANTAS aircraft CAPEX expenditure into the future. In 2022 or there about QF will be able to leverage the twelve paid for A380's to expand their international flying!


Are we sure the A380s will be paid for after 12 years? The A380 is an expensive aircraft, why not spreading the costs over 16 or 18 years?
What we leave behind is not as important as how we've lived.
 
travelhound
Posts: 2008
Joined: Fri May 23, 2008 9:13 pm

Re: QF announces record profit for FY15/16

Wed Aug 31, 2016 9:40 am

KatelXWB,

I have used the 10-12 year finance period based upon previous typical financing arrangements. In reality there could be multiple finance periods and options.

In reality Alan Joyce has a strong history of leaving aircraft unencumbered on QF's books once the finance period is complete. I'd suggest with the A380 being a niche aircraft there would be some fairly onerous covenants if he wanted to refinance these again. The finance arrangements do go back to the Geoff Dixon days and the finance is through a syndicate, so there could be advantages for paying these aircraft out.

For example, in the 2006-2008 period QF placed quite a few paid for 747's back on lease. If I remember correctly they did so on the basis of generating cash for the purchase of the A380's. As we all know the GFC hit in 2008 leaving the newly installed CEO Alan Joyce the enviable task of trying to navigate his way through a financial crisis with quite a few very old, fuel inefficient aircraft with very expensive monthly leases. If these aircraft were not refinanced he could have simply parked the 747's and exited unprofitable routes. QF would have been in a much better strategic shape to deal with the crisis.

QANTAS is a relatively clean transparent company these days. It is very agile and in my opinion well positioned to face threats and opportunities into the future.

If QF has another good year and maintain an investment grade rating it could be cheaper for them to borrow money on the open market without encumbering their aircraft.
 
SYDSpotter
Posts: 882
Joined: Tue Oct 30, 2012 9:10 am

Re: QF announces record profit for FY15/16

Wed Aug 31, 2016 11:46 am

travelhound wrote:
If QF has another good year and maintain an investment grade rating it could be cheaper for them to borrow money on the open market without encumbering their aircraft.


Unlikely, very few banks will be willing to lend to a company (let alone an airline) without any security. Why would you lend money on an unsecured basis at a cheaper rate (compared to on a secured basis) to a company that operates in such a volatile/cyclical industry? Any bank lending to QF without taking security over any unencumbered assets would be foolish, at least taking security over a plane would give you a decent chance of recovering some of your money if the airline were to go bust.

Lending on an unsecured basis requires the higher credit ratings (i.e. AAA/A+), which Qantas does not have. If they do lend on an unsecured basis, the banks (or other finance providers) will charge a significantly higher interest rate, Qantas may have an "investment grade" rating, but only just. A change in the global/domestic operating environment can quickly change a company's fortunes (QF being one prime example).
319_320_321_332_333_359_388 / 734_737_738_743_744_762_763_772_773_77W_788_789
 
travelhound
Posts: 2008
Joined: Fri May 23, 2008 9:13 pm

Re: QF announces record profit for FY15/16

Wed Aug 31, 2016 12:27 pm

Hello SYDSpotter,

An investment grade airline has far more financing options than a non-investment grade airline.

For instance money lenders could see QANTAS (investment grade airline) as an attractive option for lending surplus cash at a below market rate. They would simply cover their investment by having financing covenants in place to ensure they can encumber aircraft if liquidity ratios fall below a certain point.

Lessors work with their money lenders using similar finance mechanisms when they purchase new aircraft.

In the current environment the money lenders may actually see an airline like QANTAS as a far more attractive option than many of the lessors. As such QANTAS could finance aircraft on terms better than the lessors.

Another option for QANTAS would be to finance new aircraft on the short term money market. In this instance the initial debt (typically with a very low interest rate) would need to be paid back over a short period (36 months). They would than need to either find new debt or use cash to pay out the loan.

At this point of time there would be quite a few money lenders knocking on QANTAS's doors. I'd suggest they are receiving interest rate offers in the 0-2% range.

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