Moderators: jsumali2, richierich, ua900, PanAm_DC10, hOMSaR

 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Mon Dec 09, 2013 12:06 pm

Quoting QF2220 (Reply 48):
Maybe that is what QF management should be doing, giving their staff a session on airline economics so that they understand what needs to be done? Would they be receptive to this? Some no, some maybe. But the more maybes the better.

Well It may be a good idea. I think some would see it as an exercise in brain washing but it may make enough consider the reality the company faces to reconsider their approach to things. And yes I couldn't agree more, the general population could do a lot better with more education in basic economics. But there's a bias in the education system against teaching such things (probably because it meant certain people studying things rather useless would have a hard time justifying their research grants if people better understood). But I for one would favour at least trying to slowly educate the workforce what the company/market place really faces each day. People need to look forward and they can't do a good job of that if they're not informed. I suspect however the unions would dismiss it as propaganda even if it came from well respected outside sources. Still I'm sure if some people understood the long term implications better, they would want the best for their company.
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Mon Dec 09, 2013 12:19 pm

Quoting koruman (Reply 49):
Secondly, even the reddest, most extreme unions at Qantas could make a damn sight better fist of running the company than clowns like Clifford and Joyce.

Well it's not really working at Lufthansa at the moment and german company's have been outsourcing hell west and crooked... and I say this as a German Australian who's spent plenty of time in the motherland. The reality is, I wouldn't suggest that a pilot try and start performing operations at a hospital? Why? Because a doctor has trained for years to get their skills and knowledge to that point. And likewise I wouldn't suggest a doctor turn up at an airport and attempt to fly a 747 across the pacific. That's not discrimination, its recognising somebody's professional knowledge, and years and years of training/hardwork/sweat and sacrifice to get to that point. If you agree with AJ or not is beside the point. The point here was that employee ownership, right around the world has largely failed due to the simple conflict of interests. This isn't to suggest employees are stupid. It's simply recognising these people have a different skill base, and in reality managing an organisation turning over billions of dollars annually requires a high degree of skill. Hell managing one turning over a few million does. Let alone employing 30 000 people, carrying 20 million and tying up literally billions of dollars of capital. And managing properly doesn't mean short changing your people. You pay peanuts you get monkeys. You get huge staff turnover. You get bad service and bad industrial relations. The german and Scandinavian models worked better in the past, but company's from these countries are now very quick to stick production lines outside their home countries to hedge their bets and bargaining power. Ask BMW workers or Mercedes workers what they think about having plants in the US or South Africa? If the ultimate decision is up to them it would have never happened. But maybe... just maybe... good management is a skill that requires years of education, experience and insight to perform well. I'm not suggesting the staff are idiots, I'm suggesting many of them will not have the knowledge to fully appreciate the longer term strategic direction and thus will vote for the person who tells them the answer they want to hear, rather than the perhaps tough one that will save their future.
 
sierrakilo44
Posts: 677
Joined: Tue Dec 13, 2011 1:38 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Mon Dec 09, 2013 1:59 pm

Quoting FCAFLYBOY (Reply 41):
If short haul is so unprofitable, why carry on the can? Although I suppose long haul is probably not massively profitable as their Long Haul network is so small.

In actual fact, International is the unprofitable side of the business, Domestic was hugely profitable until the fare contest with VA started. Domestic has substantially lower operating costs, probably due to more flexible employee EBA's.
 
koruman
Posts: 2179
Joined: Mon Feb 06, 2006 9:08 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Mon Dec 09, 2013 2:19 pm

No Sierrakilo.

Domestic is more efficient because it uses twin engine aircraft. International long-haul is inefficient because it has an entirely four engine fleet, and its 787s have been given to Jetstar.
 
User avatar
qf2220
Posts: 2131
Joined: Fri Aug 16, 2013 9:16 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Mon Dec 09, 2013 2:20 pm

Quoting Lufthansa (Reply 50):
But there's a bias in the education system against teaching such things (probably because it meant certain people studying things rather useless would have a hard time justifying their research grants if people better understood)

/off topic - Im slightly more cynical than that. If we all knew good economics and finance, we wouldnt be so reliant on government to tell us what is good economics and good finance. Its in their interest that we dont know how to recognise good policy as they dont deliver much of it (this one anyway)! / back on topic

Quoting Lufthansa (Reply 51):
The point here was that employee ownership, right around the world has largely failed due to the simple conflict of interests

Its failed because it is not done right in specific circumstances. The incentive and reward mechanisms are not set right in a number of cases. At other businesses, im sure it is working well. I cannot provide examples but think it would be inaccurate to say it has outright failed.
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Mon Dec 09, 2013 9:20 pm

Quoting QF2220 (Reply 54):
The incentive and reward mechanisms are not set right in a number of cases. At other businesses, im sure it is working well. I cannot provide examples but think it would be inaccurate to say it has outright failed.

Well I'm all for aligning everybody's interests. It's an over simplified example, but you see in the US for example in good restaurants, as the floor staff have a big chunk of their wage coming from Tips, they care how the restaurant financially performs much more than staff in Australia and New Zealand. If the quality of the food is bad, or the presentation isn't up to scratch, or some staff members have the wrong attitude to the customer it impacts on the entire teams income so they all do take an active interest in trying to make sure the company performs. With the complexity of larger companies it obviously becomes harder but I'm all for it.
 
tullamarine
Posts: 3027
Joined: Thu Aug 05, 1999 1:14 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 5:41 am

QAN hit a record low of $0.95 on the ASX today. These are the sort of levels that are rumoured to attract the corporate vultures who may look to take QF private and break the business up. Realistically, it is unlikely that a purchase could be taken at an average price of $0.95 but an average price of $1.20 is reasonable meaning the entire company could be acquired for under $2.5B. The FF scheme alone is rumoured to be worth about this. What Jetstar is worth is anyone's guess because we have never really had proper audited accounts for the business unit though it would be fair to assume the Australian JQ is worth quite a bit. The Asian & NZ units may be worth something....or nothing.

Hopefully, these sort of figures will drive the current board to do something for the existing shareholders rather than leave it for the vultures who are only interested in a quick gain and will then load QAN up with debt and refloat it.
 
SA7700
Posts: 2930
Joined: Thu Dec 18, 2003 9:38 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 9:22 am

Quoting koruman (Reply 53):
International long-haul is inefficient because it has an entirely four engine fleet

So you don't consider the A330 fleet doing a MEL-HKG flight as long-haul (QF29)?   


Thanks and regards,

SA7700
 
User avatar
RyanairGuru
Posts: 8851
Joined: Wed Nov 01, 2006 3:59 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 9:25 am

Quoting SA7700 (Reply 57):
So you don't consider the A330 fleet doing a MEL-HKG flight as long-haul

To be fair, Qantas themselves classify Asia as "regional" rather than longhaul.

Even so, I think that Koruman has got completely the wrong end of the stick in suggesting that the number of engines used is the reason that International is lossmaking, so the point is somewhat moot.
 
SA7700
Posts: 2930
Joined: Thu Dec 18, 2003 9:38 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 9:40 am

Quoting RyanairGuru (Reply 58):
To be fair, Qantas themselves classify Asia as "regional" rather than longhaul.

Thanks for that RyanairGuru. I guess we are never too old to learn something new...  


Regards,

SA7700
 
koruman
Posts: 2179
Joined: Mon Feb 06, 2006 9:08 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 9:46 am

Quoting SA7700 (Reply 57):
So you don't consider the A330 fleet doing a MEL-HKG flight as long-haul (QF29)?

Nope. I consider the A330 to be a medium-range aircraft. Can if fly MEL-LAX? MEL-DXB? Thought not.

Quoting RyanairGuru (Reply 58):
Even so, I think that Koruman has got completely the wrong end of the stick in suggesting that the number of engines used is the reason that International is lossmaking, so the point is somewhat moot.

Are you seriously saying that Qantas wouldn't be in a far stronger position if they had 77Ws across the Pacific instead of 744s and A380s?

They would need to save a vast amount on employee costs to outweigh the cost of running the gas-guzzlers.
 
jrfspa320
Posts: 783
Joined: Fri Sep 16, 2005 12:18 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 10:12 am

Quoting koruman (Reply 60):
Quoting koruman (Reply 60):

No, the pacific routes are the strongest in the international network and an A380 can make more profit than a 77W.
Also CASA ETOPS rules favour quads
 
koruman
Posts: 2179
Joined: Mon Feb 06, 2006 9:08 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 10:48 am

Looks like the roof has fallen in on Jetstar's Asian services...........

Load factors via BITRE Sept 13.

Aust-Thailand both J* and QF operating A330s
Load factor QF 85.8/ 78.4
Load factor JQ 64.1/ 69.6

Aust-Japan QF using 747s /J* A330 albeit different destination cities.
Load factor QF 74.0 /93.1
Load factor JQ 59.7 /79.4

All Intl services
Load factor QF 78.4/80.7
Load factor JQ 69.6/77.9

The Jetstar LCC model of course condemns it to low yields, and as Mariner often writes LCCs require very high load factors, to the extreme that services often are suspended outside peak season.

But Jetstar International seems to have the magical combination of junk yields and junk loads.
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 12:26 pm

Quoting koruman (Reply 62):
Aust-Thailand both J* and QF operating A330s
Load factor QF 85.8/ 78.4
Load factor JQ 64.1/ 69.6

This isn't apples for apples.

Firstly BKK and HKT are completely different markets. One has business demand and the other
is primarily leisure. Next, applying equal for equal, at JQ a332 has 310 seats. A QF 332 long haul
(which is what was being sent to bkk for quite a while) only is about 239 seats. In other words the
QF 332 has about 205 pax and JQ about 199. Only a small difference. So our big question then will
be about revenue generated vs expenses. JQ's economy prices won't be that much different so its
costs will definitely win out there plus JQ will generate plenty of additional revenue in onboard food/alcohol sales
etc. Plus JQ crew these aircraft with cabin crew that will costs half of what QF costs and pilots that work
for a good 100K a year less. QF will be able to generate a premium up the front, but at the expense of
the volume of Y pax, plus it will need more crew and plenty of those legacy FA's are on 100K is a year vs
about 30 k a year for the thai crew. Most of the other costs should be similar. So I think you can quickly
establish that the load factor doesn't necessarily indicate which is more profitable.
 
koruman
Posts: 2179
Joined: Mon Feb 06, 2006 9:08 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 12:47 pm

Quoting Lufthansa (Reply 63):
So I think you can quickly establish that the load factor doesn't necessarily indicate which is more profitable.

Your points are all reasonable, but your conclusion is revolutionary.

Are you seriously saying that an LCC can succeed with loads between 64.1% and 69.6%? Really?

Qantas should branch out and teach Ryanair and Easyjet and Air Asia how to make that work!
 
User avatar
qf2220
Posts: 2131
Joined: Fri Aug 16, 2013 9:16 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 1:53 pm

Quoting koruman (Reply 62):

Is there any year to date information at hand? How seasonal is this ocurrence?
 
PHX787
Posts: 7892
Joined: Thu Mar 15, 2012 7:46 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 1:59 pm

Quoting koruman (Reply 62):
Aust-Japan QF using 747s /J* A330 albeit different destination cities.

I thought the 330 was used to NRT?


Also- if QF files for BK, what's going to happen to Jetstar Japan?
 
User avatar
RyanairGuru
Posts: 8851
Joined: Wed Nov 01, 2006 3:59 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Tue Dec 10, 2013 9:14 pm

Quoting PHX787 (Reply 66):
if QF files for BK, what's going to happen to Jetstar Japan?

The stake would be sold.

If they care enough then I'd expect JAL to buy out QF's share, otherwise maybe Mitsubishi. If neither care enough there must be a private equity firm out there that would take QF's interest for pennies on the dollar.
 
PHX787
Posts: 7892
Joined: Thu Mar 15, 2012 7:46 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Wed Dec 11, 2013 2:18 pm

Quoting RyanairGuru (Reply 67):
If they care enough then I'd expect JAL to buy out QF's share, otherwise maybe Mitsubishi. If neither care enough there must be a private equity firm out there that would take QF's interest for pennies on the dollar.

Don't expect JL to fully own it. I don't think they would want to.

Mitsubishi.....bad idea...that combination right there would be amakudari overload and that airline would sink like the titanic.
 
User avatar
qf2220
Posts: 2131
Joined: Fri Aug 16, 2013 9:16 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Wed Dec 11, 2013 3:19 pm

Quoting PHX787 (Reply 66):
Also- if QF files for BK, what's going to happen to Jetstar Japan?

I believe we are a significant way from this happening. My view is that the Aus government would definately step in (in some form or another) before this happens. Lets not worry just yet.
 
timtam
Posts: 315
Joined: Tue Nov 19, 2013 2:02 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Wed Dec 11, 2013 3:58 pm

Quoting PHX787 (Reply 66):

Also- if QF files for BK, what's going to happen to Jetstar Japan?


Fat chance of that happening. QF is doing it tough but its a long way from being in financial difficulties. Further QF would never be allowed to fail by the Australian Government. The Australian Government would step in to protect what is the Australian flag carrier and a national icon.

Another point, some analyst are suggesting QF is on a big winner with Jetstar Japan with a potential valuation of this asset alone being greater than the value of Virgin Australia. There is no shortage of suitors who want to get their hands on the Jetstar assets. QF would have no problems if it decided to monetise this asset. Despite what some commentators say, Jetstar is one of the jewels in the crown. QF will need a very large wad of cash to be convinced to part with Jetstar.

The no1 problem at QF is its international business. The no2 problem is that the price war in the domestic market means QF is not making enough money to fund the losses/business transformation/new assets for the international business to try to turn it around - so its only option is to keep shrinking it. Fundamentally QF Domestic is a good business with only 2 players. VA's Borghetti will be axed and VA will return to behaving commercially. Fundamentally QF International is not a good business.
 
AyostoLeon
Posts: 745
Joined: Fri May 24, 2013 3:09 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Wed Dec 11, 2013 4:37 pm

Quoting multimark (Reply 40):

When did the Australian government make that decision?

Qantas faced problems competing with international airlines long before EK came on to the scene. The early challengers were the likes of SQ, MH and TG for markets to Europe and more so for Asia where EK is very much a junior player. Even before the alliance between QF and EK growth by EK on routes to Europe had been at the expense of those same south-east Asian carriers.

Quoting koruman (Reply 53):

I suspect that the problems at Qantas go deeper than whether 787s are operating on routes served by JQ as opposed to QF, just as in the same way that the decision on buying the 777 was not the make or break. For starters the 787 is a relatively new aircraft, and one that hasn' t been without problems, but more importantly the problems appear to be more systemic. On some routes QF might benefit from operating the 787 as opposed to other equipment but broader issues of which markets to concentrate on, what level of service to offer, comparative costs, etc need to be looked at for the simple reason that switching equipment is not the solution to every problem and every market.

[Edited 2013-12-11 08:39:18]
 
timtam
Posts: 315
Joined: Tue Nov 19, 2013 2:02 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 12:01 am

The VAH rights issue has been shown up today as a sham. Only 25% of small shareholders have taken up the rights issue.

The majority of small shareholders have voted with their hip pockets on the VAH, its CEO and its current strategy. If it wasnt for the existence of the 3 foreign airlines the VAH CEO would have been walked out the door this morning.
 
aerohottie
Posts: 828
Joined: Mon Mar 29, 2004 3:52 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 12:50 am

Would the QSA prohibit Qantas from becoming a holding company for the purposes of dumping direct QF flying in favour of an outsourced model.
For example:

All flying could be operated by Jetstar, with aircraft being the current fleet with "QANTAS, operated by Jetstar" painted on the side. Like the Jetconnect model. Qantas, operated by Jetconnect etc

Just a thought
 
tullamarine
Posts: 3027
Joined: Thu Aug 05, 1999 1:14 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 2:13 am

Quoting aerohottie (Reply 73):
Would the QSA prohibit Qantas from becoming a holding company for the purposes of dumping direct QF flying in favour of an outsourced model.
For example:

All flying could be operated by Jetstar, with aircraft being the current fleet with "QANTAS, operated by Jetstar" painted on the side. Like the Jetconnect model. Qantas, operated by Jetconnect etc

It would theoretically be possible but there are a few obvious hurdles.
1. All of the existing staff would have to be transitioned to Jetstar or made redundant. The cost and potential industrial dramas in doing this would be immense. It is unlikely QF would receive any gov't assistance for this type of restructure.
2. Even assuming this could be done without a huge employee backlash, the big risk is that such a change would further trash the brand. QF may become a low cost operation charging high fares increasing the exodus from QF to foreign carriers internationally and VA domestically.
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 2:36 am

You know what guys, I've been doing numbers all morning. It's my first day off after 2 extremely intense draining weeks (so much so I have even lost friends over it with my inability to cope with the stress but I digress) so after a really good sleep, the economics brain has kicked in.

We haven't even seen the worst yet of the yields being trashed. I realised just this morning I forgot to factor into my estimates, the god dam 40 additional A320s virgin are getting for Tiger Airways. This is likely to go ahead for one important reason. EY are determined here to win at all costs. They can afford it, unlike Emirates they have never had to make a profit nor are expected to. What they're expected to do is grow their airline to funnel as much traffic through AUH as possible and with that hub status attract huge amounts of business investment in the region as company's set up shop in AUH. And unlike DXB... AUH has no shortage of oil, DXB has decades worth, AUH has hundreds of years worth. So money isn't an issue at all.

So What about SQ. Well, SQ won't want to lose out in the battle for the VA customer base. So when it comes to making additional investments its almost forced to match Etihad. Luckily for the amounts needed it can do it. It won't want to lose interest because if it does and etihad gains a greater say than itself, Etihad will use VA to expand services out of Australia further. Remember all those unused air rights on the Australian side but the UAE traffic rights are close to full? And We know EY just ordered long haul aircraft it said some would be going to its partners...which pretty much leaves just Air Berlin and VA. They've already thought of this. So... SQ will not want to lose its interests, and it too of course is interested in bringing QF to its knees. They'll cough up the money for the tiger aircraft. The question will be how much losses they'll be willing to tolerate out of tiger. Tiger just announced a brisbane base so I fully expect to start seeing Tiger turn up in places like TSV, Rock, CNS and maybe even DRW out of BNE. I'd quickly expect a PER base to follow, and an additional 5 to 10 A320s based in both SYD and MEL each. And that brings you to about 40 aircraft.

Houston we HAVE A VERY VERY BIG PROBLEM! And for anybody thinking QF will be nationalised... forget it. The Government will only do that as a last resort. And here is the thing... With that much capacity thrown at the domestic market, it won't be long to 'right size' the domestic market if QF failed. And JQ would be snapped up my institutional investors in a minute because its costs base is much lower the QF domestic. If any company you think would have been willing to be saved by the Australian Gov it would have been Holden. The number one symbol of manufacturing in this country's history. But its not!!!!!!
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 2:41 am

just remember guys.

PAN AM
VARIG
TWA
SEBENA
SWISS AIR (perfect example of what could happen to QF - public thinks the company still exists, when its an entire new company minus all the old stakeholders)
BRANIFF
CANADIAN INTERNATIONAL
ANSETT AUSTRALIA
Eastern Airlines (USA)
All were branded too big and too important to ever fail. Of course...
 
docpepz
Posts: 1706
Joined: Thu May 24, 2001 8:20 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 4:01 am

Quoting Lufthansa (Reply 75):
We haven't even seen the worst yet of the yields being trashed. I realised just this morning I forgot to factor into my estimates, the god dam 40 additional A320s virgin are getting for Tiger Airways. This is likely to go ahead for one important reason. EY are determined here to win at all costs. They can afford it, unlike Emirates they have never had to make a profit nor are expected to. What they're expected to do is grow their airline to funnel as much traffic through AUH as possible and with that hub status attract huge amounts of business investment in the region as company's set up shop in AUH. And unlike DXB... AUH has no shortage of oil, DXB has decades worth, AUH has hundreds of years worth. So money isn't an issue at all.

Did EY like the idea of VA buying a stake in Tiger Australia? From what I understand, the money that SQ gave VA to increase their shareholding from 10% to 20% was basically used by VA to buy Tiger and Skywest. This seems to have been a SQ-VA thing rather than from EY.

Anyhow SQ's investment track record is a disaster, from AN/NZ to VS. Unsure if VA will pay back for them (certainly not in the short term) and also I'm not sure if they needed to buy a stake to get the codesharing deal they're now enjoying.
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 6:48 am

Quoting docpepz (Reply 77):
Anyhow SQ's investment track record is a disaster, from AN/NZ to VS. Unsure if VA will pay back for them (certainly not in the short term) and also I'm not sure if they needed to buy a stake to get the codesharing deal they're now enjoying.

They'll need to do more yet. Why? Because EY will be happy to throw more money at it yet and if SQ don't match them, EY will gain more influence and control and direct more of that long haul traffic onto EY planes... or VA planes operated jointly with EY forcing the traffic over AUH instead of SIN. I'm sure EY would have done other things with that money, but EY will want VA to expand and weaken QF and EY will be throwing money at it at all costs even if they don't like what happened with Tiger. It will of course help them in some way so as long as they remain in a position to get the long haul feed they want, they probably won't object too much.
 
bill142
Posts: 7867
Joined: Wed Aug 04, 2004 1:50 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 7:35 am

Quoting Lufthansa (Reply 75):

After all that rubbish it's pretty clear you didn't get enough sleep. Please go back and revisit your figures and then come back. Especially where you say Emirates have never posted a profit.
 
UALWN
Posts: 2187
Joined: Mon Jun 01, 2009 3:27 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 8:04 am

Quoting Bill142 (Reply 79):
Especially where you say Emirates have never posted a profit.

Maybe you should read his comments again. He never says that, quite the opposite:

Quoting Lufthansa (Reply 75):
EY are determined here to win at all costs. They can afford it, unlike Emirates they have never had to make a profit nor are expected to.
 
User avatar
Kiwirob
Posts: 13753
Joined: Mon Jun 13, 2005 2:16 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 8:25 am

Quoting multimark (Reply 40):
How long till it follows Ford Australia and soon Holden to the industrial dustbin?

They've already said they will no longer subsidise Ford and Holden, Ford will cease manufacturing in 2016 and Holden in 2017.

Quoting Bill142 (Reply 79):
Especially where you say Emirates have never posted a profit.

Maybe you need to go back to sleep because he didn't say that, he said

Quoting Lufthansa (Reply 75):
They can afford it, unlike Emirates they have never had to make a profit nor are expected to.

Which refers to EY not EK.
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 9:52 am

Quoting Bill142 (Reply 79):
Especially where you say Emirates have never posted a profit.

EY = etihad... nobody said EK never posted a profit that's well established! pricewaterhouse coopers audit it and the figures are freely available on their parent company's website
 
koruman
Posts: 2179
Joined: Mon Feb 06, 2006 9:08 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 11:33 am

Quoting timtam (Reply 70):
VA's Borghetti will be axed and VA will return to behaving commercially. Fundamentally QF International is not a good business
Quoting timtam (Reply 72):
The VAH rights issue has been shown up today as a sham. Only 25% of small shareholders have taken up the rights issue.

The majority of small shareholders have voted with their hip pockets on the VAH, its CEO and its current strategy. If it wasnt for the existence of the 3 foreign airlines the VAH CEO would have been walked out the door this morning.

Looks like you read the tea leaves wrong, doesn't it?

Quoting Lufthansa (Reply 75):
EY are determined here to win at all costs. They can afford it, unlike Emirates they have never had to make a profit nor are expected to. What they're expected to do is grow their airline to funnel as much traffic through AUH as possible and with that hub status attract huge amounts of business investment in the region as company's set up shop in AUH

I think that you're a bit sleep-deprived. Relax.

It's an insane conclusion.

If Etihad is tasked with growing Abu Dhabi as a hub they are not going to throw what you are describing as good money after bad to try to get up to 10% of the market to and from a country of 24 million people. It is completely irrational, especially when you consider the volumes they could get to the Indian subcontinent and the yields to carry the elite of the former Soviet Central Asian republics in the way that Singapore Airlines has always done with the elite of Indonesia and other east Asian nations.

And even if you were right about Etihad's motives - which I don't believe for a minute - then Singapore Airlines would be threatened by that and would oppose it.

My interpretation is completely different.............

I think that Borghetti concluded that Virgin Blue was in mortal danger as an LCC because both Jetstar and Tiger had lower cost-bases, and because there are high fixed costs in Australian aviation.

He therefore decided to execute precisely the policy that he had at Qantas: high-yielding legacy carrier (VA in the QF role) and low cost-base LCC (Tiger in the Jetstar role). And both were meant to be a fraction of the size of the originals that he was copying.

But Borghetti has ramped up the pressure as he has seen Clifford and Joyce make a series of catastrophic strategic errors.

Firstly, they locked out their customers. Virgin then swooped with a status match and immediately reached a point where its lounges could barely cope with the numbers of high-yield passengers using them.

Secondly, Qantas made the extraordinary decision in the middle of a price war to try to maintain market share by throwing twice as much extra capacity as Virgin at the market. This was like committing suicide by shooting yourself and hanging yourself simultaneously. Qantas was already on a sticky wicket with its high cost-base. But it made it a double-whammy by flooding the market with excessive capacity. In effect, Qantas executed the perfect pincer movement on itself, by compounding high costs by inflicting lower yields and lower loads upon itself.

I simply believe that Borghetti has convinced all three of his major foreign shareholders that he has a better vision for Virgin than Joyce and Clifford have for the Qantas group, and that now is the time to go in for the kill.

Funnily enough, I think that Borghetti is simply a slightly above-average airline CEO, and that he is just making Virgin/Tiger into precisely what he intended Qantas/Jetstar to be.

He just has the immense good fortune to find himself in competition with an airline which has an inveterate employee-hating bully as its chairman, which has led to an appalling lack of vision and failure of strategy.
 
timtam
Posts: 315
Joined: Tue Nov 19, 2013 2:02 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 2:46 pm

The flip side to Borghetti's strategy is:

By moving VA upmarket he has needed to invest significant capital in systems, equipment and facilities. He has consumed significant volumes of cash and increased VAs cost base and now needs higher yielding passengers just to break even relative to its prior cost base.

By purchasing Tiger, VA has invested significantly more capital into what was a loss making business. Then to cap it off he is going to invest even more capital to expand Tiger - a business that is forever going to struggle to make any money in Australia and arguably has a terminally damaged branding due to its earlier grounding for safety issues.

Combining these two factors, VA has become more financially vulnerable which is why it has needed to raise more capital. VA eventually has to report its financials to the market and it will be very interesting if it has been able to stem its cash flow hole. It has been burning cash at the rate of approximately $400m/year.

The combination of VA and Tiger may make it easier to counter Qantas/Jetstar in a rational market but it also increases the cash drain on the current irrational domestic market.

Borghetti's strategy would have made sense if VA had pursued rational economic pricing strategy after moving VA upmarket. But VA has thrown out the rational economic approach and is pursuing a strategy which is not about profit maximisation.

The gloves may be starting to come off in this battle and we should probably expect some retaliation from QF/Emirates with senior management of both parties said to be currently in serious discussions in Dubai. Both QF/Jetstar and Emirates have some capability to take the battle beyond Australian shores.
 
User avatar
Kiwirob
Posts: 13753
Joined: Mon Jun 13, 2005 2:16 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Thu Dec 12, 2013 8:45 pm

Quoting timtam (Reply 84):
Both QF/Jetstar and Emirates have some capability to take the battle beyond Australian shores.

And the point of that would be? The battle is in Australia; I'd be surprised if Qantas could make a successful fist of hammering NZ at home, they've never been able to do it in the past, and SQ is a big tough boy with deep pockets of it's own.

The other issue is could QF/Jetstar afford to take the battle beyond Australia since it's the international side that's in deep financial poo.
 
bill142
Posts: 7867
Joined: Wed Aug 04, 2004 1:50 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Fri Dec 13, 2013 1:17 am

Quoting koruman (Reply 83):
I simply believe that Borghetti has convinced all three of his major foreign shareholders that he has a better vision for Virgin than Joyce and Clifford have for the Qantas group, and that now is the time to go in for the kill.

And eventually they're going to want a return on their investment. If he can't deliver that he'll be shown the door. And they will never kill Qantas simply because the government will step in and save it for it's own budget and political interests.

Quoting Lufthansa (Reply 82):
EY = etihad... nobody said EK never posted a profit that's well established! pricewaterhouse coopers audit it and the figures are freely available on their parent company's websit


D'oh. My bad for reading EY as EK.
 
koruman
Posts: 2179
Joined: Mon Feb 06, 2006 9:08 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Fri Dec 13, 2013 1:49 am

Quoting Bill142 (Reply 86):
And eventually they're going to want a return on their investment. If he can't deliver that he'll be shown the door. And they will never kill Qantas simply because the government will step in and save it for it's own budget and political interests

I'm not sure that they want to kill Qantas dead.

My guess is that when Borghetti took over VA he had a fairly conservative target for the Australian domestic corporate market, probably 10% by 2014 and 20% by 2016. And he probably expected to make substantial losses to arrive at that position.

But I suspect that he saw the passenger lockout as a golden opportunity, and that the status match and accelerated Business Class rollout have allowed him to pass his 2014 target early and reach the 2014 one too.

And let's be frank: there are not substantial Virgin operating losses. They have spent considerable money on acquiring Tiger and Skywest but their actual operations are not fundamentally loss-making to the best of my understanding.

I think that Borghetti has the "good side" of Ansett at the back of his mind. He's well aware that for Australian corporate travellers Ansett was a preferred option over TAA in many or most cases. He therefore realises that Virgin can compete with Qantas in terms of having an attractive product.

And I think that ultimately he would like the Virgin and Qantas groups to have a pretty even split of the Australian market in every sector.

If that's so, then Qantas has nothing to fear apart from its own inept management.
 
tullamarine
Posts: 3027
Joined: Thu Aug 05, 1999 1:14 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Fri Dec 13, 2013 3:05 am

Quoting Bill142 (Reply 86):
And eventually they're going to want a return on their investment. If he can't deliver that he'll be shown the door. And they will never kill Qantas simply because the government will step in and save it for it's own budget and political interests.

No real budget interest in saving QF. As AN showed, nature abhors a vacuum and the space will be filled. You are right from a political point of view but that attachment only extends to the big white roo. The gov't won't support Jetstar's Asian adventures and would know there is greater harm in supporting them than forcing QF to divest or close them down.

Quoting timtam (Reply 84):
Combining these two factors, VA has become more financially vulnerable which is why it has needed to raise more capital. VA eventually has to report its financials to the market and it will be very interesting if it has been able to stem its cash flow hole. It has been burning cash at the rate of approximately $400m/year.

The market doesn't care. It fully expects VA to delist within a year. VA is about to exit the ASX200 because its free capital has fallen below the threshold due to the dominant 4 shareholders. VA has never figured much in managed funds etc. The institutional investors are much more concerned about their losses in QAN which has figured significantly in managed funds, super funds etc.

Quoting timtam (Reply 84):
Borghetti's strategy would have made sense if VA had pursued rational economic pricing strategy after moving VA upmarket. But VA has thrown out the rational economic approach and is pursuing a strategy which is not about profit maximisation.

VA was vulnerable until it got its cash injection and it now has the upper hand and this has thrown QF's problems into stark relief. QF domestic and regional were the profit powerhouses of the QF airline business so QF has been forced (or chosen depending on your viewpoint) to enter into a fare war. This has meant domestic can no longer support an int'l business that refuses to turnaround as well as numerous Asian adventures by Jetstar that have yet ( and may never) make a profit. The dire share price means a traditional capital raising is out of the question also.

Quoting timtam (Reply 84):
The gloves may be starting to come off in this battle and we should probably expect some retaliation from QF/Emirates with senior management of both parties said to be currently in serious discussions in Dubai. Both QF/Jetstar and Emirates have some capability to take the battle beyond Australian shores.

Why would EK get involved unless QF was going to give them something else? So far EK has benefited greatly from QF and haven't spent a cent. Tim Clarke etc don't seem that rushed into changing this and would only consider it if QAN was to give away equity very cheaply or give over more of the int'l business without the attendant "baggage."
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Fri Dec 13, 2013 3:15 am

Quoting timtam (Reply 84):
The gloves may be starting to come off in this battle and we should probably expect some retaliation from QF/Emirates with senior management of both parties said to be currently in serious discussions in Dubai. Both QF/Jetstar and Emirates have some capability to take the battle beyond Australian shores.

And this is EXACTLY where the QF sales act will come into play. I think we can safely say, that if the government feels its forced to take some action, removing the QF sales act will be it's preferred option, as the government certainly doesn't want to appear to be propping up private company's/union interests/ appear to be interfering in the market place. Now Qantas international represents just 18% of inbound passengers into australia, it wouldn't be a huge shock to the system if it was gone. Almost overnight we'd see SIA upgrade A330 flights to 777 flights, and 777 flights to A380 flights. We'd see cathay throw 777s and 747s off other routes, Delta and United would no doubt send either additional flights or up gage to 747s... and of course its highly likely JQ would be airborne in a matter of weeks it if it even ceased flying at all as some hedge fund would snap it up in 2 seconds, knowing it would be able to fill parts of the QF void.

So the government knows... unlike in NZ this wouldn't be a threat to the economy justifying public investment.
EK has a lot to lose here. It partnered with QF because of the strength of the QF frequent flyer program. It certainly isn't going to sit back and see EY and SQ destroy that, and its market position in Australia. It will just be a case of having the shackles removed... and if they still refuse there's other options yet like EK 'leasing' QF aircraft for next to nothing etc.

Quoting koruman (Reply 87):
And let's be frank: there are not substantial Virgin operating losses. They have spent considerable money on acquiring Tiger and Skywest but their actual operations are not fundamentally loss-making to the best of my understanding.

Obviously the basic figures don't tell everything but this is what google finance has to say:

Virgin Australia Holdings:
Key stats and ratios
Q2 (Jun '13) 2013
Net profit margin -6.33% -2.44%
Operating margin -8.00% -2.59%
EBITD margin - 2.33%
Return on average assets -5.69% -2.33%
Return on average equity -22.73% -9.96%
Employees 5,300 -


Now for Qantas:
Key stats and ratios
Q2 (Jun '13) 2013
Net profit margin -1.37% 0.04%
Operating margin -1.75% 0.11%
EBITD margin - 12.43%
Return on average assets -1.03% 0.03%
Return on average equity -3.54% 0.08%
Employees 33,265 -

The way I see it there QF's operating margin in Q2 is bad... but virgins is bleeding.
Last I checked operating margin DOES NOT INCLUDE things like the costs associated with
the purchases of subsidiary companies or other major extraordinary items. Just out of curiosity
I'd thought i'd include how the yanks are doing so you can compare. DL - which is the US amazing success story
and UA - which is the rather ordinary story for the merger.

United Continental Holdings:
Key stats and ratios
Q3 (Sep '13) 2012
Net profit margin 3.71% -1.95%
Operating margin 4.97% 0.10%
EBITD margin - 7.76%
Return on average assets 4.07% -1.91%
Return on average equity 102.96% -63.23%
Employees 88,000 -

And US industry darling (though i suspect post merger AA is going to give it a run for its money)
Delta Air Lines Inc
Key stats and ratios
Q3 (Sep '13) 2012
Net profit margin 13.05% 2.75%
Operating margin 14.90% 5.61%
EBITD margin - 11.55%
Return on average assets 11.97% 2.29%
Return on average equity - -
Employees 77,867 -
 
tullamarine
Posts: 3027
Joined: Thu Aug 05, 1999 1:14 pm

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Fri Dec 13, 2013 3:26 am

Quoting Lufthansa (Reply 89):

US airlines are great now but on a 10 year cycle have lost a fortune. Their current strength is based on Chapter 11 bankruptcies where creditors and shareholders are forced to take a bath whilst the company trades on with existing management. Also during Chapter 11, existing contracts can be walked away from. Australia doesn't really have an equivalent and even in adminstration, the existing management would be replaced by administrators. THe more obvious outcome, it is came to it, in Australia is receivership from which it would be very hard to recover. I personally don't think this will happen to QF as I believe the QSA will be changed and some assets will be floated/sold. QF will go on but it will be a very different beast.
 
Lufthansa
Posts: 2639
Joined: Thu May 20, 1999 6:04 am

RE: QF To Cut 1,000 Jobs - Issue Profit Warning

Fri Dec 13, 2013 3:47 am

Hell I know but that's my point! I completely disagree with the US chap 11 bankruptcy laws, but virgin not acting commercially by having its losses absorbed is having a similar impact on the local market that Chap 11 had in America. they're good now because the mergers have taken the excessive competition out of the market... which should have happened by those carriers going broke and the existing ones better managed growing.

And I'd agree Tullamarine... QF would go on. It would likely be split up.. and the name probably would remain but associated with a different company that we know it today... and a different company's employees/fleet/conditions.
See Brussels airlines/ Swiss International for examples. I'm pretty sure if the government gets to the point it thinks it MUIST act...then its the QSA act to be replied. That is the fastest, easist solution and it can be done for free from the government and then the market will determine the rest.

One more thing. The argument we need a national carrier for times of disaster is a little redundant. The government has KC-330s which can carry a full load of PAX, plus it can just as easily charter Jetstar/Virgin aircraft/ Whoever else has a large fleet with some excess capacity. If these disasters happen a long way from home they can probably get a jet from Air Icelandic or Air Luxor to the scene just as quickly.

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos