Debrief

It might not be hard to outlaw some of these. Specifically, the US partners of Qantas and V Australia could be encouraged to work out a deal whereby they codeshare on flights operated by the Australian carrier. Many European carriers who used to fly to Australia run a similar exercise. With loads falling- especially in high yield business passengers – an increase in the number of carriers on the Pacific is the last thing QF and VA need. But if we denied foreign carriers access, protectionist governments would simply retaliate. Political self preservation is a very strong driver.

Another one goes: Sky Air World

The closure of yet another smaller operator who aimed high with new aircraft has wide ramifications. Firstly, the proposed Australian joint venture between SAW and Lion Air has now gone. But perhaps more significantly the FIFO industry, once viewed as a goldmine but is now being hit by market conditions and federal carbon emissions laws, will probably only sustain a few operators. Alliance and Skywest appear to be the main winners, with lower level work by smaller operators specialising in low utilisation, depreciated aircraft which are better suited to regular and ad hoc demand spikes. That is something that carriers running new $3,000 per hour aircraft can’t sustain.
Conversely, the role of those carriers operating wet lease flights on thin, regional international routes for carriers who operate only a handful of large aircraft may well grow as demand falls. Ironically, this was an area which SAW specialised in.

Virgin Blues

The plunging price and heavy turnover of Virgin Blue stock as other airline’s stocks began rising finally provoked the ASX to issue a “please explain”. VB attributed this to market volatility. Nevertheless, on the day that SAW’s demise leaked, VB’s price rose on heavy turnover. No doubt buyers saw that the spectre of Lion and SAW hurting VB was over. The following week, VBs price struggled, endeding lower on its highest ever turnover – nearly 10 per cent of its shares. At those sub-20c price,s VB (like Asciano) can’t raise funds through capital issues without destroying the value for old holders, including the Virgin Group.

Better placed Qantas did, with its $500m offshore placement and ‘top-up’ issue to existing holders – a tactic many industrials are flooding the market with. Virgin Blue instead raised cash by concluding 10 year sale/leaseback arrangements for four 737s, including three new ones due later this year.

Underlying values aside, VB’s price was shot when Toll gifted its 60 per cent stake to its shareholders, most of whom sold them to offset falls in Toll’s share price which were partly attributed to VB’s woes. Many of these have turned over at astronomical rates at prices as low as 16.5c, as ‘get rich quick’ merchants and pure punters jostle. Until these aviation illiterates quit the market and a significant stake ends up in the hands of long term institutional investors who understand aviation, the torture will continue to VB’s detriment.

It could have been worse.

Had APA succeeded in buying Qantas, carnage would now be in train, as some major aircraft financiers crash, including one who bankrolled a number of lessors. But imagine if Toll had spun off VB into Asciano, which is now in a desperate fire sale a la Babcock & Brown. In that scenario, VB could have seen its fleet sold for whatever Asciano could get – and not necessarily as a going concern. As bad as things are for Qantas and VB, it could easily have been much worse.

Queensland elections: Labor back.

The string of airport related decisions – oddly missing while a rapid sale of airports to fund hospitals (and votes) – MUST now be faced. Caloundra Airport, the Queensland Air Museum, Caboolture Airport, as well as tiny Karuma’s predicament all require fast action. So too will the Proserpine/Laguna Quays standoff, where a $4 million vote bribe to upgrade Proserpine will presumably proceed – even if VB quits there, as rumoured.