Market looking for Qantas update on cost savings

written by australianaviation.com.au | August 25, 2014
Qantas tails.
Qantas reports its 2013/14 full year results on Thursday.

 

When Qantas chief executive Alan Joyce steps to the podium to deliver what many tip to be a huge full year loss, the focus won’t be so much on the the number itself.

Rather, attention will instead be on any new initiatives to support Australia’s largest airline group’s return to profitability, as well as a progress update on the transformation plan announced in February when Qantas said it would cut 5,000 jobs and reduce costs by $2 billion between now and 2017.

Advertisement
Advertisement

“The market is likely to focus on speed of cost savings and evidence these cost savings are being retained rather than passed-through to lower fares,” CBA Institutional Equities analysts Matt Crowe and Vana Makaric said in a research noted dated July 25.

“We will be looking for an update on possible transactions relating to QFF [Qantas Frequent Flyer], Jetstar or airport terminals, as well as the possible split of domestic and international businesses.

“Silence on these issues is likely to disappoint.”

Qantas was expected to report a statutory net loss of $828 million for the 12 months to June 30 2014, according to a median of five analysts’ estimates compiled by Australian Aviation, compared with net profit after tax of $5 million in the 2012-13 financial year.

PROMOTED CONTENT

In terms of underlying profit before tax, which the airline regards as the best indication of its financial performance, analysts tipped a loss of $770 million for 2013/14, compared with underlying profit before tax of $192 million in the prior year.

Speculation in recent months has focused on the sale or partial float of the frequent flyer business and/or low-cost subsidiary Jetstar, as well as further cuts to Qantas’s international route network.

Qantas chief financial officer Gareth Evans told an aviation conference earlier this month some $1 billion of the $2 billion planned cost reductions over the next three years would come from the the airline’s international operations.

Separately, media reports in the lead up to Thursday’s announcement suggested Qantas management had decided not to conduct a partial sale of the airline’s frequent flyer program.

The company said on August 21 it did not comment on speculation about the float or sale of Qantas Loyalty.

“A decision on Qantas Loyalty has not been made,” Qantas said in a statement to the Australian Securities Exchange.

Forecasts suggest the sale of Qantas Loyalty, the business unit which includes Qantas Frequent Flyer and which is one of the best-performing at the airline, could fetch up to $2.5 billion.

However, analysts were lukewarm on the idea.

“We continue to advocate the retention of the Loyalty business given its importance to the overall QAN customer proposition,” CIMB analysts Mark Williams and Alexander Lu said in a research note dated August 5.

“However, a partial sale or demerger announcement would likely be a positive short-term share price catalyst.”

The market was also looking for any update on Qantas’s discussions with Sydney Airport over the lease of its domestic terminal, which expires in 2019.

Sydney Airport chief executive Kerrie Mather said last week there was little to report on the progress of talks between the airport and the airline.

“We are in ongoing discussions with Qantas around that, but there’s ­really no material update,” Mather said during Sydney Airport’s results presentation on August 21.

In terms of market conditions, both Qantas and rival Virgin Australia appeared to be pulling back on capacity growth at the start of 2014/15 – Qantas has flagged zero capacity growth in the local market during the three months to September, while Virgin has swapped some A330 services from Brisbane to Perth with smaller 737 aircraft.

“We note the carriers are indicating a pull back of capacity,” Deutsche Bank analyst Cameron McDonald and Entcho Raykovski said in a research note dated August 1.

“However, we remain cautious given that it will still take time for yield pressures to ease as we continue to believe there is excess capacity in the market.”

Virgin Australia releases its 2013/14 results on Friday. The airline is also expected to be in the red.

Did you know that Australian Aviation Magazine comes digitally? Subscribe to Australian Aviation’s digital magazine for just $59.95 a year! Our app is available on mobile, tablet and PC devices! Subscribe now at australianaviation.com.au.

8 Comments

  • Neil Hansford

    says:

    At some stage the market must press for the Chairman and Board to be replaced as the strategies haven’t worked and the long term consultants who are knee deep at Qantas have produced nothing at a time when “legacy’ carriers are returning to profitability around the world.
    Alan Joyce simply implements the Board policies determined by the army of consultants.
    As Robert Crandall said when head of American “You can’t save your way to prosperity”. The Qantas business model is clearly irreparable in its current form and all that is happening is the International Division is dragging the excellent domestic business into the gutter along with QF domestic, JQ domestic and Qantaslink.
    Good bye Leigh Clifford and your Board and let some aviation people have a go! Your time to play at airlines has passed.

  • R jensen

    says:

    the whole board and the ceo should get the boot they have run the the airline into the ground

  • Tim Miles

    says:

    R jensen : I Totally agree with you Qantas has degraded its not what it used to be thanks to Alan Joyce, Cost cutting, offshore maintenance,jobs are lost here, u get what u pay for im surprised that it hasn’t crashed yet, Hopefully not. The Entire Ceo’s need to get the boot asap the Qantas brand is now tarnished its not the Spirit of Australia anymore its more like the Spirit of Asia….

  • Jackie

    says:

    Please Alan Joce must go immediately
    And all the consultants that works for him
    ASAP

  • Robert

    says:

    I have to agree with all of you. I too am luke warm (in fact against) selling off the FF program. Why sell off one of the few parts that makes money?. The $2.5 billion you might get for it would be soon be wasted and thrown away on other parts of the business. Before you get your hands on a large amount of money, you have to have a sensible business plan for using it to repair the business. For Heaven’s sake, look the Air NZ. They seem to be doing everything right, and punching well above their weight. And they came back from near disaster. What is needed quickly is a change of Board, a change of CEO, and most of all, a change in the culture of QANTAS staff. Many still regard themselves as public servants. Look after your valuable customers and they will fly again with you (and pay a slightly higher price for doing so) Hey guys, you’re not working for the government any more. You’re a private company, and you have to compete !! Again, look at Air NZ who pamper their customers – nothing is too good for them. When are the people at QANTAS going to learn???? Alan Joyce has proven himself good at setting up new low cost carriers, but failed at managing any existing legacy carrier. I repeat my comments from last month. We are running out of time. You will sadly witness the demise of QANTAS in the future (unless it is sold lock stock and barrel to an overseas buyer) What a shame!!!!

  • Fergo

    says:

    As I’ve said before, anybody who charges more for an inferior product on long-haul routes where they’re competing against some very classy acts, such as Singapore and Emirates, is doing it wrong.

  • Michael

    says:

    I think it was Bob Ansett (son of Reginald, head of Budget Rent-A-Car and author of some of the best business management books) who said that there are very few business problems that can’t be solved by having more customers.

    Ideas for selling off bits of the company are just a distraction. The real issue is how to get more people onto Qantas planes. That should be the #1 focus for management – and everyone else in the company.

  • Adrian

    says:

    All these different flavours of QANTAS
    QF International, QF domestic, JQ domestic and Qantaslink requre management teams and liaison between them which probably means QANTAS has four times the management it needs than if it was one cohesive organisation. It is called economies of scale.
    The QANTAS group solution is keep the managers and fire the pilots, cabin crew, engineers etc.

Leave a Comment

Your email address will not be published. Required fields are marked *

Each day, our subscribers are more informed with the right information.

SIGN UP to the Australian Aviation magazine for high-quality news and features for just $99.95 per year