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Investors told to ‘sell’ Qantas stocks as profit forecast falls

written by Hannah Dowling | August 5, 2022

Qantas Boeing 737-800 VH-VZA, captured by Victor Pody

A Citibank investment advisor has downgraded its assessment of Qantas stocks from ‘neutral’ to ‘sell’, as the airline continues to battle scrutiny over poor customer service, increasing flight disruptions, and staff shortages.

The investment bank also revised its profit forecast for the Flying Kangaroo for the 2023 financial year from $740 million down to $514 million, a drop of over 30 per cent.

The airline’s share price dropped 0.9 per cent to $4.56 at market close on Thursday following the advisement.

According to Citi Bank analyst Samuel Sow, as Australia’s only premium airline, Qantas must address its operational and service shortfalls.

“Qantas charges a premium for tickets so we expect performance will be a key priority,” Seow said. “However, doing so economically appears to be difficult.”

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“How much would it cost to improve performance?”, he questioned.

It comes after the Qantas Group collectively reported the worst flight cancellation rate in the country in June, 8.1 per cent of all services cancelled. Meanwhile, nearly 40 per cent of all Qantas flights were reported to have been delayed throughout the month.

It also comes as Qantas was named among the global airlines with the worst cancellation rate by Cirium.

Seow said compared to US airlines, which face similar operational issues to Australia, Qantas’ performance remains poor, with US carriers boasting an average cancellation rate of around 2 per cent.

“In the last few months, Qantas appears to have hired around 3 per cent more staff, and reduced capacity by 10 per cent,” Seow added.

“We expect this trend to continue and as a result we see higher costs and lower capacity. As an example US airlines are holding capacity at 80 to 90 per cent while staffing at approximately 95 to 110 per cent.”

He also noted that Qantas could be over-scheduling flights in order to cancel and consolidate passengers onto other flights. While this practice increases Qantas’ overall load factors, he said the practice could be undermining performance by impacting turnaround times, and driving up consumer angst.

“While we are optimistic about the long term recovery in travel, we believe the environment is becoming more challenging economically due to fuel and staffing constraints,” the analyst said.

“We expect in the short term, higher fuel prices and overstaffing will put pressure on margins, decrease capacity, and increase difficulty for management.”

It comes just weeks after Qantas domestic and international chief executive, Andrew David, penned an op-ed to defend the airline after months of bad press and growing customer dissatisfaction.

In the piece, David admitted the airline is “absolutely not delivering” on service but argued its problems are being replicated around the world.

In 2022, Qantas has faced a string of problems, including huge delays at Easter, hours-long call wait times, and even a revelation that the cabin crew of a Qantas A330 were made to sleep across passenger seats in economy. Last year, the Federal Court ruled the Flying Kangaroo had illegally outsourced 2,000 ground handling roles and subsequently rejected an initial appeal.

Most recently, the airline has been accused of failing to board bags onto aircraft and losing or damaging them in the process, as well as leaving passengers stranded at airports around the world after cancelling flights last-minute.

However, David — Qantas’ Domestic and International chief executive — wrote on Sunday there have been a “number of factors” that have led to its problems.

“Restarting an airline after a two-year grounding is complex and aviation labour markets, as with many others, [is] extremely tight,” he said.

“Compounding that is the fact that COVID-19 cases are steeply on the rise again at the same time as the winter flu season.”

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Comments (2)

  • Rod Pickin

    says:

    Investors being encouraged to sell their stocks and Execs being asked to perform baggage handling duties, ( where and in what capacity?), delays and cancellations plus terrible public perceptions of the product and services clearly points to the fact that the left hand isn’t communicating with the right hand if in fact there are any hands at all. Effective airport management and passenger handling is not rocket science, sure times change but the principle remains and this seems to have been forgotten in recent times not only here in Oz but in other places too. It would appear that with QF there is far too much/many announcements re operational and additional services and implementation of same forgetting the basics of, have we the trained staff available to do the job now? The results would indicate not. It could be said that management, (A.J.) has been too involved in trying to outdo domestic competitors in every operational sphere, falling short and then we go backwards with cancellations and the like then the punters look elsewhere as the competition quietly goes about the main task of getting to the destination safely and as close to schedule as possible: On top of this it appears that every union involved is itching to flex its industrial muscles so it is safe to say that life with the airline/s is far from happy; I wonder though just how much of the latter is personal against A.J. and not an objective concern of any problems within the company. Having said that, it would be my opinion that A.J. should consider life after QF now and secure his successor now, ride gunshot with him/her for some months until the mess gets sorted. I think everyone would agree, A.J. has done a great job, fell off the path of righteousness a couple of times but he is a divisive person and to continue on now is maybe not what the company needs.

  • Rocket

    says:

    I wouldn’t be listening.
    I sold the bulk of my QF shares at an average of $1.48 about 10-12 years ago, because they had a sell recommendation. Stupid, stupid decision. Had I held on to them, I would have had over $10K invested now, instead of the 2-3 I got when I sold them.
    These brokers seem to lick their fingers and hold them up to the breeze. How many of these geniuses I wonder told people to buy or hold Enron or AIG.
    They’re like chooks at feeding time and with brains that appear to be smaller.
    They basically make their living from rolling a dice.

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