Originally Posted by
a_pilot
It is very clear that you have no idea, and that you just like to distort and exaggerate the facts to rubbish JQ as much as you can.
If you bother to read the FY18 report, you will see that JQ generated 23% revenue (which contributed to 28% of the profit for the whole QF group) with only 32% of the ASK, and not 50% as you falsely stated. Compare this to QF INTL which made less profit for the group, at only 24%, but flew 45% of the ASK. Your statement actually seems more correct for QF INTL and not JQ.
JQ also have a much better operating margin of 12.2, compared to only 9.2 for QF (DOM and INTL). QF INTL only has an operating margin of 5.8.
Isn't it better business sense to direct towards something with a better operating margin ?
As a pilot crosschecking data is important, you are correct in that ought have stated FY17. It is actually 48% of ASK and 31% revenue. The fleet is almost the same in aggregate.
Qantas is unique. Their data is scant on JQ. It meets the minimum required to comply legally, but effectively it is a question of trusting what they choose to tell you. As a company they choose to provide very little detail about JQ. Ever considered why they remain so big on their claim but so scant with detail?
They, as a company have chosen in
FY12 to report QF International and QF domestic as two distinct operating segments. This is detailed in AASB 8. At the time the QF narrative was 'terminal decline' of QF international. Such a separation served their intent well. After all, this was the framing argument for many concessions they sought including a tax payer bailout. Reversing course only six weeks later, Qantas recorded huge profits less than two years later. How lucky was that?
Jetstar could be presumed to meet the aggregation threshold and the quantitative detailed in AASB 8, yet management choose not to provide any more detail. Ever wonder why?
With respect to your claim of better operating margin, that is worthy of investigation.
The audit undertaken every year by one of the big four firms, is called a general purpose audit.
To actually make a detailed comparison of who contributes what what in terms of deriving an operating margin requires a
far closer look than is required for a 'General Purpose Audit' as detailed under AASB 10.
The key thing to remember is that management themselves determine which expense goes where. This is called 'marteriality'. As an extreme example,one segment can pay for say an item like a subsidiarie's fuel or all the lease payments.Qantas have generally capitalised their leases, bringing them on balance sheet. The coming change to IFRS 16 will give a little more detail, however imagine the impact on
operating margin if Qantas International (the segment) own all the aircraft of JQ, The JQ segment then pays a 'lease charge' back to Qantas. This is not illegal, it complies with the standard, but imagine the impact on operating expense (and hence margin) if the rate agreed was actually less than a market rate? The external auditors make no statements about the threshold chosen by management in this type of audit. Nor does the standard require them to. They won't comment any more than the standard requires.
The
real contribution each reported segment brings is subject to distortion.. To obtain a meaningful metric to compare like for like requires far more detail than management choose to provide.
The criticism of JQ is not directed at people working there, of which we are sure there are many hard working well intentioned people. JQ most certainly has a role. Analysis of how it delivers its capacity to the market and how much it can earn for doing that is the point. Management provided data provides you with the opportunity to assess what they choose to tell you, rather than what is actually occurring.
JQ is a brand. It has a place. It is, as are all low fare airlines subject to very elastic consumer demand. The Achilles heel of that model is that yield is tricky to obtain. Ask Mr O'Leary. Flying 50% of the ASK for 30% of the revenue is not efficient. JQ is over scale. It is well known in aviation circles that Little Napoleon clings to the creation myth of JQ, perhaps with a less than diligent board he was allowed too much latitude. Growing the fleet to its current level and now replacing the entire JQ fleet is an interesting 'decision'.
Perhaps Mr Goyder will take a different approach to contribution and segments.
He did after all witness the mess here with ' Bunnings'. B&Q had a pretty good model and re-inventing the wheel didn't turn out so well. Luckily for Qantas 'group' the Qantas brand is tangible and provides substantial margin. When combined with selective disclosure, it is quite plausible that JQ can exist side by side at the current scale.Whether it contributes anything like ROIC is unknown. Breaking out the JQ international segment would allow scrutiny. There are some in the investment community who would welcome transparency. They are not optimistic it is forthcoming.
Qantas after all, need the new fleet.
Replacing their four engined fleet with two engine twins, like all their competitors have already done, will lower substantially, their fuel included CASK, improve RASK and demonstrably improve their operating margin.
FY18 saw them spend 21% of the operating expense on fuel. A different story in FY15 at 27%. With the same fleet they burn far more fuel per ASK, have higher fuel expense and generate much more unnecessary pollution.
It is to this point the ICCT referred.
https://www.abc.net.au/news/2018-01-...-study/9333616
A point Mr Roger Montgomery also highlighted.