Sat "Weekend Australian"
Qantas hopes to fly with ten arms
By Steve Creedy
October 18, 2003
Qantas yesterday forged ahead with a corporate restructure which will split the airline into 10 businesses as the market reacted uncertainly to news the airline would launch a domestic low-cost carrier next May.
Qantas closed down 3c at $3.55 after falling as much as 7c as investors grappled with sparse details about the new carrier.
The previously flagged reorganisation divides the group into four flying-related businesses, two servicing the flying operations and four associated enterprises such as Qantas Catering and Qantas Holidays.
It aims to make each unit accountable for its performance and contribution to the Qantas Group under the guidance of a corporate centre which will focus on issues such as governance, investments and group strategies.
"The reorganisation will deliver a range of major benefits, including increased accountability, greater speed and quality of decision making, and improved return on assets," said chief executive Geoff Dixon.
New additions to the senior executives include low-cost carrier chief Alan Joyce, executive general manager technical operations and maintenance David Cox and the new head of Australian Airlines, Andrea Staines.
Mr Cox replaces 34-year Qantas veteran David Forsyth, who is leaving the company in December for personal reasons, while Ms Staines replaces Denis Adams, who takes charge of a portfolio of associated Qantas businesses.
The restructure also puts chief financial officer Peter Gregg in charge of corporate strategy and makes executive general manager sales and marketing John Borghetti responsible for core domestic and international airline operations.
Other executive members are Grant Fenn (airports and catering), Narendra Kumar (regional airlines), Paul Edwards (fleet, network and alliances), Kevin Brown (people) and Fiona Balfour (chief information officer and Qantas business services).
The restructuring details emerged as doubts were raised yesterday about how many additional aircraft Qantas would need for its new carrier.
Qantas said on Thursday the new airline would fly at least 23 aircraft by mid-2005 but there was speculation yesterday this could include 14 Boeing 717s already operated by its Impulse Airlines subsidiary.
A decision about whether to start the airline using Impulse or as a greenfield operation is due to be made within six weeks.
"They're not going to put 23 new aircraft in the market - that would be a less than sensible idea," said Macquarie Equities analyst Ian Myles. "I think they will use 14 717s, they'll use eight new 737-800s and they'll use one from the existing fleet."
Virgin Blue, seen as a target for the new carrier, said yesterday it was unconcerned about the move because its business model was built on a three-airline environment.
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Sat "Sydney Morning Herald"
Flying Kangaroo could be turning cannibal
By Scott Rochfort
October 18, 2003
Qantas's plan to launch a no-frills airline has raised concerns that it risks cannibalising its existing main-line domestic network and moving higher-yielding passengers down the value chain.
The airline hasn't offered much detail on the make-up of the carrier, which is yet to be named, and the market remained hesitant yesterday on the strategy to attack Virgin's 30 to 35 per cent market share. Qantas shares eased 3c on Friday to $3.55.
Some investors were unsettled by the experience of other carriers such as KLM, British Airways, Air Canada and SAS in launching low-cost carriers.
ABN Amro's Bruce Low said Qantas would have to ensure passengers lost to its mainline business went to its own low-cost operation and not Virgin.
To do this, the Qantas offshoot would have to offer fares equal to or lower than Virgin's, Mr Low said.
There are forecasts the new airline could take up 20 per cent of the domestic market, owing to its larger-than-expected projected fleet of 23 aircraft by mid-2005.
Mr Low said the shrinkage in the existing business could leave that airline with less market share but the same infrastructure and costs.
In a note to clients, Mr Low said:"Qantas would need to be careful not to be seen to be purposely shrinking the mainline operation", given the illegality of "shrinking one business to grow a replacement business with less attractive labour agreements for staff".
But Macquarie Equities analyst Ian Myles said the problem could be overcome by Qantas drawing people from its domestic business into its growing international business.
Ian Thomas, of the Centre for Asia Pacific Aviation, said Qantas seemed to be following the growing holiday market in a bid to make its low-yielding leisure routes profitable.
"It's going to be a substantial operation," Mr Thomas said. "It's something that they can scale up or scale down depending on its success. But there is the classic risk that [Qantas] could push passengers downstream to low fares."
As part of its two-year strategy to cut $1 billion in costs, Qantas also announced the formation of 10 separately accountable business units on Friday. Sales and marketing manager John Borghetti was named the new head of Qantas Airlines, which covers the mainline domestic and international operations.
Other units include the new airline, Australian Airlines, Qantaslink, Engineering Services, Airports and Catering, Freight, Qantas Holidays, Defence Services and Qantas Consulting.
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Dow Jones
Qantas Raises Possibility Of Listing Business Ops
By Helen Ubels
Of DOW JONES NEWSWIRES
SYDNEY (Dow Jones)--Qantas Airways Ltd. acknowledged Friday that a restructuring now underway will make it easier for the Australian carrier to break off parts of its business and list them on the stock market.
Although that doesn't seem to be the plan for the time being, Chief Executive Geoff Dixon conceded that the restructure does make the "floating" of different units a possibility.
"It always has been the case, but certainly after we finish our restructure all of them could be quite easily floated off," Dixon told Australian Broadcast Corp. television.
"We could float off the regional airline, we could float off Australian Airlines, we could float off our catering division, we could float off Qantas Holidays."
"All of those are very good businesses, but I've got to tell you they are very integral to our business plan," he said.
Feeling the heat from flourishing domestic budget carrier Virgin Blue and increased competition on the busy trans-Tasman route, Qantas confirmed Thursday plans to launch a domestic budget airline while continuing to pursue an alliance with Air New Zealand Ltd. despite a hostile regulatory response.
Under its so-called Sustainable Future program, the airline is looking to strip A$1 billion from its cost base over the next two years.
In tandem with these efforts, its restructure will see the creation of 10 business units in pursuit of improved accountability and returns on assets.
John Borghetti, the 48-year-old head of sales and marketing at Qantas, has been named executive general manager of the core domestic and international airline. This big promotion potentially sets Borghetti up as a rival to Chief Financial Officer Peter Gregg as a future chief executive candidate.
Qantas' nine other business units include another three flying divisions, engineering, airports/catering and four associated operations covering freight, holidays, defense services and consulting.
"An increase in autonomy for each business will be coupled with a strong focus on performance targets," said Dixon in a statement.
"The new structure will also increase the growth opportunities of noncore businesses such as freight and Qantas Holidays," he said.
Costs Versus Cannibalization
Analysts said Qantas needs to update its model if it is to survive the onslaught of new, more agile competitors.
"At least they're looking at ways they can become a little bit leaner and a little bit more responsive to the way the environment is changing," said Bruce Low, an analyst with ABN AMRO.
"Certainly Qantas has realized that the way the model used to be...is just not a sustainable thing. The whole market is changing - you've got low cost carriers coming in and...to keep plugging on and keep doing what they're doing is just a recipe for disaster," he said.
But the decision to launch a low cost domestic carrier has left some analysts pondering the extent to which the new carrier will steal away Qantas customers.
"The great unknown remains Qantas' ability to insulate its premium brand to minimize cannibalization by the low cost carrier," Credit Suisse First Boston said in a note to clients.
Though the company plans to improve its premium brand service to further differentiate it from the new carrier, more information is needed on strategy to evaluate the company's growth profile, the broking house said.
Qantas is keeping much information about the new airline, including its name, under wraps. What is known is that the launch is planned for May using the operations of a low cost carrier, Impulse, that it bought in May 2001.
Purchases of new aircraft are expected to build its fleet to 23 by mid-2005, Qantas said.
Investors needn't panic that the airline is going to flood the market with excess capacity, noted an analyst with another broking house.
"The bulk of the planes we think are in fact the Impulse planes...and there's only eight new planes. They're not about to go and absolutely cannibalize themselves for the sake of fighting Virgin Blue," he said.
The analyst played down the prospect of Qantas separately listing any of its units.
"They've got bigger issues to think about," and the company has some land and terminal assets that could be sold if it really wants to raise cash, he noted.
On the Australian Stock Exchange, Qantas shares slipped three cents to A$3.55. The broader market ended fractionally lower.
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Last edited by Wirraway; 18th Oct 2003 at 03:20.