Originally Posted by
a_pilot
Rated De,
Just a simple basic question.
What is more important for a business, revenue or profit ?
What is essential for it to survive, revenue or profit ?
For the shareholders, are dividends based on revenue or profit ?
For the staff, is the bonus based on revenue or profit ?
Presumably you ask out of a genuine desire to understand what is happening.
Our point is that the way Qantas CHOOSES to present Jetstar removes any ability of an investor to assess the merits of any assertion.
From a strategic management perspective consider the following:
A decision is made to switch growth from one airline (Qantas) to the other (Jetstar). In an economic sense, it is practice to add capacity (or supply) until the addition of a unit of capacity means that it does not cover the cost of doing that.The transfer to Jetstar (including the accelerated growth under Little Napoleon) ought given their claims of lower unit cost have delivered improved margin (operating margin revenue minus cost).
Therefore, early on the Jetstar capacity increases probably showed reasonable margin. That it continues is surprising. That an airline with a fleet count similar to their parent flying 48% of the ASK generates only 30% of the parent revenue suggests that the capacity being granted to Jetstar is in excess (a scale problem)
Well intentioned senior management would recognise this. Perhaps this is why Mr Evans is actively touting the A321 as it lowers the fuel included CASK. This is why he states it is a mid cost carrier. What Mr Evans is flagging is that Jetstar margins are squeezed.
The Jetstar business cannot generate yield with a higher unit cost. The only way Jetstar (and any low fare airline) can generate an operating margin is to simultaneously have low unit cost and higher revenue. That is the objective of any business. The weakness of the low fare model is that full service airlines can replicate elements of the lower cost model. The full service carrier can grow operating profit margin as their ability to generate yield is far better. The only way the low fare airline can maintain margin is to continually lower cost, which in theory works well, but has practical limits.
As Little Napoleon states dual brand, it is a dereliction of strategic management that capacity is denied to the parent.
IFF he truly has 'transformed' anything, then additional capacity into Qantas International with a fuel efficient wide body twin fleet would
instantaneously lower his unit cost and improve profit as his fuel expense would almost halve.
To answer the question, as the revenue of the
group has gone backwards since Little Napoleon's coronation and Mr Evans has telegraphed that Jetstar has rising unit cost a better operating margin in the 'now transformed' Qantas International is easily achievable. To do what all other airlines have already done( re-equipping QFI) would mean tempering Little Napoleon's fetish for all things Jetstar.
Instead, as CurtainTwitcher remarks, they choose not to provide detail of the Jetstar segment, because it suits their agenda. AASB 8 allows them to
choose not to disclose anything much, so they don't.
Rest assured there have been a lot of heated discussions on 'strategy' at Fort Fumble with incumbent CEO usually victorious.
Simply ask yourself why Qantas refuse to provide detail on Jetstar? As management themselves determine who pays for what, the Qantas International segment can for instance pay for fuel, or aircraft purchases, or engineering, or staff in corporate, it is impossible to determine without seeing the management accounts how much subsidy Jetstar actually receives from the parent. Ultimately, there is nothing illegal in that. What is entirely disingenuous and misleading to both staff and regulators is that the profitability of Jetstar is repeated without substantiation and idiots like Peter Harbison (CAPA) with his Chairman's lounge access regurgitate it.
Seeing as though you mention dividend, which itself is a function of profit. Would it not be a better use of capital to re-equip and lower fuel costs improve operating profit margin and profitability, than simply spend AUD$2.5 billion buying back shares?
Qantas need a new fleet