Qantas still rules the skies | Stephen Bartholomeusz | Commentary | Business Spectator
Perhaps the most remarkable aspect of Moody’s downgrading of Qantas is that it had – and still has – an investment-grade credit rating to begin with.
That’s despite the endlessly dysfunctional and stressed state of the global aviation industry, the traumatic confrontation with three of its unions that cost it almost $200 million in the December half and soaring fuel costs that have stripped a further estimated $450 million from its earnings in that six months.
Despite the traumas of the December half, Qantas still expects to generate an underlying pre-tax profit of between $140 million and $190 million (or at least it did late last year), which would be a very creditable effort given not only the industrial disputes and fuel cost increases but the economic issues in Europe that have impacted global aviation generally.
Its positive cash flows and $3 billion-plus hoard of cash should enable it to fund its near-term aircraft deliveries.
While the strength of its frequent flyer program in particular, the continued profitable growth of Jetstar and its freight business provide some diversity and resilience to its cash flows, the resurgence and repositioning of Virgin Australia under former senior Qantas executive John Borghetti and the almost daily announcements of new entrants or increased services to Australia by foreign competitors are, however, steadily ratcheting up the pressure on Qantas’ aviation businesses.
The boldest aspect of the new strategy for the international business that Joyce outlined last year – a new premium airline based in Asia – has yet to materialise, with Qantas still talking to Malaysia and Singapore about the location of its Asian hub and, in Malaysia, a relationship with Malaysia Airlines and its major shareholder, Air Asia.
While there is a degree of impatience in the market about the lack of apparent progress in those discussions, Qantas appears to be hastening slowly, perhaps because of concerns about the capital requirements that the venture might add during a period of global economic and financial uncertainty and risk. Joyce does, however, appear committed to that strategy.
Moody’s, in downgrading Qantas, was concerned about the external environment created by the economic instability emanating from Europe, the fleet renewal program, fuel costs and the intensity of the competition it is experiencing. It would be even more concerned if Borghetti was able to prise loose significant chunks of Qantas’ dominant share of premium domestic travel.
With the industrial disputes almost certainly behind it, a stable if subdued domestic economy, the truncation of its international network, the flexibility provided by the dual brand strategy and the continuing focus on cost reduction, Qantas remains for the moment – as its retention of the investment grade rating suggests – a first-rate performer in a third-rate industry
Just returned from SE Asia, the word is, AJ & BB are not even close to a deal in either Sin or KL.
''One thing they are going to have to sort out is the whole ownership issue, because that is one of the barriers from their previous efforts,'' Mr Osman-Rani said in Sydney yesterday.
''If both sides want to have a majority, someone has to give in.''
Qantas attempted a full-blown merger with Malaysia Airlines in 2008, but the talks broke down over the ratio of shareholdings each carrier had in a merged entity.
Pressure from investors has been building on Qantas to offer more clarity about its expansion in Asia.
Read more: Qantas's Asia plan may hinge on how to split joint venture
This still is the problem.
Meanwhile, the Q media department have been busy planting stories in the Oz media since the Moody's downgrade was announced.
Aussies won't turn their backs on Qantas, according to survey | Herald Sun
Aussies won't turn their backs on Qantas, according to survey
Australians are well-travelled and dream of a trip to Europe, according to survey. Picture: File photo
The Aussie love affair with Qantas remains strong despite last year's grounding. Picture: File photo
Dream escape of Escape readers revealed
- Aussies are well-travelled and love the beach
- Still favour flying Qantas despite grounding disaster
AUSTRALIANS are well-travelled bargain hunters who haven't turned away from Qantas despite its grounding disaster last year.
Aussies also dream of holidaying in Europe, preferably soaking up the sun on a beach.
This is the picture that emerges from a survey of more than 12,000
news.com.au readers
Sounds great but, Q will be reducing it's services (two routes) to Europe after April, following the trends, not!
today's close