Point of Difference
There seems to be a readiness to equate the share price of Qantas with a lot of intangible issues such as management, staff, equipment etc, but these are all how the business is done factors and not product and market share factors. Product, market share and sales volume are all that matter in the stock market valuation of the company and the returns on share ownership by way of dividends and share bonus issues. All physical assets are only ever what a written-down market disposal would bring, which is probably about 30% of book value.
A market value of $1 is not an issue for Qantas as a business. From a crude accounting perspective the business is divided up by its share register to arrive at a value per share and there are a lot of those $1 shares out there and still would be at ten times the price, big share book.
Qantas as a group of companies generates healthy sales revenues and hence cash flows and is able overall to generate an operational profit on the price above the cost of its product. It is not a basket case and has well run divisions which all contribute to the company's overall financial health. The business is therefore well differentiated in market terms horizontally. Vertical integration is a limiting factor as the loss of market share on and in international travel markets demonstrates. The company has insufficient capital to become an Emirates or United and given current international economic conditions absolutely no chance of growing this market, which is being shared by more and more competitors on a weekly basis.
As long as the company generates those cash flows and manages its costs it will remain profitable. So the issue of the market valuation of $1 is of concern only to shareholders who are expecting or demanding a capital gain on their holding. The valuation of course makes the business immediately obtainable in terms of a market bid for a controlling interest or even private capital consortium management, that is of course a matter for the Board and the interests or connections they represent to worry about not investors or ordinary shareholders who would see an immediate capital gain were such an offer to arise.
Profitable domestic business with dominant market share, growing leisure class travel arm and with an international side that can still hold over thirty percent market share sounds pretty good to me at a buck a share.
Possible market buyers or current managment are not going to commit corporate suicide by meddling internally much more and so it seems current staffing and management structures will remain which indicates a stable internal business. Everybody inside would have to be fine excepting the inevitable fallout from the rationalisation from older stuff like the 747, continued push for wage containment and the need to manage reduced expectations for those fond of foreign overnights, if you don't mind domestic overnights business will be fine. Question is will A380's or B787's do the trick and hold the line in the international travel market? Who knows need a crystal ball for that one.