Bleeding
Been looking at Depth into the financials of QF.
I really feel for the people with an "emotional" interest in this situation i.e the pilots. But the writing has been on the wall for sometime....
Profit = Revenue - Costs
The revenue has dropped and I think a return to around the 11.5B mark is probable over the next few years. QF ranks 44 worst out of 50 for the ASX50 for current return on equity. Its somewhere between 2-4%
As far as the shares go, a fairly significant amount of dilution occurred with the offer at $1.40 I think after the GFC. This is affecting EPS
Lets look at a current investment in Westpac Bank. Price is amount 10 times earnings. This means in 10 years you will double your money assuming a dividend payout ratio of 75% i.e. 7 percent annual return. Remember 72/(number of years) = Percent per year required to double your money. This would appear to be a good investment with banks ability to "control" margins with interest rates/fee's and things like mortgage insurance. It is also environmentally friendly.
Now look at QF. With 5c EPS which is now likely over the next few years, times it by 10 and you have 50c. With no dividend, you are Gambling on "growth" creating value. Growth is not coming QF's way anytime soon. At 1.08 its "unattractive" for value investors (takeovers) and Buffet or Graham would not take such a gamble until it prob dropped to something like 40c (5 times 12 less one third).
Now look at something really simple like QF wanting to shed Second Officers. Last one first off means A380 officers need to go. They actually need them to stay because flying to the USA in that thing is about all its good for. This means 747 S/O would need to be trained up costly money they already don't have. Or they can sit around on Blank line rosters.
Domestic is sound. Jetstar is sound. International has major geographic problems that have been caused by the rise of nations with geographic advantage.
The best it can hope for is USA, Hong Kong, Singapore, Bangkok, Shanghai, Tokyo. Maybe Joberg/Manilla etc depending on the global economy which is demographically dismal. The 29 crash causing the great depression was caused by a growth period much like 2003-2007. The market has "stop bars" now for large one day crashes - but expect the market to deflate over the next 5 years.
One more thing. We are victims of expecting growth because we have had growth in this country for 20 years. Its not always possible to grow a business.... Investors have become "traders".... They will pull their money out of businesses that are not growing for a better deal elsewhere. QF "encouraged" this behaviour when it stopped paying a dividend. A better dividend policy would have been prudent for at least the last 8 years. Looking at the dividend yields paid previously, I don't think they were appropriate...
The opposite of Berkshire Hathoway is to have investors pulling out their money during business cycles.
I think broader economic conditions in the next few years will create the opportunity for Jetstar to become QF international without to much fuss. The idea of this being outrageous or sensible will depend entirely on YOUR PERCEPTION based on your individual circumstances as an employee, manager, shareholder, bystander.
The next management team at QF could be far more ruthless than the current one, intact I would suggest at my peril that it is actually doing a few things right in some area's, and certainly not in others....
I would not expect the Govt to intervene - the masses want to fly around for 69 bucks that is just fact. Its going to cost more to park your car soon then fly if it doesn't already.
Such is life. Don't hate the player - hate the game.