Originally Posted by Shark Patrol
The tactic used by the QF Group execs seemed to be to try to answer as many questions as possible with excessive verbiage or detail to either confuse the senators (which I don't think would have been very hard) or to reveal the true "difficulties" facing them.
The Senators wouldn't have seen anything out of the ordinary in the answers, those very Senators use exactly the same methodology themselves so to them they would have seen Joyce as being as frank with his answers as they are when asked questions and as such they would think it perfectly normal behaviour. Qantas has more than a few remnants of its public service past...
Originally Posted by Shark Patrol
The two things they were talking about here were "P&L" - profit and loss - versus cash flow. What Evans was saying was that the routes still being flown by QF International are cash flow positive (meaning the flights are making money), but that QF International are doing badly on profit and loss. So, by extrapolation, the flights are making some profit, but not enough to counter the losses that are being made elsewhere - maintenance costs or labour costs, by inference. What the senators weren't cluey enough to ask was where QF International was losing money and whether Jetstar cost-shifting was taking place.
One of the amusing things that I often have debates with senior management about if fixed cost (costs that are going to occur regardless of products made or routes flown) vs marginal cost (costs associated with actually making and/or selling that product or flying that route). The former is often known as overhead (lease costs, capital costs, etc), the latter is what it takes to actually undertake the specific route (fuel, catering, landing fees, etc).
All too often some accountant has shown that a product or route profitable and should be cut.
What is often not recognised is the impact that has on the fixed cost equation. Cutting the routes gives a smaller network to amortise the fixed costs across, you still have to pay all of those it's just now that you spread them over fewer routes.
And then some genius accountant runs the numbers again and finds - SURPRISE - that more routes are unprofitable. So they cut those. And then they wonder why even the routes with high load factors don't work profitably and the whole thing shuts down.
I'm not saying that Qantas are going down that route but in a business that is heavily capital intensive (plane lease costs, skilled staff, etc) every route you cut means less routes earning income to cover those costs. Retiring older aircraft cuts back some costs but those aircraft are possibly paid off anyway, redundancies always follow and another set of accountants are advising that the ratio of cost:income is going up because whilst the company is cutting marginal cost items they still have their fixed cost base.
Qantas is the very definition of a scalar business, they need scale to spread their costs over, they cannot shrink their way to profitability no matter what they think.
Originally Posted by Shark Patrol
Personally, I would love the Senate Committee to recommend to Parliament that a forensic audit be conducted on the QF accounts prior to a decision being made as to whether assistance should be offered!
The answer should be simple. No assistance. Qantas got a massive leg up when privatised in the form of multi billions of dollars (in today's money) of debt forgiveness, if they've wasted that position then let them go under if they cannot turn it around. Excise the business you can't make profitable and sell your alliance to the QF domestic network very very dearly, it doesn't really cost very much.
In short: fix it or flog it and the shareholders will judge you on your performance.