Qantas hit hard by July slump

[Wirraway]

Tues "Melbourne Age"

Qantas hit hard by July slump
September 23, 2003

Qantas suffered a marked downturn in international passenger numbers in July as the global aviation industry struggled to recover from the impact of war and the SARS virus.

Figures published by Qantas yesterday showed international passenger numbers slipped to 681,000, down 12 per cent from the same month a year ago.

The downturn occurred in a month when Australia's biggest airport, Sydney Airport, reported a 2.9 per cent fall in international passengers over the same month a year earlier.

Qantas's favoured measure of passenger numbers, international "revenue passenger kilometres", fell 11.7 per cent to 4.21 billion kilometres. The airline's seating capacity, measured in "available seat kilometres", decreased by 11.5 per cent to 5.13 billion.

Qantas also experienced a fall in domestic passengers in July. It reported 1.48 million domestic passengers for the month, down 0.6 per cent from a year earlier. Overall, Qantas said it experienced a 3.4 per cent reduction in passenger numbers for July, to 2.49 billion.

Meanwhile Macquarie Airports yesterday reported a rebound in international travellers for August at Sydney Airport.

Passenger numbers grew 3.6 per cent compared with the same period a year earlier. International passenger numbers rose just 0.3 per cent for August, while domestic passengers numbers grew 5.4 per cent for the month, Macquarie Airports said.

Qantas shares closed 2¢ lower at $3.20 and Macquarie Airports securities ended down 6¢ at $1.75.

- AAP

==============================================

[Going Boeing]

The overall numbers may have been down compared to last year but from what I saw ( and also my peers) the load factors on international routes throughout July were as close to 100% as it is possible to achieve. There are spin doctors at work. GB

[Kaptin M]

From Life at the QANTAS Trough, as posted by Don Esson:-
" The Chief Executive of Australian Airlines had a whopping base salary increase of around 25%. His base for the year ended 30th June 2002 was $460,000. Twelve months later it had jumped to $577,500. Not bad, eh?

Furthermore, he appears to have been the only Executive to have scored a bonus. According to the report he collected $100,000 (yes, $100,000) as a "one-off, non recurring milestone payment during the year for the successful launch of Australian Airlines in October 2002." The report fails to indicate whether those lower in the Australian food-chain were paid a similar (or even lesser) one-off bonus but either way, it shows rather dramatically who is bearing the brunt of 'low cost' when it comes to Low Cost Airlines. The principle clearly fails to apply to everyone.

Just breath-taking, especially at a time when GD is preaching wage restraint and belt tightening all over the place: his base salary increased by more than 12% from $1.426m to $1.6m.

Is Australian Airlines included as part of QANTAS' international pax traffic, or are they a separate entity?

[EPIRB]

They're all the same aren't they Kaptin. Only thinking of themselves.

[FQ Phone Dofus]

Well... It seems to me that if I was running a multi billion dollar company, I would want to be earning over a million bucks myself!:cool:

[missy]

Here we go again, Qantas still on the bones of their arse...

[Traffic]

Low Cost but not Low Price

Australian airlines fills some of the QF holes in Japan with clapped out old 763's, a new paint job and cheap labour. The tickets still cost the same with no blankets or date rolls.

:yuk:

No wonder everyone I know travels CX , SQ or MH to OZ and is willing to do the extra time.

Treat the market with contempt and it will reciprocate.

And while you are at it GD, get rid of the that ex-JAL manager running your company in Japan. He hates Australians and treats customers with the arrogance of a Japanese POW guard.

[Kaptin M]

Well... It seems to me that if I was running a multi billion dollar company, I would want to be earning over a million bucks myself!....FQ Phone Dofus

Only if one were making the profits from intelligent thinking, and smart marketing.......as opposed to putting the company in the black by slashing jobs and putting thousands on to the streets and into the dole queues, merely to feather one's own nest!

It doesn't take brains to "manage" a company use those tactics, which will, in the longer term, be detrimental to the company's welfare and stability.
But by then he'll be looooooong gone.

[ftrplt]

I just love listening to old boring arline pilots who think they know anything about running a billion dollar business. When are we going to see you in an airline chief executive role there Kaptin M?


Traffic -

+ AO 767's are exactly the same as the Qantas ones that fly to Japan, just with more seats

+ There are more blankets and pillows than you will ever see on a Qantas flight, and the chocolate cake and choice of mango or chocolate ice-cream (local Cairns product) is great

+ The labour isnt 'cheap' overall (less for senior, more for junior and the CC pay not to bad; allowances for them could be better) what it is is a lot more efficient and productive

Any other facts you would like to share?

[Traffic]

ftrplt

Thank you for that clarification. Must just have been the flight I took that forgot the blankets and ran out of date rolls.

So, AO operates refurbed QF 763's with labour that is not cheap overall but is simply more efficient and productive because the biz class section is gone.

What I find intriguing is the general willingness of QF management to devalue their main brand in the Asia-Pacific region by running multiple brands. All this simply to cut out a small amount of cost, demoralise staff and indirectly destroy productivity across the group.

I guess time will tell.

[ftrplt]

Traffic,

Your second para seems to link lack of business class with staff productivity, its not the lack of business class that makes the workforce more productive; its simpler work rules.

QF started AO to make a product that would be profitable on low margin routes where Qantas was typically unable to make a profit. (or make less of a loss than Qantas would in a downturn).

Your comment 'All this simply to cut out a small amount of cost, demoralise staff and indirectly destroy productivity across the group.' to me is a rather broad and sweeping statement. AO's cost base is SIGNIFICANTLY lower, the staff morale is high and productive.

You may have been correct about the service, depends on when you flew. I havent been here the whole time, I have been told that the service that you would see now is significantly improved on what it was initially. I did hear recently that one of the major issues re catering and service is storage space, 271 seats versus 230 odd means space is tight and some compromises have to be made; especially when some locations cater for consecutive flights.

On an aside, it seems that the AO business model is often mis-represented. The lates Aus Aviation mentions that AO is low fare airline. It has never branded itself as a low fare airline, it will always charge the maximum fare that the market will bare, to maximise profit on its low cost structure (YIELD management). Dont all businesses strive to do this?

[Kaptin M]

I just love listening to old boring arline pilots who think they know anything about running a billion dollar business....ftrplt
For example, W Hudson Fysh and Paul McGinness - or perhaps, Sir Reginald Miles Ansett, ftrplt.
Or more recently, Max and Jim Hazelton.
You are still a wet behind the ears young pup in the commercial airline business, and need to gen up on WHO the long term, successful airline founders and operators were.

Stupid statements, such as, "AO's cost base is SIGNIFICANTLY lower" only highlight your apparent commercial naievte by making such statements!
Australian Airlines was founded on the back of existing QANTAS infastructure, which was what made it possible for AO to be "kick-started" on a "SIGNIFICANTLY lower cost base.
To compare an airline (QF) with its operating base in Australia's premier capital city - Sydney - with one operating out of a large regional town - Cairns - is apples vs goldfish.
The lower employee numbers utilised by AO (vs QF) have not yet withstood the test of time that QANTAS has.

Australian Airlines is basically operating routes that are charging premium prices for cr@p service - the Japanese sectors - where they can be assured of almost 100% loads, charged out at MAXIMUM price, and sh!t given in return.
It would - imo - be possible to operate ANOTHER 2 or 3 airlines on these same Jap. (Nagoya, Osaka, Fukuoka) routes, and still all run close to capacity load factors and optimum ticket price.

There is ZERO benefit for the traveller though! Nor for the employee of AO.
As a matter of fact, the ex-QF passenger loses out because of the reduced service, and no FF points, and the employees, because of their REDUCED conditions.
Eventually, it will turn around and bight YOU too, ftrplt!!

[ftrplt]

whatever you say

[The Enema Bandit]

Won't they give you subload tickets Kaptin?

[Kaptin M]

Dunno, E.B. - I get freebies with my lot, and I've got enough FF QF points to last me a while for travel in Oz and across the Ditch.

I see AO as simply another "empire-building" effort by the "water lillies of aviation" - more management positions created at the expense of EVERYBODY else!

[bitter balance]

Kaptin, I know you're cultivating an ego here but are you really comparing yourself to W Hudson Fysh?

Why is it the introduction of AO reduces pilot conditions and the intro of VB and its PB offshoot doesn't? Is it for the same reason the VB management team come with optional halos and every other manager in Oz is a "water lily"?

[Kaptin M]

The full sentence was, "I just love listening to old boring arline pilots who think they know anything about running a billion dollar business." My point was, aviation has a myriad of examples of companies - large and small - being successfully started, and operated, by pilots, and to refresh ftrplt's memory of the founders of the airline for which he works.
The answer to your question is "No", bb.

Why is it the introduction of AO reduces pilot conditions and the intro of VB and its PB offshoot doesn't? AO replaced QF on the routes it flies, reducing not only ALL staff conditions, but also passengers' (conditions) as well.

Virgin Blue and Pacific Blue were/are new starts - not replacements - that have provided employment opportunities for many staff who were previously unemployed, or disallowed work in Australia. Certainly some conditions are not up to the same levels as QF, however the alternative may have been NO work.

Australian on the other hand, is stealing work away from incumbents, and REDUCING conditions for those left behind in order to subsidise MORE unnecessary management positions.

[ExcessData]

Biting now :rolleyes:

Kap

DJ/PB went where no other Australian 737 (or equivalent) operating carrier has gone before, and slashed its conditions (relative the industry benchmark prior to it coming on the scene), knowing that it could do so to capitalise on the desperation of thousands of unemployed pilots in this part of the world.

Absolutely it gave them a job, but quite frankly - you show me why, by slashing the wage standards 'respected' by all other Australian carriers for xx number of years, and by targeting the mass of unemployed pilots out there, they have been anything but cunning.

Now, as a result of DJ/PB achieving such a low cost-base partly as a result of their decimated pilot remunerations, it therefore means that on routes where QF (who have maintained their pilot remunerations to benchmark levels) and DJ/PB run head-to-head on key routes in 737s, DJ will need fewer people in its planes to 'break even' on those routes. As a result, it can offer extensive discounting and the like on a number of seats, and still make an absolute killing. Those attracted by its discounting will be taken off QF 737s, which cost more to run and as a result need more people on board to break even. On a marginal flight, DJ's ability to out-discount Qantas will mean that Qantas will make losses on many such flights unless the company changes a few things. Remember, were it AN vs QF (or another same-cost-base competitor), there would be no pressure to reduce crew operating costs - the discounting would come from other areas.

Now - AO. On routes where QF is going head to head (directly or indirectly) with government-owned or subsidised Asian carriers, the same applies. These carriers, with a lower cost-per-pax-per-km, will out-discount mainline QF almost every time. Couple that with the number of leisure destinations in Asia, where a vast number of pax will be on discount economy packages (read 'break even' for the airline), it's clear that the airline will either be making a loss or a bare-bones break-even on routes. In this case it'd be better to deploy this capacity onto other more lucrative routes, even if it only makes 1% more yield by doing this, it's still a better use of capacity.

And so AO was formed, with a view to reducing unit costs, and enabling it to still offer discounted Y-class packages, but this time make some yield from these pax. My understanding from various AO crew I know is that it's a great environment - their remuneration is far removed from the doldrums of DJ/PB, and the AO tech and cabin crew I know all love their job.

The choice for the company was either a) continue to make a loss or break-even on leisure routes, or b) make money from leisure routes principally by reducing the cost of doing business. Management at AO is barebones, contrary to popular belief, and technical crew remuneration is still considerable were you to take DJ/PB as a benchmark.

You be the judge, but the company (QF) was forced into reducing costs ('Sustainable Futures') by a) the unprecedented move of DJ/PB slashing labour costs as a means of reducing its unit costs, offsetting the reduced desirability of working for them with the sheer number of unemployed and desperate pilots out there, and b) by its rapidly contracting international network as a result of government-owned and subsidised carriers being able to out-discount it on leisure routes. AO was launched to counter this, and after adjusting for SARS etc has done extremely well in its first phase of operation. Hopefully next year will deliver a more normalised indication of how it might work out.

Lastly, an Australian public company is expected to deliver profits proportional to its size. Qantas is no exception - it must deliver $600-700m if it's going to get its shareprice back up above $4.00, which in turn will enable it to borrow/raise money more easily etc. It'd be nice for the company to run at break-even, and distribute the wealth amongst the employees, but that just can't happen for the above reason - investors expect a dividend, and a healthy, 'firewalled' balance sheet. Qantas delivers that year after a year, and only this year has investor confidence started to falter as a result of increasing pressure from low-cost entrants (DJ/PB). As a result, from an investors point of view, Qantas MUST lower costs and improve that area of its balance sheet. If it does, people will buy the stock again, allowing Qantas to more readily finance projects etc as required.

Cheers, ED

[Wirraway]

ED
Good post, as one of the suffering shareholders in QF, to get
the shareprice above $4 again will take Mr Dixon to take
DJ/PB head on, the answer to this must be "Skimpy" which
should be announced I hope in the next few weeks.

Wirraway

[Waste Gate]

technical crew remuneration is still considerable were you to take DJ/PB as a benchmark

I'm a mainline 767 F/O and would actually get a pay rise - and better tax treatment on allowances - if I went to AO.

WG.

[ExcessData]

Absolutely, Wirraway. The deployment of Skimpy is an important part of the long-term security of their domestic business.

As for the shareprice, Qantas stock is hugely underpriced at the moment, and it's probably a very good time to buy. A quick look at the current major analyst recommendations on QAN shares has 4 of 13 analysts saying HOLD, 7 with MODERATE BUY and 2 with STRONG BUY - I can't find any other largecap stock with these sorts of recommendations at the moment. That basically confirms the general feeling that once the dust settles over the ACCC etc (a few months away, given the appeal will take some time) the price will normalise somewhere between $3.50 and $4 in the near term, and then mid $4 thereafter. Obviously a hard one to call, but everyone agrees that the stock is well down on what it should be.

Interesting, Waste Gate - the formula's a pretty good one in that case, as management seems to be very happy with AO's model. I'd imagine Skimpy would continue to build on the AO savings by making increased use of third party/contract services in engineering, sales, catering etc, rather than 'slashing and burning' their staff remuneration further.

ED

[Kaptin M]

It's "bights" (and bites) such as your's that are a breath of fresh air, ED.
Thank you for your well considered, intelligent reply.

With respect, there is a point or two with which I'd like to take issue - solely in the interests of hopefully intelligent debate. I'm open to any criticism, and welcome rebuttal based on substance.........so without too much more ado, here we go.

DJ/PB went where no other Australian 737 (or equivalent) operating carrier has gone before, and slashed its conditions (relative the industry benchmark prior to it coming on the scene), knowing that it could do so to capitalise on the desperation of thousands of unemployed pilots in this part of the world.
Did Virgin Blue slash their conditions? Virgin Atlantic have been a long established operator, famous for paying less than their competitors, but also "famous" for the extra "frilly bits" - the staff travel, the advancement opportunities (for the relatively in/non experienceds), the "fun" working conditions.
In the case of VB, the idea to formulate, and materialise the airline, in fact happened well prior to the collapse of Ansett - so there were not that many pilots at the "point of desperation" ("desperation of thousands of unemployed pilots"), that would have made starting an airline a viable proposition at that time, based on that description.

However, as I pointed out earlier, Virgin offers non/lesser experienced staff a "go". And so there were - in Oz - enough "frustrated" wannabes...be they pilots or cabin crew, check-in staff, or other groundies......who thought that they would NEVER see an airline job, willing to grasp THEIR chance.
The concept of a third domestic airline, at the time that VB entered the market, was – as a matter of fact – floated to Mr Godfrey by a couple of 1989 Oz Dispute pilots who were employed o/s the time, but who nonetheless apparently conveyed the idea that there was a ready market, both in terms of willing employees, and wanting consumers, to justify another operator.

Now - AO. On routes where QF is going head to head (directly or indirectly) with government-owned or subsidised Asian carriers, the same applies. These carriers, with a lower cost-per-pax-per-km, will out-discount mainline QF almost every time. Couple that with the number of leisure destinations in Asia, where a vast number of pax will be on discount economy packages (read 'break even' for the airline), it's clear that the airline will either be making a loss or a bare-bones break-even on routes.But this has ALWAYS been the case, ED – the Asian carriers, Singapore, Malaysian, Garuda, China – have been operating competitively with QANTAS for the past 30 years. And QANTAS has successfully weathered the storm.

It is only since MANAGEMENT BONUSES became an issue, that “suddenly” QANTAS looks as though it was on the verge of becoming extinct!!

If anything, salaries, conditions, and currencies, for Asian staff have RISEN remarkably, whilst the converse has been applied to QF staff – thereby narrowing the difference in operating costs, ie. an increase for Asian airlines, but pretty much status quo for QF, if not a DECREASE in overall costings.

But the savings have been gobbled up by MASSIVE MANAGEMENT BONUS PAYOUTS!

And so AO was formed, with a view to reducing unit costs.. “Formed” – at what (unnecessary) cost?
The “formative” costs of setting up an entirely new company far outweigh any sensibilities needed in NEGOTIATING the same outcome from an existing company.

The formation of Australian Airlines, imo, only further proves that QANTAS has a non-accountable, cash-rich, expenditure-irresponsible management, at its helm! AO could just as easily – and more economically – have been established as part of the EXISTING QANTAS, rather than as a stand-alone company.
Management at AO is barebones, contrary to popular belief,
The EXTRA management at AO – paid as such – is UN-NECESSAY!!
The FACT is the extra AO management could more cost efficiently have been retained as existing QF staff, on LOWER salaries, than to have been deployed as separate AO staff!!

(QF) was forced into reducing costs ('Sustainable Futures') by a) the unprecedented move of DJ/PB slashing labour costs as a means of reducing its unit costs….AO was launched to counter this..…at a cost of TENS of MILLIONS of DOLLARS!