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View Full Version : Qantas : Some astute Commentary


fishers.ghost
7th Jun 2011, 08:31
WTF! Game on Alan. Let’s talk about the brand, where it was, is, and just who has damaged it.
Of all the elements a board and a CEO must manage and protect, surely building and protecting the brand of a company must be their number one priority.
Clifford came out swinging on the weekend saying the focus of the board and CEO must be, and is, on the share price and return of capital. But it is the brand that drives the share price, not the other way around. Everything else flows from that.
If you followed that logic Jetstar never would have been started and Virgin wouldn’t be spending a fortune relaunching and building the brand. If Virgin can do that, why cant Qantas?
Let’s look at the facts. This is marketing and business studies 101.
Qantas from the inception of the very first brand surveys decades ago consistently and without exception, year in year out, always lead the pack as the NUMBER ONE BRAND in Australia. This was not just in terms of brand recognition but also in relation to the more significant drivers of financial success in the market place; trust and emotional attachment for the brand.
The Qantas brand was pure 100%, 24 carrot, rolled gold.
This was Qantas’s number one asset. It still should be. Bigger than all the aircraft and other tangibles combined. Every airline has plant and equipment, but only Qantas had that number one position, the ultimate in brand power.
After sitting at number one for decades Qantas is no longer even in the top ten. But worse than that here’s a report from Readers Digest annual Most Trusted Brands survey way back in 2008.
” … the iconic flying kangaroo, Qantas, dropped 47 spots in consumer confidence.”
You read right. In 2008 Qantas dropped 47 spots.
That massive drop in the brand if quantified in dollar terms is so much more than the net worth Jetstar has added to the Qantas group.

So what happened. How did the best, most loved, number one brand in Australia for decades crash and burn. So quickly. So badly.
There are two main reasons for this. And they have names, the first being Dixon, the other Joyce. The destruction of the brand has zippo to do with the current biffo with the unions.
1/ When Dixon took over as CEO the Qantas brand was still riding high and proud at number one. It was untouchable. He was seen by many as marketing and PR genius. Yet the destruction of the Qantas brand can be traced back through these exact same brand surveys to having commenced during his tenure. It is no coincidence that this rapid decline coincides EXACTLY with the rise of Jetstar under the Qantas umbrella.
BA when they held seats on the board warned Dixon an in house low cost carrier would cannibalize the parent brand. Dixon thought he knew better.
We all know the story. As soon as Jetstar was launched Qantas pissed off many local communities with the haste it pulled out of so many key domestic and international markets and forced people who were used to, and wanted full service, onto Jetstar with an appalling lack of service.
Everyone knows Jetstar is Qantas. Each and every time people feel ripped off or mishandled by Jetstar, which is often, the knife is dug deeper and twisted further into what is left of the Qantas brand.
Just ask any of the tens of thousands of passengers forced to fly Jetstar (because Qantas has pulled out) to destinations like the Gold Coast, Sunshine Coast, Tasmania, Hamilton Island, Bali or Japan. They don’t blame Jetstar, they blame Qantas.
2/ From the day Jetstar was conceived fleet renewal and investment in the mainline product ceased almost completely. While Jetstar got an entirely new fleet of fuel efficient A320/A330 aircraft “full fare” passengers on “full service” Qantas were stuck with clapped out, gas gusling, dirty and unreliable aircraft. The new Dallas debacle is a perfect example.
As you point out Ben, when Qantas could have, should have been renewing its mainline fleet, such as buying 777 as did all of its main competitors, there was no money or motivation as all the focus and cash were thrown at Jetstar.
Clifford and Joyce had already earmarked the first 787s for Jetstar, meaning Qantas mainline will not be seeing any new aircraft for many years. Just who has been subsidising who?This only serves to compound the destruction of the brand.
Joyce is now the biggest most vocal detractor of Qantas brand, constantly screaming hysterically that long haul is in serious trouble.
What would the books look like if Qantas had, as it should have as the premium brand, a fleet of all new and super efficient aircraft while the budget arm Jetstar was stuck with the old aircraft from the current mainline fleet.
A/ Jetstar would no longer be making money
B/ Qantas mainline would likely be making money
C/ Qantas would have a product people expect of a full service carrier and it would be growing its market share.
No one at Qantas either remembers nor understands these important lessons from history.
The only player who appears to do so is John Borgettii. You can see he ‘gets it’ by his determination to invest substantially in a full service product, to grow markets such as this morning’s tie up with Singapore Airlines, the business and the Virgin brand.
He knows where Qantas is vulnerable and it is insightful too that he is branding Virgin Australia as the Australian airline and he is vocal about returning jobs to Australia service his aircraft here.
http://1.gravatar.com/avatar/f28a60eae35b80a5125931240671ad89?s=32&d=identicon&r=G (http://en.gravatar.com/site/signup/) interesting
Posted June 7, 2011 at 1:14 pm l Well said SoB if only the mainstream media would actually invest some time in being journalists rather than merely being a conduit for media releases, we might actually be able to read the full picture.
http://1.gravatar.com/avatar/d49b961154bf8b11a3336e605e9b2adc?s=32&d=identicon&r=G (http://en.gravatar.com/site/signup/) Archer
Posted June 7, 2011 at 2:15 pm | Qantas also handed Virgin the biggest free kick by overlooking John Borghetti
The Main Body of this commentary was made by an anonymous poster called SoB in response to Ben Sandilands piece on Joyce trashing the Qantas Brand in front of an IATA audience in Singapore

HF3000
7th Jun 2011, 09:41
No, Jetstar never reported through or to JB. JB was responsible for mainline.

noip
7th Jun 2011, 09:44
Lester ...

JB ran Qantas.
Joyce ran Jetstar.
They each reported to Dixon.

It is my understanding that JB had frequent disagreements with Dixon, and his NOT getting the CEO position to replace Dixon was directly related to his views on Jetstar's place in the Universe.

I believe my sources to be reliable.

N

Mstr Caution
7th Jun 2011, 09:52
Everyone knows Jetstar is Qantas. Each and every time people feel ripped off or mishandled by Jetstar, which is often, the knife is dug deeper and twisted further into what is left of the Qantas brand.

Search Jetstar on Google & the 5th link is:

Don't Fly Jetstar - A place to share your Jetstar complaints (http://www.dontflyjetstar.com)

A great association, for the premium brand's image.

psycho joe
7th Jun 2011, 10:14
Pfft. That's nothing. Try googling:

Jetstar Serena Chen

And see what you get. :yuk::yuk::yuk:

blueloo
7th Jun 2011, 13:07
Lucky the larvae wasn't in the muffins! - Jetstar wouldn't survive if the muffins were removed from the menu, after all Bruce Buchanan is (I believe) on record saying that Jetstar only makes money from the sale of muffins.

Sunfish
7th Jun 2011, 21:22
Very astute comments.

I would like to draw your attention to the following documents:

CEO's speech calling Qantas a "Legacy Airline".

http://www.qantas.com.au/infodetail/about/investors/agms/CEOsAddressAGM2004.pdf

It would be instructive to compare the salaries and conditions of QF pilots and engineers vs. the others around the world. Are they excessive? I don't believe so.


Qantas Advice to shareholders regarding the APA bid.

http://www.qantas.com.au/infodetail/about/investors/targetsStatement.pdf

This raises the question the market asked about why a private operator would wish to buy a "Legacy Airline"?

I would also refer you to this article - about the blurring of the divide between the LCC model and the "Legacy" model.


When the low-cost airlines entered the European market in the mid-1990s they brought a complete change in business philosophy. By keeping their costs to a minimum they aimed to bring low-fares to the travelling public, achieving this by taking away many of the traditional services offered by the full-service carriers. First went the free in-flight service, then the free checked bag allowance; but the legacy carriers were quick to react as they lost traffic to their new rivals. This has caused what we have today, a major blurring of the divide between the low-cost and traditional airlines, with a new hybrid model between the two extremes now being adopted by almost all.

Hmmmm, do we see the glimmer of a very different corporate strategy from the "Them and us" Jetstar/Qantas model? I think we do...more at the link:

Blurring the Low-Cost and Legacy Airline Divide :: Routesonline (http://www.routesonline.com/news/36/the-hub/106737/blurring-the-low-cost-and-legacy-airline-divide/)

As an aside, Air New Zealand was branded a "Legacy Airline", look at it now. They may not yet be profitable, but everyone from top to bottom appears to be aligned and working their backsides off for the shareholder.

It appears to me that the Board and Management of Qantas are "stuck on stupid" and totally focused on demonising unions. This is the last centurys battle. Margaret Jackson would have absorbed it from her economics lectures in the Old Pathology building. Dixon would have read about "Legacy Airlines" in an American context which is very different.

Meanwhile the world has moved on from that argument. The Board and management of QANTAS are fighting yesterdays battles with yesterdays weapons. They can't deliver and they won't change. They have to go.

noip
7th Jun 2011, 21:32
As far as QF Mainline pilots go, their salaries are "middle of the pack" worldwide.

N

Sunfish
7th Jun 2011, 21:44
....And this just to hand, while hearsay, if true, confirms my previous opinion, Two posts back, that the QF Board and Management strategy is backward looking, set in concrete, and totally wrong:


Yesterday I was contacted by a Qantas pilot. He gave me details of a friend who had been engaged by the airline as a consultant to do some work around the outsourcing of Qantas aircraft components. After looking at all the figures and reviewing the benefits/negatives of outsourcing the work, he advised them that the best option was to keep the work in-house. His consultancy with Qantas was thereby terminated because it was not the answer they were seeking. He claimed to be the third consultant to come to that conclusion, they were all terminated. From this example it has confirmed with us the problem we face negotiating an outcome with another party that appears not, or does not want to listen. However tight we can construct maintenance proposals that offer the best and most viable solution to the Qantas business, they want to take it to another place regardless of the evidence before them.


Post 1092:

http://www.pprune.org/dg-p-reporting-points/429209-qf-lame-eba-negotiations-begin-55.html

Sunfish
7th Jun 2011, 21:49
Can anyone confirm Shovels "helpful" assertion?

aussie_herb
7th Jun 2011, 21:51
Hi Shovel ,

If you want to quote the figure for the highest paid longest serving second officer in Qantas doing only high overtime LA flying you may get close to a figure of 180 with allowances and super etc . The average Qantas 2nd Officer gets nowhere near that amount ( they also arent 200 hour cadets ) . In fact most Qantas first officers dont get that amount and I know 737 Capts who dont get that much anymore . Sorry to burst your bubble champ but you have no idea what you are talking about . I apologise for trashing your statement with actual facts.

noip
7th Jun 2011, 22:22
Sunfish,

Shovel's assertion can be safely discarded.

N

Capt Kremin
7th Jun 2011, 22:37
To compare apples with apples, a year one S/O, on all fleets in QF, has a base pay of around 75k.

mach2male
7th Jun 2011, 23:10
So you've backed off from $180k then you come up $100k in allowances.
Qualify "allowances' for us please.It should prove to be most interesting
You should change your PPrune location to QCA9
Another management troll is born.Do you guys ever do any work ?
How much does the CEO of Cathay earn?
Compare it to the wage of Dixon's illegitimate Irish son.I think you find that salary excessive
You sure know a lot of people who are prepared to discuss their salaries with you

Capt Kremin
7th Jun 2011, 23:28
Great post there Shovel. I don't know anyone on this forum who has so clearly demonstrated their total ignorance and bias with such lightning speed.:D

Tax is a benefit? Dry cleaning? 100K in allowances?!?!?

You told us the base pay of a Cathay SO. Well not quite because you didn't mention the size of the housing allowance. No matter; are you telling us the Cathay SO doesn't get any allowances, provident fund, overtime?

When I tell you the base pay of a first year QF SO is 75k a year, it doesn't mean they can't earn more. But on 160 credited hours a bid period and no overtime, that is what they earn.

You are so far off in the allowances thing I can't be bothered shooting you down. I think my time would be better spent hitting the ignore button.

nitpicker330
7th Jun 2011, 23:34
Would you guys stop saying that CX gets much more than QF

I just looked at our pay scales and a year 4 SO gets $71000 AUD plus maybe another $10000 in hourly pay.

He is an expat so he gets a small housing allowance to allow him to buy/rent a
small flat comparable to what he was used to living in back home.
HK has some if the most expensive rental property in the world.


Keg and I compared our A330 Aussie base Captain pay and we are about the same.

So stop saying CX are way better paid.

virgindriver
7th Jun 2011, 23:42
I just looked at our pay scales and a year 4 SO gets $71000 AUD plus maybe another $10000 in hourly pay.

He is an expat so he gets a small housing allowance to allow him to buy/rent a
small flat.

As far as I know Australian airlines don't pay housing allowance to allow you to buy your own house.

And sorry, how much tax does your mate pay? Maybe 15% and that's it. No medicare levies, flood levies, etc.

maggot
7th Jun 2011, 23:49
A Qf S/O base pay is $75000 for the first year.
I assume that is without tax, holiday, sick days, super, drycleaning, and every other benefit taken out.

And you guys claim Qantas management is full of **** and make up numbers.

As an A330 S/O starting in 2007 the base was $85000.
Another S/O I know on the 747 got close to $160 000 last year. So he made nearly $100 000 in allowances.

Yep, your pay is not excessive.

So, what's your beef? You're obviously out to prove something... How much tax do they pay up in CX? Took me 10 years to crack 160 @ QF, then the tax man robs me of a fair chunk of that to pay for baby bonus' and whatnot.
apples, oranges and all that.... :rolleyes:

ALAEA Fed Sec
7th Jun 2011, 23:51
The Engineers I know who work at CX have got sizeable yearly bonuses as well.

nitpicker330
7th Jun 2011, 23:52
Irrelevant.

I'm based and I get the same money as a QF A330 skipper and without any expat allownances AND I pay full tax.

I have a veery good mate of mine on the 744 with QF as a SO that pulled in 160k easily every year after only 5 or 6 years. A SO in CX would only ever dream of that including any expat allowances and reduced tax.

Anyway don't get me wrong, I wish you guys all the best with your fight against the rot of AJ. I hope you all get a pay rise because CX compare us to you guys......... We need a target too!!

slice
7th Jun 2011, 23:53
nitpicker 330 - they were not saying Cathay crew get paid far more than QF crew, just correcting the mindless drivel that The sh1t shovel was posting.

Metro man
8th Jun 2011, 00:22
Remember any Australian pay rates look good from outside due to the strong Aussie dollar which skews the picture a bit at the moment.

The rest of us shouldn't complain about QF pay rates, would you rather be pushing for your own pay rise when QF have had a 15% increase or a 15% decrease ?:hmm:

aussiepilot
8th Jun 2011, 00:32
Since when do allowances and super get counted as salary?

Correct me if I'm wrong, but allowances are for meals and incidentals... as in when you can't cook in your own kitchen.

And super, it's a minimun of 9% if you work in Aus. I'm lucky enough to get a fair bit more than that, but it's not counted when I quote my pay per annum.

'holic
8th Jun 2011, 01:14
And now those greedy bastards have sick leave!!!

To be fair though, I did put on an upper storey extension last year using my drycleaning allowance.

Jetsbest
8th Jun 2011, 01:48
As far as I know, QF is the only company which (when they actually were hiring Olivia :rolleyes:) hired a mix of cadet and experienced pilots all to the rank of Second Officer. This mix, along with F/Os required to have command endorsements on type, means QF has, since Pontius was a pilot, used;
- 1 x Captain,
- 1 x F/O, and
- up to 2 x S/Os for its longer-haul flying.
Does any other company do this? My understanding is that CX use 1+2+1, BA use 2+2+0 as do most US airlines. SQ or EK info anyone?

It's easy to talk about QF S/Os who, by virtue of yearly pay increments with virtually nil QF promotion, have incomes better than competitors' S/Os. What's not so obvious is that the competitors' S/Os;
- are fewer in number for the same flying,
- promote faster to the greater number of F/O positions for the same flying,
- ultimately reach command (ie top dollars) much sooner too, and thereby
- have the potential to aggregate much greater wealth than an average QF pilot (divorce & other disasters excluded ;)) during a career.

There are pilots in QF with well over 10K hours and absolutely no command opportunity in sight under the apparent plans of current management. Are QF competitors siphoning off flying to wholly-owned subsidiaries or downsizing pilot numbers with A380s? And which competitors allow pilots to stay past 60?(just saying, not complaining; it's the law) The stagnation in QF mainline is demoralising and, yes, more pilots are probably considering leaving.

And some wonder why there might be some frustration... :ugh:

maggot
8th Jun 2011, 01:49
To be fair though, I did put on an upper storey extension last year using my drycleaning allowance

hmmm, that sounds tax deductable to me

bangbounceboeing
8th Jun 2011, 01:49
so is 160k a year a realistic figure for a 5-6 year SO with Qantas ? Somebody says its 75k a year others 180k a year there can't be that much spread..............

ampclamp
8th Jun 2011, 02:51
Kremin has the credibility imho. The other is a blow in.

noip
8th Jun 2011, 03:15
so is 160k a year a realistic figure for a 5-6 year SO with Qantas ?

Nope. Not even close.

This is Taxable income I'm talking about, not meal allowances, Super etc and that is before you start deductions for dry cleaning and other work expenses. Just hourly pay and depending on type overtime.

Also, there is no "one" figure. I could quote $90k or $120k or whatever, but it depends chiefly on the aircraft type and overtime performed. Overtime might add 15% to pay, maybe a bit more for a more senior person.

Finally, the trouble with all this is that someone "knows" someone who went all out and did very well one year and suddenly everyone else is supposed to have made that same amount. Likewise, you ask what a 5-6 year S/O makes and suddenly it is transformed to one who has just started.

Whatever is claimed here, the reality is inevitably not as rosy.

N

jaded boiler
8th Jun 2011, 04:08
I thought the "average" qf 747 pilot was pulling $350 000 per annum, with some getting up to $500 000.

assasin8
8th Jun 2011, 04:44
No, no, no Jaded, it's the "average" Qantas pilot pulling $ 350000 per yet, NOT 747 pilots only... I've already put my letter into payroll, asking for all my backpay! :ok::ok::ok:

Anyway, I'll be able to buy that boat now, as well as upgrading the car and taking that long overseas holiday... Lucky Qantas pointed out how much I was being underpaid! :eek:

Thanks Qantas... Oh and the $ 200000 per year pay rise will come in handy too! :D

34R
8th Jun 2011, 06:26
I love hearing all of the expert commentary from non QF people about how much I am actually earning!

I'm a 4th year S/O on the 330 and will fall WELL short of 160K.

Base pay estimates are not a accurate reflection of ones earning capacity as nobody earns just their base pay, and at the end of the day it's what ends up in your bank account that matters, not what the award says you are entitled to.
The problem with that argument is that there are so many variables in your earning capacity at Qantas. Fleet type, overtime (or lack of it), blank lines etc., all have a huge impact.
If i were to consult all of my group certificates and average them out, I would be able to quote you more useable figures.

Having done that, once again I can claim that 160K is a mere pipe dream!!

For our 4 engine brothers, well, that's another question....

FullySickBro
8th Jun 2011, 07:46
Take six months training (on training wage circa $35k p/a) plus 18 months on probationary pay then add 1 year full pay, then an average $65-75k p/a over 3 years would be pretty close.

After another 3 years at full pay your average will have gone up somewhat depending on fleet, overtime etc.

But who else in the world runs 6-10 year S/Os anyway!

Should we perhaps ignore this shovel fellow and move on??

Jack Ranga
8th Jun 2011, 09:14
To be fair though, I did put on an upper storey extension last year using my drycleaning allowance.

:D:D:D:D Love ya work!

fishers.ghost
9th Jun 2011, 10:46
Get Key Statistics for: Data provided by Capital IQ (http://us.rd.yahoo.com/finance/capiq/SIG=10r7m9m4m/*http://www.capitaliq.com/), except where noted.
Valuation Measures
Market Cap (intraday)5:4.32B
Enterprise Value (Jun 9, 2011)3:6.31B
Trailing P/E (ttm, intraday):14.73
Forward P/E (fye Jun 30, 2012)1:7.31
PEG Ratio (5 yr expected)1:0.22
Price/Sales (ttm):0.31
Price/Book (mrq):0.73
Enterprise Value/Revenue (ttm)3:0.44
Enterprise Value/EBITDA (ttm)3:3.46
Financial Highlights Fiscal Year
Fiscal Year Ends:Jun 30
Most Recent Quarter (mrq)Dec 31, 2010
Profitability
Profit Margin (ttm):2.04%
Operating Margin (ttm):4.74%
Management Effectiveness
Return on Assets (ttm):2.15%
Return on Equity (ttm):5.01%
Income Statement
Revenue (ttm):14.45B
Revenue Per Share (ttm):6.32
Qtrly Revenue Growth (yoy):9.90%
Gross Profit (ttm):3.88B
EBITDA (ttm):1.82B
Net Income Avl to Common (ttm):295.00M
Diluted EPS (ttm):0.13Qtrly
Earnings Growth (yoy):315.50%
Balance Sheet
Total Cash (mrq):3.65b
Total Cash Per Share (mrq):1.61
Total Debt (mrq):5.53B
Total Debt/Equity (mrq):91.69
Current Ratio (mrq):0.90
Book Value Per Share (mrq):2.65
Cash Flow Statement
Operating Cash Flow (ttm):1.57B
Levered Free Cash Flow (ttm):-410.25M
View Financials
Income Statement (http://finance.yahoo.com/q/is?s=QAN.AX) - Balance Sheet (http://finance.yahoo.com/q/bs?s=QAN.AX) - Cash Flow (http://finance.yahoo.com/q/cf?s=QAN.AX).

Trading Information Stock Price History
Beta:N/A52-Week Change3:-19.96%
S&P500 52-Week Change3:21.21%
52-Week High (Nov 4, 2010)3:2.9752-
Week Low (Jun 7, 2011)3:1.8950-
Day Moving Average3:2.10200-
Day Moving Average3:2.33
Share Statistics
Avg Vol (3 month)3:15,462,500
Avg Vol (10 day)3:12,814,600
Shares Outstanding5:2.27B
Float:2.26B%
Held by Insiders1:N/A%
Held by Institutions1:N/A
SharesShort 3:N/A
Short Ratio 3:N/A
Short % of Float 3:N/A
Shares Short (prior month)3:N/A
Dividends & Splits
Forward Annual Dividend Rate4:N/A
Forward Annual Dividend Yield4:N/A
Trailing Annual Dividend Yield3:N/A
Trailing Annual Dividend Yield3:N/A
5 Year Average Dividend Yield4:N/A
Payout Ratio4:N/A
Dividend Date3:N/A
Ex-Dividend Date4:N/A
Last Split Factor (new per old)2:N/A
Last Split Date3:N/A
.
Abbreviation Guide: K = Thousands; M = Millions; B = Billions
mrq = Most Recent Quarter (as of Dec 31, 2010)
ttm = Trailing Twelve Months (as of Dec 31, 2010)
yoy = Year Over Year (as of Dec 31, 2010)
lfy = Last Fiscal Year (as of Jun 30, 2010)
fye = Fiscal Year Ending
1 Data provided by Thomson Reuters
2 Data provided by EDGAR Online
3 Data derived from multiple sources
4 Data provided by Morningstar, Inc.
5 Shares outstanding is taken from the most recently filed quarterly or annual report and Market Cap is calculated using shares outstanding.
6 Data provided by Computershare
Currency in AUD.
Sunfish may wish to provide a translation

somewhereat1l
9th Jun 2011, 11:30
Don't forget your underwear allowance!!!

Knitwear/Undergarment Reimbursement
____________________________________________________________ ______

A new policy has been implemented that allows you to be reimbursed for the purchase of specific knitwear.

Read the OHS brief distributed to your base, or on the homepage of qfcrew.com

The brief includes information on why this has come about, what to purchase and where from, and how it should be worn.

Cabin Crew Communications

Ka.Boom
10th Jun 2011, 03:26
As a layman going over thoes figures Qantas looks in pretty good shape particularly with $3bil on the balance sheet.
This cock and bull notion of a failing company seems to be a deliberate deception

The Green Goblin
10th Jun 2011, 03:35
Actually Ka.boom Qantas, if it didn't borrow money would be cashflow negative.

It's got 3 billion in the bank, but how much does it owe?

It would be like having 5k cash in your personal bank with a 20k credit card debt.

The profit they reported this year was the leftover proceeds of the 1.5 billion they BORROWED! This is why they have not paid a dividend.

If they didn't borrow the 1.5 billion, they'd be digging into their war chest and reporting record losses. Their credit rating would take a hit and the board would be shown the door.

Something the worlds smartest men don't want you to know.

To me it smells like those books are burning!!

The headlines from Dow Jones don’t sound too bad, “Qantas Airways FY Net Profit -4.3% at A$112M” and “1H FY11 Pretax Profit May Be Materially Stronger On Year”.

But just as a newly polished car may look good on the outside, it’s only when you look under the bonnet that you can see what’s really going on.

In the case of Qantas, forget the net profit amount and the forecast for the first half of the 2011 financial year, that’s just the lovely polished finish. If you want to look at the engine you need to look at the company’s cashflow.

And that’s where you can see the engine has almost seized up…

You see, while Qantas reports a $112 million profit, if it wasn’t for proceeds from borrowings of $1.352 billion, Qantas would have had negative cashflow for the year to the tune of $1.265 billion.

In other words, just like the Aussie battler who needs to go to a payday lender in order to cover the cost of a gas or electricity bill, Qantas has had to go to its payday lender and draw down from a debt facility in order to pay its bills.

This is despite supposedly having $3.7 billion of cash in the bank.

But you can see why Qantas went down the road of increasing its borrowings rather than drawing down on cash. Minus the borrowings, Qantas’ cash holdings would have decreased by around a third. Doubtless the analysts wouldn’t have liked that as it would have played havoc with a bunch of cash based ratios.

Much better to go further into debt instead. Just like the rest of the population. Debt is all the rage after all. $1 trillion of household debt can’t be wrong!

The rotten state of the company’s cashflow is evident elsewhere too, such as the decision not to pay a dividend for the third half-year in a row.

Which is hardly surprising considering on a per-share basis Qantas earned just 4.9 cents per share, or earnings of 1.9% of the share price.

When a company’s earnings are that low, and it needs to borrow money in order to be cashflow positive it’s not hard to figure out that the company is in terrible shape.

So much so that it’s not only a stock I wouldn’t buy if you paid me, but it’s a stock that we’d suggest short selling – providing you use appropriate risk management tools to guard against a potential move to the upside.

The way I see it is that airline stocks along with retailers and the banks present the perfect opportunity to short sell the economy heading into a depression – and perhaps the new ASX housing index if that ever gets off the ground. Although given the ASXs history in new product development I wouldn’t hold my breath for that one.

Qantas is clearly suffering from competition and the inability to increase airfares as much as it would like. And if Virgin Blue [ASX: VBA] is successful in its pitch to snaffle a bigger share of the business market then that’ll spell even worse news for Australia’s supposed national carrier.

But look, as you can see from the chart below, Qantas is by no means at a high point:


Terminal velocity for Qantas?



Source: CMC Markets

The best time to short sell this stock may have passed, but quite frankly as an out and out punt – and you know we like a punt – there still looks to be room for a further move to the downside. Perhaps even challenging the low point from early last year.

Broking firm Morgan Stanley recently cut its target price on Qantas to just $3.05, that’s about 20% above the current share price. We’d say that’s overly generous. 20% to the downside is our bet.

Best case for a short seller would of course be for the airline to go bust. And if their cashflow doesn’t improve then that isn’t entirely out of the question.

Although we can’t honestly believe any Australian government would allow Qantas to go broke. Not without finding some way of pouring taxpayer dollars in to prop it up just as it did with the banks.

Even so, a medium term price target of somewhere between $2 and $1.50 makes this a worthwhile punt – but make sure you protect against losses if the stock rallies higher…

Cheers.
Kris Sayce
For Money Morning Australia

TIMA9X
10th Jun 2011, 03:58
Ans this just in
Plane Talking (http://blogs.crikey.com.au/planetalking/)
In an interview (http://english.vietnamnet.vn/en/travel/9216/jetstar-pacific-now-thirsty-for-capital--general-director.html) on Vietnam.net Bridge the general director of Jetstar Pacific Airlines, Le Song Lai, says it will need $US 45 million in additional capital this year to stay in business, and is currently being forced to pay for its fuel requirements a day in advance to Vinapco, the state owned fuel monopoly, after racking up unpaid bills of $US 8 million.

Lodown
10th Jun 2011, 05:27
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