TIMA9X
22nd Oct 2015, 16:35
With all other expenses largely unchanged, it seems this year's stunning "accelerated transformation" is little more than dumb luck and an accounting exercise.
Canberra, February 12, 2014. Qantas chief executive Alan Joyce and his key management team are pounding the corridors of Parliament House. Joyce is pleading for a government handout for the national icon. After all, Qantas' international division, according to Joyce, has since 2011 been in "terminal decline ... unable to compete or operate profitably".
An alliance with arch-rival Emirates, waved through by the ACCC the previous year, had not been enough to reverse the downward spiral.
The then treasurer Joe Hockey didn't throw any taxpayer funds into the Qantas begging bowl. Instead, the government and opposition agreed in July 2014 to slightly loosen foreign shareholding restrictions to free up capital raising.
But that wasn't enough for Qantas to prevent targeted layoffs in the thousands of Qantas staff and shedding of key overseas routes.
Like a town crier ringing the bell and warning of impending doom, Joyce just kept coming out with the bad news. It culminated on August 28, 2014, with a record statutory loss of $2.8 billion.
At the time, Joyce rang the bell over the "confronting" loss facing Qantas and warned of the urgent need for "accelerated transformation". Incredibly, he predicted the business would be profitable in the first half of financial year 2014-15.
And he was right – the Qantas annual general meeting in Perth on Friday will hear a story of an airline transformed, from a record loss to a profit of $789 million – an amazing $3.5 billion turnaround. The prophet of doom is now promoting fat profits.
At first glance it's the sort of turnaround the likes of Warren Buffett would applaud. Or is it an illusionist's trick that David Copperfield would be in awe of, where the accountant's hand is faster than the eye?
In November 2008, Joyce succeeded as Qantas chief after running Jetstar. Back then, Jetstar had 43 aircraft to Qantas' 188.
Buoyed by his time at Jetstar, Joyce's strategy as Qantas boss was to grow a parallel airline to rival its parent. The low-cost, lower-wage Jetstar, with its overseas franchises, seemed to be a panacea for an increasingly competitive airline market. A legacy carrier like Qantas appeared a pterodactyl in comparison.
But Qantas management forgot that low cost also means low fares, with low yields. Today, Jetstar has 118 aircraft to Qantas' 117.
It's a case of "dude, where's my flag carrier?"
Jetstar's offshoots in Vietnam, Singapore and Japan, instead of sprouting green shoots, are growing weeds. And Jetstar's aborted take-off in Hong Kong is believed to have cost many tens of millions of dollars.
But we'll never know the full extent of the cost of the Jetstar experiment in Asia. Current arcane Australian accounting rules allow cost shifting from one entity to another within group accounts, so shareholders may be none the wiser of Jetstar's actual overseas performance.
What we do know is that the record $2.8 billion statutory loss came about largely because of a well overdue write-down of Qantas' ageing fleet.
By writing off $2.56 billion in the value of the fleet last year, Qantas' bottom line this year looks much better, with a more modest depreciation charge of $1.1 billion. This accounting stroke of a pen has improved Qantas' fiscal performance by $326 million.
And, thanks to Saudi Arabia's King Salman, fuel prices have plunged – improving, with its fuel efficiency drive, Qantas' ledger sheet by $597 million.
With all other expenses largely unchanged, it seems this year's stunning "accelerated transformation" is little more than dumb luck and an accounting exercise.
Joyce may be lauded for piloting Qantas out of a seeming nose dive but it seems the same trajectory could have been achieved by Otto, the inflatable auto-pilot in the movie Flying High.
Or maybe it never was a nose dive, but a distorted horizon Qantas was presenting. Qantas still won't say what it told certain selected institutional investors during its "terminal decline" period because it is "commercial in confidence".
This raises a fundamental issue of corporate governance – whether our current continuous disclosure laws are robust enough to ensure sufficient transparency. Mum-and-dad investors should have the same timely access to information as the big end of town.
While small investors bailed out of Qantas during its "terminal" announcements phase, many institutional investors have stayed the course and are now being rewarded handsomely.
As is Joyce, whose remuneration package this year is about $12 million.
But is the Qantas management team worth it when compared to the performance of peer airlines? From 2009 to 2015 Singapore Airlines made an aggregate net profit after tax of $3.5 billion; Cathay Pacific $4.8 billion; and Air New Zealand $898 million.
Qantas in the same period lost $2.1 billion but its CEO earned almost 50 per cent more than Singapore Airlines' CEO.
As Warren Buffett once said, a rising tide lifts all boats; its only when the tide goes out that you see who was swimming naked. Or, in Qantas' case, we might find a slightly deflated Otto marooned on the beach.
Nick Xenophon is an independent Senator for South Australia.
Read more: Alan Joyce and the Qantas revival: was there ever a crisis? (http://www.theage.com.au/comment/alan-joyce-and-the-qantas-revival-was-there-ever-a-crisis-20151022-gkfsyn.html#ixzz3pJRSeXai)
my bold
Sort of sums up that old 'Alan's not happy' thread epic on here a year or so ago in one page.. well kind of.
I'm sure the board will be all smiles today at the AGM in Perth. AJ will be easy to spot, he's the one with the $12 mil smile, a bit like a lighthouse amongst a cluster of suits.
Canberra, February 12, 2014. Qantas chief executive Alan Joyce and his key management team are pounding the corridors of Parliament House. Joyce is pleading for a government handout for the national icon. After all, Qantas' international division, according to Joyce, has since 2011 been in "terminal decline ... unable to compete or operate profitably".
An alliance with arch-rival Emirates, waved through by the ACCC the previous year, had not been enough to reverse the downward spiral.
The then treasurer Joe Hockey didn't throw any taxpayer funds into the Qantas begging bowl. Instead, the government and opposition agreed in July 2014 to slightly loosen foreign shareholding restrictions to free up capital raising.
But that wasn't enough for Qantas to prevent targeted layoffs in the thousands of Qantas staff and shedding of key overseas routes.
Like a town crier ringing the bell and warning of impending doom, Joyce just kept coming out with the bad news. It culminated on August 28, 2014, with a record statutory loss of $2.8 billion.
At the time, Joyce rang the bell over the "confronting" loss facing Qantas and warned of the urgent need for "accelerated transformation". Incredibly, he predicted the business would be profitable in the first half of financial year 2014-15.
And he was right – the Qantas annual general meeting in Perth on Friday will hear a story of an airline transformed, from a record loss to a profit of $789 million – an amazing $3.5 billion turnaround. The prophet of doom is now promoting fat profits.
At first glance it's the sort of turnaround the likes of Warren Buffett would applaud. Or is it an illusionist's trick that David Copperfield would be in awe of, where the accountant's hand is faster than the eye?
In November 2008, Joyce succeeded as Qantas chief after running Jetstar. Back then, Jetstar had 43 aircraft to Qantas' 188.
Buoyed by his time at Jetstar, Joyce's strategy as Qantas boss was to grow a parallel airline to rival its parent. The low-cost, lower-wage Jetstar, with its overseas franchises, seemed to be a panacea for an increasingly competitive airline market. A legacy carrier like Qantas appeared a pterodactyl in comparison.
But Qantas management forgot that low cost also means low fares, with low yields. Today, Jetstar has 118 aircraft to Qantas' 117.
It's a case of "dude, where's my flag carrier?"
Jetstar's offshoots in Vietnam, Singapore and Japan, instead of sprouting green shoots, are growing weeds. And Jetstar's aborted take-off in Hong Kong is believed to have cost many tens of millions of dollars.
But we'll never know the full extent of the cost of the Jetstar experiment in Asia. Current arcane Australian accounting rules allow cost shifting from one entity to another within group accounts, so shareholders may be none the wiser of Jetstar's actual overseas performance.
What we do know is that the record $2.8 billion statutory loss came about largely because of a well overdue write-down of Qantas' ageing fleet.
By writing off $2.56 billion in the value of the fleet last year, Qantas' bottom line this year looks much better, with a more modest depreciation charge of $1.1 billion. This accounting stroke of a pen has improved Qantas' fiscal performance by $326 million.
And, thanks to Saudi Arabia's King Salman, fuel prices have plunged – improving, with its fuel efficiency drive, Qantas' ledger sheet by $597 million.
With all other expenses largely unchanged, it seems this year's stunning "accelerated transformation" is little more than dumb luck and an accounting exercise.
Joyce may be lauded for piloting Qantas out of a seeming nose dive but it seems the same trajectory could have been achieved by Otto, the inflatable auto-pilot in the movie Flying High.
Or maybe it never was a nose dive, but a distorted horizon Qantas was presenting. Qantas still won't say what it told certain selected institutional investors during its "terminal decline" period because it is "commercial in confidence".
This raises a fundamental issue of corporate governance – whether our current continuous disclosure laws are robust enough to ensure sufficient transparency. Mum-and-dad investors should have the same timely access to information as the big end of town.
While small investors bailed out of Qantas during its "terminal" announcements phase, many institutional investors have stayed the course and are now being rewarded handsomely.
As is Joyce, whose remuneration package this year is about $12 million.
But is the Qantas management team worth it when compared to the performance of peer airlines? From 2009 to 2015 Singapore Airlines made an aggregate net profit after tax of $3.5 billion; Cathay Pacific $4.8 billion; and Air New Zealand $898 million.
Qantas in the same period lost $2.1 billion but its CEO earned almost 50 per cent more than Singapore Airlines' CEO.
As Warren Buffett once said, a rising tide lifts all boats; its only when the tide goes out that you see who was swimming naked. Or, in Qantas' case, we might find a slightly deflated Otto marooned on the beach.
Nick Xenophon is an independent Senator for South Australia.
Read more: Alan Joyce and the Qantas revival: was there ever a crisis? (http://www.theage.com.au/comment/alan-joyce-and-the-qantas-revival-was-there-ever-a-crisis-20151022-gkfsyn.html#ixzz3pJRSeXai)
my bold
Sort of sums up that old 'Alan's not happy' thread epic on here a year or so ago in one page.. well kind of.
I'm sure the board will be all smiles today at the AGM in Perth. AJ will be easy to spot, he's the one with the $12 mil smile, a bit like a lighthouse amongst a cluster of suits.