View Full Version : Street talks up Qantas windfall

2nd Feb 2003, 17:37
Mon "Melbourne Age" 3/2/03


Street talks up Qantas windfall
February 3 2003
By Mark Todd Sydney

Qantas Airways may lose the biggest competitor on one of its key international routes with speculation mounting that lessors are considering calling in part of United Airlines' fleet of Boeing 747-400s.

There was talk late last week that United might have to withdraw from flying from Los Angeles and San Francisco to Sydney and Melbourne. United, which in December filed for Chapter 11 bankruptcy protection, accounts for about 25 per cent of the capacity between the US and Australia.

Last month United said it would ditch flights between Los Angeles and Auckland from the end of March. On Friday, United's parent, UAL Corp, reported a $US3.2 billion ($A5.4 billion) loss for 2002.

Qantas's international business would receive a massive boost if United were forced to shut down its Sydney-Melbourne operation.

Salomon Smith Barney on Friday made special mention of a strong rise in yields in the past few months for Qantas's international division, tipping it would report on February 20 a record half-year profit of $345 million, up 125 per cent from a year ago.

However, the withdrawal of United might put pressure on Qantas in other areas. It could be expected that the Australian Competition and Consumer Commission would weigh the impact of United quitting US-Australia services in assessing a proposed $520 million alliance between Qantas and Air New Zealand. Also, it may convince the Australian Government to make an "Open Skies" agreement with Singapore, allowing Singapore Airlines to fly directly between Australia and the US, introducing a well-resourced and large competitor for Qantas.

"It would certainly give strong additional stimulus to the government to finalise an open skies agreement," said the managing director of the Centre for Asia Pacific Aviation, Peter Harbison. "In turn, it may also give Singapore Air more motivation to get into the domestic market."

For now, though, analysts are focused on what is likely to be a strong result for Qantas in the six months to December 2002. SSB added that other factors in the forecast 125 per cent jump in profit would include a solid contribution from the domestic business, group revenue loads in excess of 80 per cent, well hedged fuel costs, a stronger Australian dollar and a lower operating cost base due to fleet upgrades.

"This is an extraordinary result given the state of the global aviation market and is testament to the quality of Qantas management and the unique nature of the Australian market," wrote SSB transport analyst Jason Smith.

SSB has an "outperform" rating on Qantas and a $5.20 valuation, or $5.70 if the alliance with Air NZ proceeds. Qantas shares closed at $3.74 on Friday.

Three Bars
2nd Feb 2003, 23:10
Maybe QF could return to San Francisco as well? :D

3rd Feb 2003, 00:18
Assuming UAL is off the route, there ought to be plenty of slots and plenty of customers for SFO-SYD. IMHO it was one of the dopiest decisions ever made when QF gave SFO away. Apart from the history, the loads were OK when I was operating the services.

Buster Hyman
3rd Feb 2003, 00:54
...Not to mention the Mardis Gras traffic!!!:p :p

3rd Feb 2003, 02:55
Extraordinary result....... Dear Jason are you sucking up for a QF freebie or a job perhaps?

Even Peter Foster (slim tea conman) could turn a profit at QF at the moment.

I say let SIA and China Airlines in on the over flowing pig trough and lets see how the "Qualitity Management" and crap service compete.

Eastwest Loco
3rd Feb 2003, 06:17
Ooooooh Buster

They would have to Scotchguard the seats and put extra grabrails in the loos wouldnt they????

I say resurrect Pan-Am so the 14 hours can be spent in sheer terror. Makes the flight go so much quicker!

Best all

EWL:eek: :eek:

Buster Hyman
3rd Feb 2003, 11:17
Hey Loco Bloko...long time, no read!

Never mind the Scotchguard as there wouldn't be seats, just places to hook the chains into!!:O

Hmmm...I wonder how far we can go here? :D :D

about that far W

3rd Feb 2003, 11:19
"USA TODAY" 2/2/03

United gears up for eight weeks of critical decisions
By Marilyn Adams, USA TODAY

CHICAGO Whether the nation's second-largest airline lives or liquidates could be decided in the next eight weeks.

Almost two months after filing for bankruptcy reorganization, United Airlines' parent, UAL, faces a tangle of critical decisions about its future that it must make soon if it is to have any hope of survival. But United is a managerial Rubik's Cube whose problems are interlocking and solutions confounding.

While operating 1,700 flights a day worldwide, UAL must in coming weeks cut costs dramatically by renegotiating contracts with labor unions, regional airline partners and the companies that own the leases or hold debt on 80% of its jets. It must convince its bankers that its negative cash flow is improving, or they could call in the crucial loans that keep United aloft, shutting it down.

There could not be a harder time for UAL to reinvent itself. The company announced Friday that it lost $1.5 billion in the fourth quarter and $3.2 billion for 2002 in the midst of the airline industry's worst slump in history. A U.S. invasion of Iraq, and fears of retaliation, could further chill the economy and scare off passengers. If the U.S. starts bombing Iraq, airline traffic could suddenly drop and fuel prices spike, soaking up precious cash United needs to fly and possibly destabilizing it and other cash-strapped carriers.

"If United fails, it's likely to be because of what happens in the next several weeks and months with its financing, labor contracts and the possibility of war," says Philip Baggaley, senior airline analyst for credit-rating firm Standard & Poor's.

Adds Mo Garfinkle, an aviation consultant who once advised United: "It is a task so difficult, so enormous, it will be miraculous if they achieve it all."

Among the issues that UAL executives are grappling with:

Reorganization plan. It must issue a preliminary business plan for reorganization and sell it to creditors, lenders, labor unions, customers and Wall Street. The plan will set the direction for everything else it has to do. CEO Glenn Tilton and his team presented the plan last week to UAL's directors and are scheduled to meet today with the creditors' committee. Without exaggeration, Tilton calls the document UAL's "plan for transformation." The company has declined to make Tilton available for an interview or discuss details of the plan.

Labor contracts. It must renegotiate labor contracts by March with increasingly hostile unions representing pilots, mechanics, flight attendants and other workers. Failing that, it could seek the court's permission to break the contracts and impose new, cheaper ones. That could alienate the employees who interact with United's passengers every day.

Fleet. UAL must decide which planes it's keeping or rejecting. The bankruptcy code gives airlines a 60-day stay on making aircraft payments, but UAL's grace period expires Friday. The company has asked the court for more time so it can continue negotiating for better terms on leases and other financing deals covering about 460 of its 567 jets. If it can't strike better deals before time runs out, UAL will have to make its payments current on the jets it wants to keep or risk them being repossessed.
One complication is that UAL is still trying to identify and track down some of the several thousand parties that have claims on more than 100 jets used as collateral for loans. Another problem is UAL's uncertainty about other aspects of its plan such as its future labor costs hampers productive negotiations with aircraft lessors. Lessors also are wary of giving a big carrier like UAL better terms because that could further depress already weak values for new and used airplanes at other carriers. It's a process that United executives anxiously call a high-stakes game of musical chairs.

Regional airlines. UAL must rework contracts with its regional airline partners to possibly let them handle more flying on small, less-expensive regional jets and perhaps at reduced rates. Unsettled labor issues touch on this problem, too, because United's pilots contract limits how much RJ flying the regionals can do. The partners independent companies that have ordered millions of dollars of RJs are worried. Atlantic Coast Airlines, one United Express carrier that gets 80% of its business from United, has asked the court to force United to spell out what role Atlantic Coast will play in future plans.

Financing. UAL must demonstrate to four big banks that lent UAL $800 million to operate that it can repay them later and that it deserves an additional $700 million in months ahead. United this month must meet the first of monthly cash-flow targets. Although it's expected to hit February's goal, future months set progressively higher targets that will be harder to achieve.
At UAL's Chicago-area headquarters, the mood is determined. Executives say they haven't taken a day off since the filing. A small army of specialized consultants and lawyers is helping them shoulder through the mountain of work under impossibly tight deadlines. Employees note with irony how expensive bankruptcy is.

Tilton, who signed on to run UAL just last September, is poised to start promoting his business plan. Even before it's unveiled, the plan which calls for a new low-fare airline subsidiary is under fierce attack from union leaders. Last week, they angrily called it a "breakup" of the airline.

Pilots, flight attendants and other work groups that already have sustained thousands of furloughs could be hurt by more lost jobs or lower pay under that plan. One out of every five United employees has been furloughed since the Sept. 11 terrorist attacks, and unions are braced for announcements of many more layoffs.

"We will oppose management's breakup plan by every lawful means available to us," says Paul Whiteford, pilots union chairman.

His anger stems partly from the fact that 92% of United's pilots recently voted to take voluntary 29% pay cuts from January to April to help United cut costs quickly in bankruptcy. Flight attendants also agreed to pay cuts.

A shift in strategy

People briefed on the low-fare concept say as much as 30% of United's flying capacity might be shifted to the new low-fare airline subsidiary that would have a separate identity, fleet and workforce. The new airline would fly from United's hubs, such as United's home base of Chicago O'Hare, to leisure destinations, and connect with regular United flights at hubs.

Tilton, who was previously vice chairman of ChevronTexaco and CEO of Texaco, has become convinced a low-fare airline operated within UAL is critical to its survival and can succeed even though it's never been done profitably by a traditional airline.

His view is not unique. Delta Air Lines last week announced the April launch of Song, a low-fare airline that will fly Boeing 757s between the Northeast and Florida.

United is facing threats from aggressive discounters undercutting its fares: Frontier Airlines at United's Denver hub, American Trans Air at Midway Airport in Chicago, and Southwest Airlines on the West Coast, among others.

There are no plans to amputate parts of the airline's massive network, such as the valuable trans-Pacific routes. United has been closing individual international cities that apparently weren't profitable. Last month, Caracas, Venezuela; Santiago, Chile; and Dusseldorf, Germany, dropped off United's route map. Next month, New Zealand will, too.

Contributing: Chris Woodyard, USA TODAY

Eastwest Loco
3rd Feb 2003, 11:26
Hi again Buster

Me thinks we can go far too damned far on this one, right down to the back beacon ILS approach. :D :D

Best regards


3rd Feb 2003, 11:27
Some interesting thoughts/questions

If UA pulled out would;

QF apply to do SYD/SFO

How many airframes would it require to do a daily SYD/SFO service

Is there any excess capacity in the 744 fleet? or would deliveries of the 744ER have to be brought forward...can Boeing deliver early??

Do QF have the pilot/cabin crew numbers to do it

Would it increase the requirement for recruting......more jobs??

I have many family friends in SFO, some of them were QF ground staff who couldnt belive Qantas would pull out when they did, a region of high disposable income and Sydney and san Francisco being sister cities etc.

Eastwest Loco
3rd Feb 2003, 11:53
Ozgrade - one would consider an extra 3 to 4 airframes would be required to rekindle the SFO link, and a comensurate number of aircrew would have to be around 10 to 12 full crews.

This would provide a perfect chance for the rat to close the loop between US West Coast and London which would be a total coup.

I think UA may still do this on the old PA routes, but have not found them in evidence on the sub continent routes they used to occupy of late.

Correct me if I am wrong, but QF used to do the full global in the days of the Super Connies.

The Australian originating traffic on Global Explorer airfares is not huge yield, but it is mid range, and if one could sell QF round world, our locals would be very pleased, despite the service level of late.

It would be most logical to send one of the Aus - LAX aircraft on to LHR rather than the SFO bird, as many more pax hub over LAX, but SFO would take the strain off absorbing costs on Alaskan LAX SFO under code share at a common rated price.

If QF have a famil on SFO for the reintroduction. I wana seat - it is just the best city, and full of delightfully crazy people.

Last flight out of there was on China Airlines many years ago - to HNL during a United strike. Brand new 747-200 - one wonders if it was the one that recently met its demise ex Taipei. The time frame is right.

Best all.


3rd Feb 2003, 20:14
Eastwest Loco

I can't correct you, yes QF did have a full global service on the Connie.....and I think that two aircraft departed with one going East and the other West !!!:D
There was a story going around mid last year that they were going to start up the around the world again but via LAX.

Disco Stu
3rd Feb 2003, 21:26
Whilst it may be 'nice' for QF to again be the Australian Round the World Airline, I don't think it will happen. Alliances & Code Sharing win the cost vs benefit debate.

QF operated 707's in the early '70's:
AUS-via Asia-Middle East-Europe-LHR.
AUS-PPT-Acapulco-Mexico City-Bermuda-LHR.

Point to point mass travel has left the milk runs to history and our memories.

Disco Stu


3rd Feb 2003, 22:43
Sorry folks but I can't let this one get away........................
" Mo Garfinkle, aviation consultant ........, "
Now there's a name to remember!!:D :D

frank Borman
4th Feb 2003, 04:04
EastWestLoco, SQ have more 400's and A340-500's coming. Do you not think they are waiting for an open skies agreement?

SQ can't expand any more out of Singapore, the STAR alliance have indicated they would back them, however, don't hold your breath for the much fantasised domestic SQ operation.

Buster Hyman
4th Feb 2003, 11:15
I thought as much Big W!!!:O

What a coup for QF if they could get a global service up and running. Regardless of the cost of their current success, it is still remarkable how well they are going in the face of global aviation trends.

737 guru
4th Feb 2003, 19:54
Hey Buster your'e not going soft in your old age are you????? I never thought i would see the day when you respected what the white rat is doing!!!!!!!!:D :D :D :D

Buster Hyman
4th Feb 2003, 22:35
I see you've managed to find the power switch on your PC again guru!!! Welcome back!;)

Well, I guess I'm caught between a rock & a hard place now aren't I? I did, however, intimate that there was a price to their success.....:*

frank Borman
5th Feb 2003, 20:20
Buster, every empire that has existed over time, has crumbled.