Qantas leaves seat-belt sign on
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Qantas leaves seat-belt sign on
Fri "The Australian"
Qantas leaves seat-belt sign on
By Steve Creedy
August 20, 2004
IT may have posted a record profit but it would not have been a Qantas annual result if there had not been a warning about challenges ahead.
There was plenty of good news - a $1000 staff bonus, new family friendly policies and the fact that Geoff Dixon would remain at the helm until July 2007.
International operations were up, domestic growth was strong and even all-economy offshoot Australian Airlines made a small profit.
And even though revenue was flat, cost-cutting and efficiency gains brought in a net profit of $648.5 million.
But the sting in the tail of the new record earnings was the spectre of rising fuel prices and Qantas's concern that unfair competition was hurting profits.
Dixon, the usual harbinger of doom, joined forces with chairman Margaret Jackson to drive home the point that Qantas thought too much competition in the wrong circumstances was not a good thing.
Jackson warned that the global aviation industry had not returned to "normal" and the company still faced competition from government-backed airlines on an uneven playing field.
It was this sort of challenge, according to Jackson, that prompted the extension of Dixon's contract, which had been due to end in December next year, until July 2007.
"Qantas's performance has been outstanding under Geoff's leadership, a period which has been described as the most tumultuous in civil aviation history," she said.
"The board believes it is important that Geoff continue to provide leadership stability over the next three years while Qantas faces the ongoing challenges of the global aviation industry, implements a range of growth and efficiency programs and completes an internal restructure."
Her warning on foreign com petitors was aimed squarely at government policies designed to open up Australia's aviation market. Qantas argues that two-thirds of international airlines serving Australia each week are government-owned or subsidised, such as Dubai-based Emirates.
It also points to the ability of US and Canadian carriers to hide behind bankruptcy protection and $US15 billion in grants and loans to US airlines after September 11, 2001.
Dixon and Jackson denied that Qantas was asking for special treatment but called on Australian policy makers to take these sorts inequities into account before further opening up the nation's aviation market. They also used the opportunity to launch another plea for an end to the 49 per cent foreign ownership cap and accelerated depreciation, which could save the airline $1.3 billion a year.
The chairman's bleakish assessment and warnings about rising fuel prices came despite a generally positive outlook, which predicted another record profit next year.
But Dixon said it would con tinue to involve tough decisions that would include moving work offshore.
He said decisions such as the establishment of a flight attendants' base in London would allow Qantas to maintain and increase employment in Australia at a time when competitors were making cuts.
Other initiatives included further cost-cutting totalling $1 billion; investment in new technology and more efficient aircraft; expanding low-cost offshoot Jetstar; and increasing Qantas mainline capacity on key business routes. Not surprisingly, rising fuel prices were the airline's biggest immediate concern, followed by pressure on yields from increasing capacity.
In fiscal 2005, fuel is expected to add about $400 million to fiscal 2004's bill of $1.2 billion. The problem to some extent is out of the airline's control.
As chief financial officer Peter Gregg noted: "I think it just comes down to the situation in the Middle East. I don't think we can foresee the future in this matter."
An expected decision to increase the fuel surcharge by $3 per domestic sector and $5 per international sector will partially cover that cost.
Also helping is the fact the airline is more than 70 per cent hedged at around $US32 a barrel for the current fiscal year.
But Qantas has to be careful: it does not want to find itself in a situation where increased ticket prices depress demand and, as Dixon points out, finds itself in a zero-sum game.
Despite industry doubts, Qantas says Jetstar is profitable after start-up costs of $23.8million. Figures for its first month suggested it was running with load factors of about 72.3 per cent. Dixon also said "Jetstar Asia" was on track to launch in December with the first of its eight Airbus A320s arriving in October and an air operator's certificate expected soon afterwards.
The chief executive believes the airline is structurally and financially sound and could even meet the cost of capital in the current financial year.
And he has plenty of incentive to make that the case.
His base salary of $2 million under his new contract is supplemented by a 60 per cent cash bonus provided he reaches agreed targets.
That may be easier said than done: payments under the bonus system, based on an agreed return on total gross assets target, have not been made in two of the past four years.
===========================================
Qantas leaves seat-belt sign on
By Steve Creedy
August 20, 2004
IT may have posted a record profit but it would not have been a Qantas annual result if there had not been a warning about challenges ahead.
There was plenty of good news - a $1000 staff bonus, new family friendly policies and the fact that Geoff Dixon would remain at the helm until July 2007.
International operations were up, domestic growth was strong and even all-economy offshoot Australian Airlines made a small profit.
And even though revenue was flat, cost-cutting and efficiency gains brought in a net profit of $648.5 million.
But the sting in the tail of the new record earnings was the spectre of rising fuel prices and Qantas's concern that unfair competition was hurting profits.
Dixon, the usual harbinger of doom, joined forces with chairman Margaret Jackson to drive home the point that Qantas thought too much competition in the wrong circumstances was not a good thing.
Jackson warned that the global aviation industry had not returned to "normal" and the company still faced competition from government-backed airlines on an uneven playing field.
It was this sort of challenge, according to Jackson, that prompted the extension of Dixon's contract, which had been due to end in December next year, until July 2007.
"Qantas's performance has been outstanding under Geoff's leadership, a period which has been described as the most tumultuous in civil aviation history," she said.
"The board believes it is important that Geoff continue to provide leadership stability over the next three years while Qantas faces the ongoing challenges of the global aviation industry, implements a range of growth and efficiency programs and completes an internal restructure."
Her warning on foreign com petitors was aimed squarely at government policies designed to open up Australia's aviation market. Qantas argues that two-thirds of international airlines serving Australia each week are government-owned or subsidised, such as Dubai-based Emirates.
It also points to the ability of US and Canadian carriers to hide behind bankruptcy protection and $US15 billion in grants and loans to US airlines after September 11, 2001.
Dixon and Jackson denied that Qantas was asking for special treatment but called on Australian policy makers to take these sorts inequities into account before further opening up the nation's aviation market. They also used the opportunity to launch another plea for an end to the 49 per cent foreign ownership cap and accelerated depreciation, which could save the airline $1.3 billion a year.
The chairman's bleakish assessment and warnings about rising fuel prices came despite a generally positive outlook, which predicted another record profit next year.
But Dixon said it would con tinue to involve tough decisions that would include moving work offshore.
He said decisions such as the establishment of a flight attendants' base in London would allow Qantas to maintain and increase employment in Australia at a time when competitors were making cuts.
Other initiatives included further cost-cutting totalling $1 billion; investment in new technology and more efficient aircraft; expanding low-cost offshoot Jetstar; and increasing Qantas mainline capacity on key business routes. Not surprisingly, rising fuel prices were the airline's biggest immediate concern, followed by pressure on yields from increasing capacity.
In fiscal 2005, fuel is expected to add about $400 million to fiscal 2004's bill of $1.2 billion. The problem to some extent is out of the airline's control.
As chief financial officer Peter Gregg noted: "I think it just comes down to the situation in the Middle East. I don't think we can foresee the future in this matter."
An expected decision to increase the fuel surcharge by $3 per domestic sector and $5 per international sector will partially cover that cost.
Also helping is the fact the airline is more than 70 per cent hedged at around $US32 a barrel for the current fiscal year.
But Qantas has to be careful: it does not want to find itself in a situation where increased ticket prices depress demand and, as Dixon points out, finds itself in a zero-sum game.
Despite industry doubts, Qantas says Jetstar is profitable after start-up costs of $23.8million. Figures for its first month suggested it was running with load factors of about 72.3 per cent. Dixon also said "Jetstar Asia" was on track to launch in December with the first of its eight Airbus A320s arriving in October and an air operator's certificate expected soon afterwards.
The chief executive believes the airline is structurally and financially sound and could even meet the cost of capital in the current financial year.
And he has plenty of incentive to make that the case.
His base salary of $2 million under his new contract is supplemented by a 60 per cent cash bonus provided he reaches agreed targets.
That may be easier said than done: payments under the bonus system, based on an agreed return on total gross assets target, have not been made in two of the past four years.
===========================================
