Merged: QANTAS Into Trading Halt
The Crikey.com.au take on things...
Nothing optimistic in these Qantas figures
Ben Sandilands writes:
There are some painful numbers in this morning’s hastily released Qantas half yearly results statement.
Profits are down as expected, to a PBT for the group of $288 million, but all of the critical costs in the six months are up by double-digit figures , and the first half fully franked dividend has been sliced to 6 cents per ordinary share, one third of the payout in the previous corresponding half.
Worse still, the results cover the period that ended just before the clear signs of a sharp world wide drop in air travel appeared after the New Year.
And this time the finance media can’t be briefed simultaneously with the release of the results by the Qantas CEO, because Alan Joyce remains overseas and will not be available until later this afternoon.
Qantas had scheduled the results release for 19 February, but had to choose a more immediate disclosure after the ASX queried it on a 6.5% drop in the share price on Monday. This lead to a two-day trading halt pending the details of a $500 million equity raising offer separately announced today.
The previous profit guidance, of a full year PBT of around $500 million remains unchanged, compared to a record $1.4 billion result in the year ending last 30th of June.
That guidance as Joyce is likely to confirm later today is hostage to many variables in demand, currencies, fuel and new aircraft commitments, as well as competitive pressures from two new entrants on the Pacific routes, and the recession strategies of Singapore Airlines, Emirates and Etihad.
There is no rational basis for optimism about any of them.
The figures released this morning show that the Qantas group, excluding Jetstar, dropped its PBT by 76.2% to $199 million in the six months even after including an $86 million profit from the sale of its Qantas Holidays wholesaling division.
Jetstar fared comparatively better. Its PBT for the period was down by only 48.2% to $72 million.
There is a sharp back hander to the Dixon legacy too in the note about variable costs in aircraft operations. It says these costs increased 13.7%, "reflecting increases across all categories, particularly in engineering heavy maintenance as the Group focused on reducing maintenance backlogs and improving on-time performance".
Before his retirement as CEO Dixon conceded that the Qantas brand was harmed by maintenance issues. They were driven by the neglect or deferral of maintenance that become the subject of an unfavourable special audit of Qantas by CASA.
At least under Joyce the group seems to be acknowledging that aircraft must be maintained in a timely manner.
Less clear is the reasoning for the $500 million equity raising offer. Qantas still has a very strong balance sheet. There is an acknowledged merit in taking on more equity now in case this becomes far harder during the remaining years of the global financial crisis.
But is there something else Qantas could use $500 million for in the immediate future? Such as ‘tidying up’ the New Zealand market, where Air New Zealand seems at potential risk, or in some way reorganising the affairs of Jetstar Asia (Singapore) and Jetstar Pacific (Vietnam) to lessen the group’s exposure to a cross border low cost airline franchise that isn’t performing as well as originally hoped?
Answers to such questions are awaited.
Ben Sandilands writes:
There are some painful numbers in this morning’s hastily released Qantas half yearly results statement.
Profits are down as expected, to a PBT for the group of $288 million, but all of the critical costs in the six months are up by double-digit figures , and the first half fully franked dividend has been sliced to 6 cents per ordinary share, one third of the payout in the previous corresponding half.
Worse still, the results cover the period that ended just before the clear signs of a sharp world wide drop in air travel appeared after the New Year.
And this time the finance media can’t be briefed simultaneously with the release of the results by the Qantas CEO, because Alan Joyce remains overseas and will not be available until later this afternoon.
Qantas had scheduled the results release for 19 February, but had to choose a more immediate disclosure after the ASX queried it on a 6.5% drop in the share price on Monday. This lead to a two-day trading halt pending the details of a $500 million equity raising offer separately announced today.
The previous profit guidance, of a full year PBT of around $500 million remains unchanged, compared to a record $1.4 billion result in the year ending last 30th of June.
That guidance as Joyce is likely to confirm later today is hostage to many variables in demand, currencies, fuel and new aircraft commitments, as well as competitive pressures from two new entrants on the Pacific routes, and the recession strategies of Singapore Airlines, Emirates and Etihad.
There is no rational basis for optimism about any of them.
The figures released this morning show that the Qantas group, excluding Jetstar, dropped its PBT by 76.2% to $199 million in the six months even after including an $86 million profit from the sale of its Qantas Holidays wholesaling division.
Jetstar fared comparatively better. Its PBT for the period was down by only 48.2% to $72 million.
There is a sharp back hander to the Dixon legacy too in the note about variable costs in aircraft operations. It says these costs increased 13.7%, "reflecting increases across all categories, particularly in engineering heavy maintenance as the Group focused on reducing maintenance backlogs and improving on-time performance".
Before his retirement as CEO Dixon conceded that the Qantas brand was harmed by maintenance issues. They were driven by the neglect or deferral of maintenance that become the subject of an unfavourable special audit of Qantas by CASA.
At least under Joyce the group seems to be acknowledging that aircraft must be maintained in a timely manner.
Less clear is the reasoning for the $500 million equity raising offer. Qantas still has a very strong balance sheet. There is an acknowledged merit in taking on more equity now in case this becomes far harder during the remaining years of the global financial crisis.
But is there something else Qantas could use $500 million for in the immediate future? Such as ‘tidying up’ the New Zealand market, where Air New Zealand seems at potential risk, or in some way reorganising the affairs of Jetstar Asia (Singapore) and Jetstar Pacific (Vietnam) to lessen the group’s exposure to a cross border low cost airline franchise that isn’t performing as well as originally hoped?
Answers to such questions are awaited.
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Compliments of the financial press, see below the views of Stephen Bartholomeusz:
In the context of the industry it operates within, the ability of Qantas to post a solidly profitable result in the December half and confirm a full-year profit of about $500 million is a remarkable achievement.
Around the globe, airlines have been toppling like dominos and most of the survivors are awash with red ink. Aviation’s peak body, International Air Transport Association, has said that the industry lost about $US5 billion last year and has forecast losses of another $US2.5 billion this year.
Gyrating fuel prices, wild currency fluctuations, the impact of the global financial crisis and the ensuing steep decline in all the major economies have buffeted a sector that has leveraged exposures to all those influences.
Qantas wasn’t, and couldn’t, be immune to them. Its international and premium businesses have been hit hard by the economic downturn. Its dominance of the domestic market and the relative resilience of Jetstar, with its positioning at the more price-sensitive end of the market have, however, kept it in the black.
A $288 million profit, $2.8 billion in cash reserves and moderate gearing is testimony to the group’s operational flexibility and cost disciplines.
The two brand strategy, the ability to switch off capacity or redeploy it between the Qantas and Jetstar brands and/or between its domestic and international operations has been validated by the testing conditions. As has the diversity of its earnings base.
Despite coming through a period in which oil prices have peaked at more than $US140 a barrel – even with its hedging Qantas experienced a net increase in its fuel costs of $357 million – Qantas has decided to take out some insurance by raising more than $500 million of new equity through an underwritten share placement and a non-underwritten share purchase plan
There are two reasons for raising capital at this moment, despite the badly depressed share price.
One is the more general motivation that is driving companies to ignore the impact of issuing equity in the current market. Companies are raising capital when they can because of the extent of the uncertainty about the future, to reduce the threat posed by volatile credit markets and the risk that battered international banks won’t be prepared or won't be able to refinance maturing debt.
The other, specific to Qantas, is to protect its investment grade credit rating. Qantas is in the midst of a massive fleet modernisation program. Its credit rating is vital to its ability to maintain that program, which is crucial because of the age of its existing fleet and because it will enable a structural reduction in costs
Apart from the Middle Eastern carriers, there would be very few major airlines able to sustain big capital expenditure programs in the current environment.
Qantas’ profitability, its balance sheet and its ability to raise capital to invest counter-cyclically ought to strengthen its competitive position significantly when conditions eventually improve. In that sense it is in an analogous position, relative to its sector, to BHP Billiton.
While Qantas’ flirtation with a merger with British Airways came to nothing, which is probably a good thing given BA’s condition. In the future, Qantas' financial strength and operational flexibility should also give it greater leverage in any further attempt to participate in what is regarded as the inevitable consolidation of the global industry.
Around the globe, airlines have been toppling like dominos and most of the survivors are awash with red ink. Aviation’s peak body, International Air Transport Association, has said that the industry lost about $US5 billion last year and has forecast losses of another $US2.5 billion this year.
Gyrating fuel prices, wild currency fluctuations, the impact of the global financial crisis and the ensuing steep decline in all the major economies have buffeted a sector that has leveraged exposures to all those influences.
Qantas wasn’t, and couldn’t, be immune to them. Its international and premium businesses have been hit hard by the economic downturn. Its dominance of the domestic market and the relative resilience of Jetstar, with its positioning at the more price-sensitive end of the market have, however, kept it in the black.
A $288 million profit, $2.8 billion in cash reserves and moderate gearing is testimony to the group’s operational flexibility and cost disciplines.
The two brand strategy, the ability to switch off capacity or redeploy it between the Qantas and Jetstar brands and/or between its domestic and international operations has been validated by the testing conditions. As has the diversity of its earnings base.
Despite coming through a period in which oil prices have peaked at more than $US140 a barrel – even with its hedging Qantas experienced a net increase in its fuel costs of $357 million – Qantas has decided to take out some insurance by raising more than $500 million of new equity through an underwritten share placement and a non-underwritten share purchase plan
There are two reasons for raising capital at this moment, despite the badly depressed share price.
One is the more general motivation that is driving companies to ignore the impact of issuing equity in the current market. Companies are raising capital when they can because of the extent of the uncertainty about the future, to reduce the threat posed by volatile credit markets and the risk that battered international banks won’t be prepared or won't be able to refinance maturing debt.
The other, specific to Qantas, is to protect its investment grade credit rating. Qantas is in the midst of a massive fleet modernisation program. Its credit rating is vital to its ability to maintain that program, which is crucial because of the age of its existing fleet and because it will enable a structural reduction in costs
Apart from the Middle Eastern carriers, there would be very few major airlines able to sustain big capital expenditure programs in the current environment.
Qantas’ profitability, its balance sheet and its ability to raise capital to invest counter-cyclically ought to strengthen its competitive position significantly when conditions eventually improve. In that sense it is in an analogous position, relative to its sector, to BHP Billiton.
While Qantas’ flirtation with a merger with British Airways came to nothing, which is probably a good thing given BA’s condition. In the future, Qantas' financial strength and operational flexibility should also give it greater leverage in any further attempt to participate in what is regarded as the inevitable consolidation of the global industry.
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There are several things at play - the capital raising is a sound strategy given the liklihood of a couple of aircraft related IPO's/funds getting off the ground - for Q, doing this prior to 30 June also gives a leaseback potential to shift some of the fleet update capital costs off balance sheet. This also then flows onto the rating etc., and provides a fees vehicle from the fund (the Macquarie formula).
The speculation of picking up DJ is off course wildly off the mark - as is reading anything into Jetstar's increased ASK which has never been a real figure anyway with so much carried across from QF's P&L/balance sheet.
Ben Sandilands does however make a good point about the shoring up and consolidation of the Jetstar interests - 500m is really not going to buy much of an existing airline but it can do a lot in other arenas.
THe key to making any future consolidations work is a high N.A.V of the core business and seamless cross-brand/network/codeshare integration. This has been the game plan and given the global indicators is likely to be a good strategy for what will be a very cold winter.
At least the maintence lists are looking leaner.
The speculation of picking up DJ is off course wildly off the mark - as is reading anything into Jetstar's increased ASK which has never been a real figure anyway with so much carried across from QF's P&L/balance sheet.
Ben Sandilands does however make a good point about the shoring up and consolidation of the Jetstar interests - 500m is really not going to buy much of an existing airline but it can do a lot in other arenas.
THe key to making any future consolidations work is a high N.A.V of the core business and seamless cross-brand/network/codeshare integration. This has been the game plan and given the global indicators is likely to be a good strategy for what will be a very cold winter.
At least the maintence lists are looking leaner.
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Midday stock massacre
QAN is $1.89 down 39.5 cents at noon on volume of 21.6 million shares and VBA is 27.5 cents down 1 cent on trades of 4.8 million. The trades aren't big but the outlook is pretty grim.
Travelling well?
In today's SMH, AJ commenting on the early release of Qantas half-year results, is reported as saying : ".....while international business traffic had taken a hit, demand in economy and premium economy was holding up."
What does this mean. Hasn't anyone told him about the 26 round trips (below) between MEL And SYD and LON that have been cancelled? Does he mean that bookings are holding well AFTER the cancellations have been taken into account?
Melbourne - Hong Kong - London
17MAR09/25MAR09
01APR09/29APR09
05MAY09/12MAY09/19MAY09/25MAY09
01JUN09/10JUN09/17JUN09
Sydney - Singapore - London
08FEB09/18FEB09
15MAR09/22MAR09/29MAR09
08APR09/12APR09/27APR09
06MAY09/20MAY09/24MAY09/31MAY09
08JUN09/15JUN09/22JUN09
What does this mean. Hasn't anyone told him about the 26 round trips (below) between MEL And SYD and LON that have been cancelled? Does he mean that bookings are holding well AFTER the cancellations have been taken into account?
Melbourne - Hong Kong - London
17MAR09/25MAR09
01APR09/29APR09
05MAY09/12MAY09/19MAY09/25MAY09
01JUN09/10JUN09/17JUN09
Sydney - Singapore - London
08FEB09/18FEB09
15MAR09/22MAR09/29MAR09
08APR09/12APR09/27APR09
06MAY09/20MAY09/24MAY09/31MAY09
08JUN09/15JUN09/22JUN09
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The discount travel boom has produced notable winers and losers, according to three seperate disclosures.
Online airfare booking group Webjet reported a $3.7 million interim result, up 29 per cent and ahead of market expectations of around $3.2 million.
Webjet's site appeals to bargain-hunters as it allows them to quickly compare and book airfares. "All the indicators of demand are up" says webjet chief David Clarke.
On Tuesday Wotif - a short-order booking service for unused hotel rooms - said first-half earnings were likely to exceed the previous December half by 20 per cent.
With travellers obsessed with hunting down the best deal, one would expect this to be reflected in the performance of Qantas's el-cheapo Jetstar arm.
True, Jetstar boosted revenue by 12 per cent to $800 million in the December half. But Jetstar's earnings on a pre-tax basis fell 48 percent to $72 million, which points to a need for Qantas chief Alan Joyce to hone the low cost philosophy. Have they done away with the hot towels and boiled sweets already?
It's all relative though, with "proper" Qantas recording a 76 per cent earnings slump to $199 million on a 3.2 per cent revenue decline. And mention "profit" to other global airlines and you'll get more blank looks than at a hosties' rebotoxing session.
Criterion maintains a buy on Webjet, which we got on board last week at $1. Wotif is a hold.
As well as losing premium passengers, Qantas faces even stiffer headwinds as Virgins V Australia and Delta start competing on the US route.
Qantas shares yesterday lost 42c or 18 per cent, after resuming trading following the mystery $600 million capital raising. Given the dilution, the stock looks cheap for a reason and we will avoid it.
One cheeky conspiracy theorist suggests that when a company goes to market for funds before it has to, there's bound to be trouble in store.
Tim Boreham
The Australian 6th Feb 2009.
Online airfare booking group Webjet reported a $3.7 million interim result, up 29 per cent and ahead of market expectations of around $3.2 million.
Webjet's site appeals to bargain-hunters as it allows them to quickly compare and book airfares. "All the indicators of demand are up" says webjet chief David Clarke.
On Tuesday Wotif - a short-order booking service for unused hotel rooms - said first-half earnings were likely to exceed the previous December half by 20 per cent.
With travellers obsessed with hunting down the best deal, one would expect this to be reflected in the performance of Qantas's el-cheapo Jetstar arm.
True, Jetstar boosted revenue by 12 per cent to $800 million in the December half. But Jetstar's earnings on a pre-tax basis fell 48 percent to $72 million, which points to a need for Qantas chief Alan Joyce to hone the low cost philosophy. Have they done away with the hot towels and boiled sweets already?
It's all relative though, with "proper" Qantas recording a 76 per cent earnings slump to $199 million on a 3.2 per cent revenue decline. And mention "profit" to other global airlines and you'll get more blank looks than at a hosties' rebotoxing session.
Criterion maintains a buy on Webjet, which we got on board last week at $1. Wotif is a hold.
As well as losing premium passengers, Qantas faces even stiffer headwinds as Virgins V Australia and Delta start competing on the US route.
Qantas shares yesterday lost 42c or 18 per cent, after resuming trading following the mystery $600 million capital raising. Given the dilution, the stock looks cheap for a reason and we will avoid it.
One cheeky conspiracy theorist suggests that when a company goes to market for funds before it has to, there's bound to be trouble in store.
Tim Boreham
The Australian 6th Feb 2009.
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One cheeky conspiracy theorist suggests that when a company goes to market for funds before it has to, there's bound to be trouble in store.
Qantas might buy Tiger at the right price!
I'm more inclined to accept the QF explanation (spin if you will) : it clears the air until full year results.
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Some Pruners may recall recent threads about airline employees owning shares as an alternative to just banging on about why airline management is inept and how they screw with your career.
Since then the Kangaroo’s raised $500,000,000 by issuing new Qantas shares at $1.85.
It now seems that last year’s AIPA El Presidente is busying himself trying to get a Qantas Staff Plan up on the basis that it is good for Qantas, Staff and Shareholders. Mates on the AIPA COM are saying he has already got a bank on side and is waiting for the Roo to step up.
Can’t be good for unions and management to have workers gain power through share ownership. What’s the bet, either the Company or the new team try to stymie him?
Since then the Kangaroo’s raised $500,000,000 by issuing new Qantas shares at $1.85.
It now seems that last year’s AIPA El Presidente is busying himself trying to get a Qantas Staff Plan up on the basis that it is good for Qantas, Staff and Shareholders. Mates on the AIPA COM are saying he has already got a bank on side and is waiting for the Roo to step up.
Can’t be good for unions and management to have workers gain power through share ownership. What’s the bet, either the Company or the new team try to stymie him?
Last edited by struggling; 7th Feb 2009 at 00:28.
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Since then the Kangaroo’s raised $500,000,000 by issuing new Qantas shares at $1.85.
If the share price was $4.00 they would have had to sell 125,000,000.
So yeah that was a great success with the share price dropping.Just goes to show how much confidence the market has .....
As has been the case with the take over bid and at most AGM's the small shareholders are out numbered by the big boys and you would have to have a big bank balance to try and be on anything like equal terms....
Anyone who wants to buy shares in an airline deserves what they get....
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Fair point Lowerlobe, but if you look at it from the other end of the telescope - despite the dire state of the the world's airlines and the global economy, Aussie institutional investors still purchased $500M's worth of kangaroo stock at $1.85 and the market promptly revalued their bet at $1.91. Up 3.5% in a day.
One size never fits all, but any ability to buy stock in ones employer with pretax dollars and pay a max of 23.5c in CGT tax on any increase in price looks like a good way to save for a retirement and rainny days I reackon.
One size never fits all, but any ability to buy stock in ones employer with pretax dollars and pay a max of 23.5c in CGT tax on any increase in price looks like a good way to save for a retirement and rainny days I reackon.
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Wonder what no loan roll over would do to both airlines
This item struck me as menacing once you get past the irrelevant stuff at the start.
More rude wake up calls for airline investors - Plane Talking
What loans does Virgin have to roll over to survive? Maybe what this really means is that if refinancing is next to impossible because of the banking crisis, and note how some commentators are already accusing the Australian banks of sitting on some really bad news, then a whole ****load of businesses in this country are going to grind to a halt.
More rude wake up calls for airline investors - Plane Talking
What loans does Virgin have to roll over to survive? Maybe what this really means is that if refinancing is next to impossible because of the banking crisis, and note how some commentators are already accusing the Australian banks of sitting on some really bad news, then a whole ****load of businesses in this country are going to grind to a halt.
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Wish you would stick with the one thread Struggling. Only by chance that I noticed that Blown had chimed in on the Tough Decisions Ahead thread that I read what as happened.
Your wrong I hope.
Can someone please tell me that it not true that the AIPA Exec has derailed the push to make employee ownership available to all Qantas staff.
Your wrong I hope.
Can someone please tell me that it not true that the AIPA Exec has derailed the push to make employee ownership available to all Qantas staff.
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Unphased, you and struggling need to sit down. Have some disappointing news for you both.
El Presidente's efforts to get Qantas staff ownership switched on in time for employees to take up the SPP opportunity to buy Qantas shares at $1.85 using pre tax dollars has been sidelined by the AIPA Exec.
I have seen the emails going around and can confirm that it was not Qantas but AIPA that nailed it.
El Presidente's efforts to get Qantas staff ownership switched on in time for employees to take up the SPP opportunity to buy Qantas shares at $1.85 using pre tax dollars has been sidelined by the AIPA Exec.
I have seen the emails going around and can confirm that it was not Qantas but AIPA that nailed it.
