Qantas Annual Report
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Qantas Annual Report
Was flicking through last years annual report and had a couple of questions I was hoping someone with a bit more financial nous than myself might be able to answer.
The report shows that Jetstar had an underlying profit of $131m and Qantas $67m. However if you look more closely, here's how they calculate that :
Jetstar
EBITDAR ...................................463
Leases ..................................... (315)
Depreciation and Amortisation (17)
Underlying EBIT .......................131
Qantas
EBITDAR .....................................1415
Leases ..........................................(279)
Depreciation and Amortisation (1069)
Underlying EBIT ............................ 67
Why is there such a massive difference between the depreciation costs of the two? Although the report shows you a breakdown of the profit contributed by each section of the group, it then goes on to report the depreciation and amortisation of the group lumped together.
Secondly, why is the goodwill of Jetstar valued at $130m, while the goodwill of Qantas, Qantas Freight and Qantas Frequent Flyer combined valued at $23m.
Cheers
The report shows that Jetstar had an underlying profit of $131m and Qantas $67m. However if you look more closely, here's how they calculate that :
Jetstar
EBITDAR ...................................463
Leases ..................................... (315)
Depreciation and Amortisation (17)
Underlying EBIT .......................131
Qantas
EBITDAR .....................................1415
Leases ..........................................(279)
Depreciation and Amortisation (1069)
Underlying EBIT ............................ 67
Why is there such a massive difference between the depreciation costs of the two? Although the report shows you a breakdown of the profit contributed by each section of the group, it then goes on to report the depreciation and amortisation of the group lumped together.
Secondly, why is the goodwill of Jetstar valued at $130m, while the goodwill of Qantas, Qantas Freight and Qantas Frequent Flyer combined valued at $23m.
Cheers
I had the very same question re the goodwill value of the two brands. They can pretty much put whatever they want to in that field on the balance sheet.
Two reasons why the depreciation is so much higher :
Qantas have much higher depreciation costs due to their plant and equipment.
JQ have numerous aircraft registered to QCC in Mascot where they are owned by Qantas and "leased" to JQ at a rate only known by those who create such deals.
Fair? No... Anything we can do about it? Keep raising issues like this and hopefully the media will eventually pick up (as Ben Sandilands has done recently) on the story and let the QF shareholders know that something (else) is gravely wrong with the group.
Two reasons why the depreciation is so much higher :
Qantas have much higher depreciation costs due to their plant and equipment.
JQ have numerous aircraft registered to QCC in Mascot where they are owned by Qantas and "leased" to JQ at a rate only known by those who create such deals.
Fair? No... Anything we can do about it? Keep raising issues like this and hopefully the media will eventually pick up (as Ben Sandilands has done recently) on the story and let the QF shareholders know that something (else) is gravely wrong with the group.
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G'day mate,
Yeah, that's what I suspected at first also. But there's a note in the report that shows the time frame equipment is depreciated over. For example, aircraft and engines are depreciated over 2.5 - 20 years, plant and equipment over 3 - 20 years etc. I would have thought that given the age of mainline's hardware, depreciation would have had less of an impact on its profitability compared with a younger company like Jetstar.
When I read a bit further into the report, it surprised me that depreciation does affect leased equipment. For example, there are sections for Aircraft and engines – owned, as well as Aircraft and engines – hire purchased/leased. The accumulated depreciation for leased aircraft was valued at $1146m.
Has any of this been attributed to Jetstar?
Qantas have much higher depreciation costs due to their plant and equipment.
JQ have numerous aircraft registered to QCC in Mascot where they are owned by Qantas and "leased" to JQ at a rate only known by those who create such deals.
Has any of this been attributed to Jetstar?
As a wholly-owned subsidiary of Qantas, the reported 'profit' of Jetstar can just about be whatever Qantas wants it to be. Some resources are shared and other resources are supplied or controlled by Qantas. Qantas only has to have 'control' over equipment/assets (not necessarily ownership) to result in it picking up the lion's share of the depreciation and amortisation. Transfer prices for goods and services between the two can also be manipulated quite easily (and legally).
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It's their train set and they can do what they like with it.
Could someone include Qlink (Eastern Sunstate) figures. I'm curious.
Another example :
Qantas Frequent Flyer EBITDAR is $330m - Depreciation and amortisation $2m.
The accumulated depreciation on buildings last year was $177m, the amortisation on software was $350m.
So unless they're running Frequent Flyer out of someone's granny flat using an excel spreadsheet to keep track of everyone, I would've thought the DAR figure should have been higher than $2m.
Does Qantas bear the depreciation costs for other sections of the Group?
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I've heard the Q400 is a money making machine. Not surprising seeing as apparently its was Qlink that kept Qantas in the black last financial year. The Virgin turboprop thing is gonna hurt Qantas a great deal methinks.
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Secondly, why is the goodwill of Jetstar valued at $130m, while the goodwill of Qantas, Qantas Freight and Qantas Frequent Flyer combined valued at $23m.
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Just reading the latest figures.
Qantas
EBITDAR 865
Leases (152)
Depreciation and Amortisation (548)
Underlying EBIT 165
Jetstar
EBITDAR 305
Leases (131)
Depreciation and Amortisation (31)
Underlying EBIT 143
Depreciation and Amortisation includes $45million (Qantas $43 million and Jetstar $2 million) representing half yearly impact on the change in residual value estimate for passenger aircraft.
Qantas
EBITDAR 865
Leases (152)
Depreciation and Amortisation (548)
Underlying EBIT 165
Jetstar
EBITDAR 305
Leases (131)
Depreciation and Amortisation (31)
Underlying EBIT 143
Depreciation and Amortisation includes $45million (Qantas $43 million and Jetstar $2 million) representing half yearly impact on the change in residual value estimate for passenger aircraft.
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If AirAsia's numbers can be believed, they are very impressive when compared to QF! (my bold/italics - see AirAsia | Fees and charges | Budget airline is extra successful)
Extra successful
The Age - Clive Dorman
March 19, 2011
Plenty to smile about ... AirAsia chief executive Tony Fernandes (C) with flight attendants.
AirAsia's low-cost model is reaping financial rewards, writes Clive Dorman.
He has become one of the region's most successful entrepreneurs but AirAsia founder Tony Fernandes admits he's "not really an airline person".
Inside the airline industry, which is used to measuring profits in small percentages, Fernandes caused a sensation last month when he showed it was possible for an airline to make money at the rate of the participants in Australia's banking oligopoly.
Most of the time, Malaysia-based AirAsia and its long-haul offshoot, AirAsia X, which flies to Australia, have the cheapest deals in town. They are as little as a few hundred dollars return to south-east Asia, pennies to fly inside Asia and sometimes less than $1000 return to Europe.
The numbers are spectacular: $500 million net profit on $1.83 billion turnover in 2010; in 2009-10 the Qantas group, including Jetstar, made $112 million on $13.8 billion in revenue.
But it is not a magic trick. About two-thirds of the AirAsia profit was "ancillary revenue" - fees for extras on mostly "costless inventory". That's technical jargon for services that cost little or nothing to produce.
In Australia, Tiger Airways suffered backlash over its steep ancillary charges. AirAsia's ancillary charges are lower. "If you look at the bag charge by (Europe's) Ryanair or Tiger Airways (based on the Ryanair model), ours is very, very minimal," Fernandes says.
"But there is a business logic to it. Some of these airlines are just transferring sales from the ticket price to another area. But we're trying to do is give people a choice and make the cost equate to the revenue.
"If you take the bag charge, for instance, there is a cost for loading the bag onto the plane. There is a cost of the plane being heavier, which means more fuel is burnt. So we say if you want that service, you have to pay for it but we're not going to price you ridiculously ... out of the market.
"I'm on Facebook and Twitter and the only one (ancillary charge) that people seem to dislike is the convenience fee for using credit cards.
"Remember, we're adding things like insurance. So we're saying, if you travel, here are all the things that you might spend on - duty-free, hotels, food, insurance, etcetera, and we're saying rather than go and buy it from someone else, buy it all from us."
Fernandes concedes that without ancillary revenue, AirAsia is just another airline - back in the financial ruck with the full-service airline industry that has lost more money than it has ever made.
Unsurprisingly, full-service airlines - especially in the US - are adopting the model in the hope of financial salvation.
Susan Carey wrote in the Wall Street Journal last week about what she called "buy to fly". "Want a seat that reclines more? A pre-ordered champagne brunch in coach? Insurance against a blizzard that waylays a trip? Access to speedy security lines and early boarding? Soon you might be able to get them all - for a price," Carey writes.
Extra successful
The Age - Clive Dorman
March 19, 2011
Plenty to smile about ... AirAsia chief executive Tony Fernandes (C) with flight attendants.
AirAsia's low-cost model is reaping financial rewards, writes Clive Dorman.
He has become one of the region's most successful entrepreneurs but AirAsia founder Tony Fernandes admits he's "not really an airline person".
Inside the airline industry, which is used to measuring profits in small percentages, Fernandes caused a sensation last month when he showed it was possible for an airline to make money at the rate of the participants in Australia's banking oligopoly.
Most of the time, Malaysia-based AirAsia and its long-haul offshoot, AirAsia X, which flies to Australia, have the cheapest deals in town. They are as little as a few hundred dollars return to south-east Asia, pennies to fly inside Asia and sometimes less than $1000 return to Europe.
The numbers are spectacular: $500 million net profit on $1.83 billion turnover in 2010; in 2009-10 the Qantas group, including Jetstar, made $112 million on $13.8 billion in revenue.
But it is not a magic trick. About two-thirds of the AirAsia profit was "ancillary revenue" - fees for extras on mostly "costless inventory". That's technical jargon for services that cost little or nothing to produce.
In Australia, Tiger Airways suffered backlash over its steep ancillary charges. AirAsia's ancillary charges are lower. "If you look at the bag charge by (Europe's) Ryanair or Tiger Airways (based on the Ryanair model), ours is very, very minimal," Fernandes says.
"But there is a business logic to it. Some of these airlines are just transferring sales from the ticket price to another area. But we're trying to do is give people a choice and make the cost equate to the revenue.
"If you take the bag charge, for instance, there is a cost for loading the bag onto the plane. There is a cost of the plane being heavier, which means more fuel is burnt. So we say if you want that service, you have to pay for it but we're not going to price you ridiculously ... out of the market.
"I'm on Facebook and Twitter and the only one (ancillary charge) that people seem to dislike is the convenience fee for using credit cards.
"Remember, we're adding things like insurance. So we're saying, if you travel, here are all the things that you might spend on - duty-free, hotels, food, insurance, etcetera, and we're saying rather than go and buy it from someone else, buy it all from us."
Fernandes concedes that without ancillary revenue, AirAsia is just another airline - back in the financial ruck with the full-service airline industry that has lost more money than it has ever made.
Unsurprisingly, full-service airlines - especially in the US - are adopting the model in the hope of financial salvation.
Susan Carey wrote in the Wall Street Journal last week about what she called "buy to fly". "Want a seat that reclines more? A pre-ordered champagne brunch in coach? Insurance against a blizzard that waylays a trip? Access to speedy security lines and early boarding? Soon you might be able to get them all - for a price," Carey writes.
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yes but have you seen Air Asia's FA's? You can hardly say 'No' to buying some peanuts or a cold beverage when she ask's
That, unfortunately cannot be said for most of Australia's FA's however there is some exceptions
That, unfortunately cannot be said for most of Australia's FA's however there is some exceptions
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Boffin diatribe
Hi
I dont know if you are still interested,but Qantas depreciation is higher because it owns a greater proportion of its assets.
Whereas Jetstar, as the low cost model, will have a higher lease amount (less ownership)
There is a distortion in the way it looks, (and becomes difficult to compare) in part to do with what the lease arrangements look like and how the payment is stacked & reported. eg. some of the lease could be higher 'operating revenue' and/or - like cars leased, there could be a higher payment at the end - if they dont upgrade to the next model, for example.
If you can be bothered, you could look at the balance sheet - as well as what the 'real assets' are and what they're worth. Eg the planes, average value... and try and tell that way what the relative cost. The number and age of planes is reported somewhere..
Its the same same sort of issue with the govt selling assets - they reduce the ongoing associated cost - but do not have to reveal as accurately what the future higher leasing cost will look like - because they are 'off balance sheet'. It is also impossible to tell what residual liabilities the company/govt is left with - because this is in the leasing agreement which is commercial in confidence.
Also re goodwill - it is very interesting and the accounting rules are getting strickter (it is getting closer to be rquired to reflect the actual premium, in addition to assets sold, if it were sold). The goodwill amount ought to be going down along with the relative decline in reputation of the brand... which has been declining in the way qantas is reporting, such as decrease in the international market - as well as the reported declines in on time arrivals/departures etc.
All the best
I dont know if you are still interested,but Qantas depreciation is higher because it owns a greater proportion of its assets.
Whereas Jetstar, as the low cost model, will have a higher lease amount (less ownership)
There is a distortion in the way it looks, (and becomes difficult to compare) in part to do with what the lease arrangements look like and how the payment is stacked & reported. eg. some of the lease could be higher 'operating revenue' and/or - like cars leased, there could be a higher payment at the end - if they dont upgrade to the next model, for example.
If you can be bothered, you could look at the balance sheet - as well as what the 'real assets' are and what they're worth. Eg the planes, average value... and try and tell that way what the relative cost. The number and age of planes is reported somewhere..
Its the same same sort of issue with the govt selling assets - they reduce the ongoing associated cost - but do not have to reveal as accurately what the future higher leasing cost will look like - because they are 'off balance sheet'. It is also impossible to tell what residual liabilities the company/govt is left with - because this is in the leasing agreement which is commercial in confidence.
Also re goodwill - it is very interesting and the accounting rules are getting strickter (it is getting closer to be rquired to reflect the actual premium, in addition to assets sold, if it were sold). The goodwill amount ought to be going down along with the relative decline in reputation of the brand... which has been declining in the way qantas is reporting, such as decrease in the international market - as well as the reported declines in on time arrivals/departures etc.
All the best
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Thanks for the reply.
What you say WRT leasing is correct. The more equipment leased, the lower the depreciation costs but the higher the operating costs. However this raises more questions than it answers.
1. Under the current setup, Qantas own quite a few A320s, which they lease to Jetstar. What is the advantage in this arrangement? Presumably, if Qantas is following senior management's philosophy of each part of the Group being profitable, the costs which Qantas pays for depreciation, maintenance etc on these aircraft should be less than the leasing payments Jetstar pays Qantas. If this is the case, wouldn't Jetstar reduce their costs by owning the aircraft themselves?
2. Why is the best way of structuring one part of the group with leased aircraft, and another part of the group with owned aircraft?
3. Virgin's fleet is slightly larger than Jetstar's with the majority of aircraft also leased. Virgin's depreciation costs were just under $200m vs $17m for Jetstar. Why such a big discrepancy between two similar businesses?
Anyway, all this speculation could go away tomorrow if Qantas would publish a breakdown of depreciation, property, tax etc between the different segments of the group in their annual report. But they choose not to.
What you say WRT leasing is correct. The more equipment leased, the lower the depreciation costs but the higher the operating costs. However this raises more questions than it answers.
1. Under the current setup, Qantas own quite a few A320s, which they lease to Jetstar. What is the advantage in this arrangement? Presumably, if Qantas is following senior management's philosophy of each part of the Group being profitable, the costs which Qantas pays for depreciation, maintenance etc on these aircraft should be less than the leasing payments Jetstar pays Qantas. If this is the case, wouldn't Jetstar reduce their costs by owning the aircraft themselves?
2. Why is the best way of structuring one part of the group with leased aircraft, and another part of the group with owned aircraft?
3. Virgin's fleet is slightly larger than Jetstar's with the majority of aircraft also leased. Virgin's depreciation costs were just under $200m vs $17m for Jetstar. Why such a big discrepancy between two similar businesses?
Anyway, all this speculation could go away tomorrow if Qantas would publish a breakdown of depreciation, property, tax etc between the different segments of the group in their annual report. But they choose not to.
3. Virgin's fleet is slightly larger than Jetstar's with the majority of aircraft also leased. Virgin's depreciation costs were just under $200m vs $17m for Jetstar. Why such a big discrepancy between two similar businesses?
I would imagine that depreciation is not linear.
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G'day
From the Annual Report :
In any case, if depreciation wasn't linear you would expect the company with the newer fleet to have higher depreciation costs.
Cheers
From the Annual Report :
Depreciation is provided on a straight-line basis on all items of property,
plant and equipment except for freehold land which is not depreciated.
plant and equipment except for freehold land which is not depreciated.
Cheers
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3. Virgin's fleet is slightly larger than Jetstar's with the majority of aircraft also leased. Virgin's depreciation costs were just under $200m vs $17m for Jetstar. Why such a big discrepancy between two similar businesses?