QF's Dilemma and the Reasons Why.
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TVasis, what planet do you live on? Sorry, management planet obviously.
Why did JQ not send their pilots being trained overseas a couple of years back to let the QF guys use their own sydney based simulator? While the QF sim was chock full of JQ training, QF pilots were sent for months on end to France, HK and a few other exotic destinations, on full QF allowances. Now aren't QF allowances supposed to be so much more expensive than JQ??? What idiot thought that was a good way to work it? Surely it saved money.
Or is there an agenda there?
Why did JQ not send their pilots being trained overseas a couple of years back to let the QF guys use their own sydney based simulator? While the QF sim was chock full of JQ training, QF pilots were sent for months on end to France, HK and a few other exotic destinations, on full QF allowances. Now aren't QF allowances supposed to be so much more expensive than JQ??? What idiot thought that was a good way to work it? Surely it saved money.
Or is there an agenda there?
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Look, it's quite simple.
Qantas own the sims, and they should be allocating their usage to maximise profits for mainline.
For this to be true, they must have received more from Jetstar for the sims than it cost Qantas for the sims in HKG and accommadation and allowances.
Which also begs the question, if it was cheaper to send people to HKG, why wouldn't Jetstar have done this instead?
I'm sure there's an excellent reason for this, which T-Vasis will have for us shortly.
Qantas own the sims, and they should be allocating their usage to maximise profits for mainline.
For this to be true, they must have received more from Jetstar for the sims than it cost Qantas for the sims in HKG and accommadation and allowances.
Which also begs the question, if it was cheaper to send people to HKG, why wouldn't Jetstar have done this instead?
I'm sure there's an excellent reason for this, which T-Vasis will have for us shortly.
Tvasis:
I'm afraid T Vasis is being "economical with the truth" here...
Yes, I'm sure Jetstar runs its own P & L as do other parts of the Qantas operation.
However that is irrelevant because each individual P & L can be made to show anything you like via cross subsidies.
It has been credibly reported in multiple threads on Pprune that such cross subsidies in favour of Jetstar are massive and ongoing.
Therefore the "independent businesses" line is highly misleading.
As for corporate governance standards at Qantas, one would hope they have improved since the APA debacle, although there does not appear to be any evidence that this is the case, for example another thread regarding Jetstar reports that Alan Joyce allegedly reneged on a promise made in 2008 regarding piloting of B787 aircraft by the then Jetstar pilot workforce.
I do like T Vasis appeal to authority - "the mighty Price Waterhouse Coopers have audited the QF accounts and pronounced them true and correct."
...However the auditors, by definition, are looking at the statutory accounts, not the management accounts. The statutory accounts are not required to provide any detail on cost allocation practices, nor are the auditors required to examine the Qantas internal pricing (cross subsidy) structures., they are merely required to ensure that all expenses and revenues are included somewhere.
..And I speak as someone who has not only worked for a major accounting firm, dealt with Ansett's accountants, who while hard working an intelligent had not the slightest hope of understanding the complexity of operations, and myself been subjected to the attentions of auditors as CEO of a business.
The comments around Qantas subsidising Jetstar I struggle to believe, unless someone has solid evidence to prove it... Jetstar runs its own P + L and yes, initially would have been provided with some working capital to start-up and all returns go back to Qantas, so I am not sure how Qantas subsidises it. All Qantas Group companies operate as independent business and are responsible for their own P + L...
Qantas is audited and has rigid corporate governence. I am not sure how they'd get away with "creative accounting" by the auditors which I think are PWC.
Qantas is audited and has rigid corporate governence. I am not sure how they'd get away with "creative accounting" by the auditors which I think are PWC.
I'm afraid T Vasis is being "economical with the truth" here...
Yes, I'm sure Jetstar runs its own P & L as do other parts of the Qantas operation.
However that is irrelevant because each individual P & L can be made to show anything you like via cross subsidies.
It has been credibly reported in multiple threads on Pprune that such cross subsidies in favour of Jetstar are massive and ongoing.
Therefore the "independent businesses" line is highly misleading.
As for corporate governance standards at Qantas, one would hope they have improved since the APA debacle, although there does not appear to be any evidence that this is the case, for example another thread regarding Jetstar reports that Alan Joyce allegedly reneged on a promise made in 2008 regarding piloting of B787 aircraft by the then Jetstar pilot workforce.
I do like T Vasis appeal to authority - "the mighty Price Waterhouse Coopers have audited the QF accounts and pronounced them true and correct."
...However the auditors, by definition, are looking at the statutory accounts, not the management accounts. The statutory accounts are not required to provide any detail on cost allocation practices, nor are the auditors required to examine the Qantas internal pricing (cross subsidy) structures., they are merely required to ensure that all expenses and revenues are included somewhere.
..And I speak as someone who has not only worked for a major accounting firm, dealt with Ansett's accountants, who while hard working an intelligent had not the slightest hope of understanding the complexity of operations, and myself been subjected to the attentions of auditors as CEO of a business.
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T-Vasis, I wouldn't put much weight on auditing for ensuring the accuracy of transactions between Qantas and Jetstar. I worked as an auditor for a spell and internal transactions are way down the priority list, there is very little risk to the auditor from internal transactions being mis-stated.
However, I agree the argument that JQ is being subsidised as part of some plot to undermine QF is rather unpersuasive. The more prosaic explanation is more likely that parts of QF are uncompetitive and management are justifiably unwilling to continue to pour more cash into parts of the business that can't make a return on capital.
However, I agree the argument that JQ is being subsidised as part of some plot to undermine QF is rather unpersuasive. The more prosaic explanation is more likely that parts of QF are uncompetitive and management are justifiably unwilling to continue to pour more cash into parts of the business that can't make a return on capital.
Sunfish is 100% correct. I'm a pilot who has done a foolish thing and studied accounting at uni 20 years ago. So I have enough knowledge on that subject to be dangerous.....
In lay terms, all a listed company has to do is report its OVERALL financial position to the world. There is no requirement to report accurately on individual subsidiaries' performance. Just as long as the overall GROUP performance is accurately reported.
Crux is: a parent company can attribute internal costs to its child as it sees fit. So you can have a situation where excessive costs are attributed to, say, Australian Airlines in Cairns, to make them look unprofitable. Eg. charge them a lot for simulator training. Charge them 100% for maintenance. And so on and so on. "They are unprofitable, so we will shut them down, replace them with.... tadah.... Jetstar!"
Then, of course, parent now absorbs the cost of the child. Parent wears the cost of maintenance for Jetstar. Parent discounts the cost of training. Etc etc. So even if your revenue is low, by artificially lowering your costs you can retain the illusion of being profitable.
We all know Jetstar on its own could not be profitable. But from a group accounting/reporting point of view that doesnt matter because it is only the Group's performance as a whole that is reportable to the ASX
In lay terms, all a listed company has to do is report its OVERALL financial position to the world. There is no requirement to report accurately on individual subsidiaries' performance. Just as long as the overall GROUP performance is accurately reported.
Crux is: a parent company can attribute internal costs to its child as it sees fit. So you can have a situation where excessive costs are attributed to, say, Australian Airlines in Cairns, to make them look unprofitable. Eg. charge them a lot for simulator training. Charge them 100% for maintenance. And so on and so on. "They are unprofitable, so we will shut them down, replace them with.... tadah.... Jetstar!"
Then, of course, parent now absorbs the cost of the child. Parent wears the cost of maintenance for Jetstar. Parent discounts the cost of training. Etc etc. So even if your revenue is low, by artificially lowering your costs you can retain the illusion of being profitable.
We all know Jetstar on its own could not be profitable. But from a group accounting/reporting point of view that doesnt matter because it is only the Group's performance as a whole that is reportable to the ASX
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Enough return on capital may require loss of life.
Return on capital = less buffer in your safety margin
Less buffer in your safety margin = Lower standards
Lower standards = Airline accidents more frequently
More Airline accidents = more death
What does life = ?????
Airlines have worked out its cheaper to have an accident every now and then, instead of attempting to have none.
About time the government got in there to bring the low cost model up to scratch. Even if it results in the airline industry being less competitive. Maybe customers should be forced to pay a premium for there own safety.
Return on capital = less buffer in your safety margin
Less buffer in your safety margin = Lower standards
Lower standards = Airline accidents more frequently
More Airline accidents = more death
What does life = ?????
Airlines have worked out its cheaper to have an accident every now and then, instead of attempting to have none.
About time the government got in there to bring the low cost model up to scratch. Even if it results in the airline industry being less competitive. Maybe customers should be forced to pay a premium for there own safety.
