Feb 21 - Qantas due to release its first-half results today has been caught off guard

[Twin Beech]

Metrics...

I agree, MooseKnuckle. It appears to my jaundiced eye that load factors might just be Joyce's key performance marker. Why else the emphasis? And why, come to think of it, have all of our anecdotal load factors been very high, yet loss making?

I wonder if yield management has been tasked to fill seats at any fare to get to a certain trigger load factor, hence the poor returns?

Ah well, when we are reduced to a sole SYD-LAX service I imagine our load factors will be pretty high. If they could use the jumpseats they could achieve 100.5 %! Double bonuses for every CEO in the fleet!

There is a Dilbert cartoon showing a character getting his KPI targets. The caption goes: "great! This is written permission to ignore the rest of my job!"

[TIMA9X]

Update - ABC The Business 21-02-2013

Qantas continues to do it tough, partly through its own fault, and partly through the grindingly tough factors of fuel costs, changing consumer expectations, and too many wickedly smart competitors, that are the lot of most airlines throughout the world today

One of the shocking sets of numbers in this morning’s Qantas half year to 31 December profit result of a statutory profit of $111 million after tax is that it booked $125 million in liquidated damages from Boeing for cancelled 787 Dreamliners in the same period.

Crippled Dreamliner 787 program keeps Qantas in black | Plane Talking

Upgrades to A330 fleet promised as Qantas flies higher

Read more: Upgrades to A330 fleet promised as Qantas flies higher

AFTER taking a hit to its core domestic earnings in the first half, Qantas has promised to step up its battle with Virgin Australia by upgrading its fleet of large A330s and ordering new planes.
Although the capacity glut in the domestic market has eased recently, the plans to upgrade Qantas' fleet of A330s used on Australia's key transcontinental route threatens to spark a strong response from Virgin.

Qantas Profit Rises on Boeing Cash and Long-Haul Revival - Bloomberg

Qantas reduced losses at its international unit by 65 percent after dropping unprofitable routes and retiring older planes amid a battle with Middle East and Asian carriers on long-haul services. An alliance with Emirates on overseas flights, due to begin April 1, will be a “killer combination,” Chief Executive Officer Alan Joyce said in an interview with Bloomberg Television.

[ejectx3]

"Thanks to engaging our people"...

Cloud...,, cuckoo ...... Land

[33 Disengage]

International - Up, Jetstar - Down

You have to feel sorry for the little bloke. With the pesky unions, the deported Senator and that planetalking bloke continually banging on about cost transfer between QF international and Jetstar, it's been hard to get the financials where he would prefer them this half.

[One Eye Redundant]

An alliance with Emirates on overseas flights, due to begin April 1, will be a “killer combination,” Chief Executive Officer Alan Joyce said in an interview with Bloomberg Television.

I can only see it as being the "killer" of Qantas.

[Jabawocky]

The secret is not all that secret really.

Don't piss off your loyal customers.

Don't pass off your loyal staff.

Don't piss off your loyal retired staff willing to travel.

All these folk prefer flying with someone else now.

If I see it, as a business traveller, and I see high yield first class customers feeling the same way, surely there are large numbers of revenue dollars leaking uncontrollably.

The only way we go back is when there is no better option.

The board can complain about anything else all day. But to make a change they need to focus on doing the things that make customers loyal, and don't mind paying. Qantas has taught it's customers to object to paying for a quality product and subsequently not having one to offer.

[fishers.ghost]

Paddy O'Khluless

• BREAKING NEWS: Shamrock Global Leprechaun Airways (SGLA) today presented its half yearly results including a record profit of EUR 444 million. The airline group’s CEO, Paddy-Rónán O’Khluless was ecstatic about the profit. In a statement with the assistance of a Gaelic interpreter, Mr O’Khluess attributed the fantastic results to “the organic transformation of the airline and moving forward in a volatile ever changing high fuel price sector including the blessing of our beloved High Priestess Siobana’lah’E from the Dublin Loopontology Grand Church and our Universal Brand Promotion Commodores, our airline has achieved wonderful successes. We well and truly have reached the Parabolic Inflexion Mid-Way Congruent Parallel Point in our turnaround strategy to become profitable for our international operations”. Just a few weeks back, SGLA’s Executive Team and CEO painted a rather bleak and dire outlook and had profit warnings issued, so this sudden profit announcement has surprised some. The airline also announced savings were achieved by closing down all of its engineering facilities (EUR 97 million), cancelling most of its remaining international services (EUR 71 million), compensation from an aircraft manufacturer for delayed aircraft deliveries (EUR 100 million) and laying off 7000 staff (EUR 176 million). This all adds up to EUR 444 million same as the profit level. The CEO also announced his enthusiasm for SGLA’s new partnership with Tah-Bully Global Domination Universal Airways based in the new global world hub in Kabul with a focus city in Baghdad. SGLA will soon operate its last two remaining services to the new hub in favour of a comprehensive code-share agreement with Tah-Bully thus becoming just a virtual airline. Share prices for SGLA currently sit at EUR 0.09 at close of trade.
  
  
  
  
  
• Not mine but from an Aviation commentator
  
  
  
  
  

[Stalins ugly Brother]

There is a Dilbert cartoon showing a character getting his KPI targets. The caption goes: "great! This is written permission to ignore the rest of my job!"

65% market share. That's what Alan's KPI is based on, not profitability.

[MooseKnuckle]

Qantas moved 34.5% of international pax in 2002, 28.3% in 2007 and 18.1% in 2012. (BITRE stats)

JQ moved 3.1% of international pax in 2007, and 8.1% in 2012. (BITRE stats)

From that, qantas international is dying quickly, even if you factor in JQ's international flying in/out of Australia.

The ensuing 5 years will be turbulent for QF no matter what angle you look at it from. The clear losers, apart from shareholders (majority being our banks/super funds), will be staff.

Historically speaking, it'll be engineering and catering who will be hit.

I think engineering will continue to be 'consolidated' right up to the expiry date of the five year transformation plan. So if you're an engineer, you're the biggest loser and are walking targets.

Other dept's will decrease in size from normal attrition and mitigation measures in place.

Will QF mainline fly internationally for the next 50 years? Yes, only to close-in hubs with partners or subsidiaries flying customers the rest of the way (and no doubt laughing all the way to the bank afterward - time will tell). Our domestic business remains super robust! Thank you resources industry and FF program.

[Romulus]

Market share, whilst generally one of my least preferred metrics, is important in the airline business (and any other capital intensive business) because the fixed costs are very high compared to the variable costs.

Even allowing for fuel as a key variable cost (i.e. if you don't fly you don't pay for terribly much fuel - although there will be some for maintenance and other activities so it's not quite zero) the fixed costs associated with aircraft leasing and general organisational structure (salaries must be paid regardless of whether you fly or not etc, there may be some overtime savings by ceasing certain ops) far outweigh the variable ones. Thus market share becomes important as you have the greatest share to spread those essentially fixed costs across.

Of course, it isn't the ONLY metric but it is a key one as at 65% level there is a marked change in profitability. Over 65% and the improvement is gradual, but drop below 65% and your profitability drops very quickly as you spread those costs across a lower market share base.

[Livs Hairdresser]

Hi Romulus,
I could be wrong but I thought that the 65% related to maximising revenue not profitability. So to use an extreme example, QF could double it's capacity, maintain 65% market share but now with 40% load factors and lose money hand over fist. Which it appears is exactly what they've done.

[Romulus]

Originally Posted by liv

Hi Romulus,
I could be wrong but I thought that the 65% related to maximising revenue not profitability. So to use an extreme example, QF could double it's capacity, maintain 65% market share but now with 40% load factors and lose money hand over fist. Which it appears is exactly what they've done.

Yes, that's kind of the point. In a capital intensive business revenue is directly linked to profit more than in a variable based business.

You are also correct with your example. Sometimes you have to be prepared to take that kind of action to protect your position as a direct threat to your competitors. Using "Game Theory" as the dominant market player you run your business in the manner you so desire but if a junior player starts getting "uppity" you put them in their place by showing them clearly where you draw the line. The junior then has a choice - do they have the pockets to fight you or do they want to"be sensible" and accept the 35% or whatever market share as the basis for their business model and maximise their profit at that point.

If the junior believes the dominant player is weak or unable to maintain the fight for some reason (capital constraint, cash flow issues, whatever) then they will logically attack and seek to become the dominant player. If the junior believes the dominant is willing to run a major fight they will analyse how to maximise profit at the position they see the dominant player "tolerating".

So Qantas sacrifices a cool $100M or so now in order to preserve their dominant market position well into the future, and that is worth plenty more than $100M.

Virgin have made some interesting moves aligning multiple players to confront Qantas, the decision they are undoubtedly wrestling with now is how hard do they push the boundaries, i.e. how much money do THEY burn before they admit Qantas has deeper pockets etc and tactfully withdraw from that battle and focus on making the best profit they can with their lower cost base.

That is why incumbents, with their higher cost base, have not been overrun by LCCs utilising their lower cost bases to move up into premium service. VB may be doing so, but they simply don't have the pockets to fight QF to the extent they need to in order to usurp the dominant position. Hence a lot of JB's signalling to the market that he is focussing on yield, profitability, premium customers etc. He is (in my opinion) gaming the industry himself and signalling that he is looking to OPTIMISE his profit by taking that 35% position and owning it with his better cost base.

The level of maturity required to optimise profit rather than maximise it is significant. Human beings are conditioned to maximise, the bigger the number the better, obviously, surely that goes without saying. But it doesn't. If you can take a position that optimises your profit then you have a world class business. You are protected far better than a maximised business, you are less susceptible to shocks like 9/11 or SARS etc.

[ALAEA Fed Sec]

. Qantas moved 34.5% of international pax in 2002, 28.3% in 2007 and 18.1% in 2012. (BITRE stats)

JQ moved 3.1% of international pax in 2007, and 8.1% in 2012. (BITRE stats)

From that, qantas international is dying quickly, even if you factor in JQ's international flying in/out of Australia.

Don't get sucked in by the Qantas propaganda. Traffic numbers have increased steadily over the past 10 years. Market share may be different but I would suggest that the Qantas group passenger numbers today is higher than 10 years ago. Qantas may not be dying quickly, they may be growing slowly.

[Twin Beech]

Market share

The old saw about market share is the famous B School case study of the last buggy whip manufacturer ending up with 100% of the market. But that's not aviation:a growing and steadily more affluent population means a larger number of travellers. A market share that is shrinking slower than the total market is expanding is still a growth story, despite Cassandra's* wailings to the contrary.

Cassandra, in this case,= Joyce.

In one late night paragraph I am alluding to B school, classical studies and algebra 101. Kindly pardon my enduring desire to be one of those smartest ****ers in the room.

[600ft-lb]

Qantas director quits amid Italian probe

Qantas non-executive director Corinne Namblard has resigned from the airline's board after being caught up in an investigation into a corruption scandal in Italy.

Ms Namblard denies any wrongdoing in relation to the investigation into the privatisation of Siena airport, but was stepping down in the best interests of Qantas and herself while it continued, the airline said thus morning.

Qantas chairman Leigh Clifford said Ms Namblard resigned "in the best interests of both Qantas and herself".

"Ms Namblard was especially concerned to ensure that the continuing media focus on the current Italian proceedings did not distract Qantas from implementing its strategic imperatives nor detract from the achievements that Qantas has had in meeting the challenges to its business. The Qantas board appreciates those sentiments," Mr Clifford said in a statement to the ASX this morning.

Qantas director caught-up in Italian corruption case | News | Business Spectator

Qantas had reportedly been unaware of the investigation. But Ms Namblard said the headhunter who recruited her to become a Qantas director had been aware of it, the AFR added.

Something here seems odd.

[ampclamp]

The presumption of innocence must be upheld.
She has done the right thing.
Regardless of whether she has anything to answer for, any news relating to the case would have commenced... "Qantas director Ms Namblard..."That is no longer the case and effectively defuses anything that may arise.
It loses much of its newsworthiness now she is no longer on the board of a major company and the problem is now her's alone.

[Romulus]

Originally Posted by TB

The old saw about market share is the famous B School case study of the last buggy whip manufacturer ending up with 100% of the market. But that's not aviation:a growing and steadily more affluent population means a larger number of travellers. A market share that is shrinking slower than the total market is expanding is still a growth story, despite Cassandra's* wailings to the contrary.

in the short term yes. In the longer term as your competition senses that you can't defend yourself and your position then they get more ferocious about going after you. Absolute numbers are growing, and if Qantas don't capture them to the same percentage then the opposition will and that will embolden them to go even harder.

[AEROMEDIC]

Something here seems odd.

Well, yes, if the Qantas board stated, they didn't know about it, it is certainly odd.
The director concerned had a duty to report the the board "post haste" and perhaps it qualifies for ASX reporting as well.

"Never say what you can't defend and say what you like if you can get away with it" Anon

[TIMA9X]

Originally Posted by Romulus "in the short term yes. In the longer term as your competition senses that you can't defend yourself and your position then they get more ferocious about going after you. Absolute numbers are growing, and if Qantas don't capture them to the same percentage then the opposition will and that will embolden them to go even harder."

Well said! SIA (amongst others) will be working overtime to gain market share, not sure Qantas is in any position to fight back fleet wise in the short term.






Lessons from the past says it is easier to dismantle but much harder to rebuild, I think the Q CEO has dug a huge hole for himself, (a mining industry sized hole.)



Qantas cost figures remain under question | Plane Talking

A quizzical look at some of the figures in the Qantas first half financials

The view that Qantas has massaged the financial performance of its loss making full service international operations to suit an ideological agenda to marginalise if not exit a large part of them while favouring Jetstar by making it carry some of its costs have been around for a long time.

They have also been denied for a long time by management.

However the implication of a review of its first half FY13 results, which were released last Thursday, is that some of the costings are possibly wrong, and being ‘managed’ to a schedule by which a much reduced international division could be deemed to have become viable by 2015, by which time there won’t be nearly as much of it left as there is today.
By 2015 Qantas might only be flying from Sydney and Melbourne to Dubai, where its passengers will transfer to Emirates flights for onward connections, while in the rest of Australia, under the Qantas-Emirates partnership, Qantas will expect whatever customers it still has over this cities to fly all the way on Emirates, not to mention those who already do so from Sydney or Melbourne anyhow

and

The other key international operations will be to Singapore and Hong Kong, for mid-trip connections to the Jetstar franchise connections deeper into Asia, and to Los Angeles and Dallas Fort Worth, and to Santiago and Johannesburg.
Qantas has actively encouraged most of these predictions already, with group CEO Alan Joyce last Thursday talking up the Qantas/Jetstar connections in Asia, which begged the unasked question as to why Qantas customers would bother when the real choice would be going all the way on Jetstar, or going all the way on Singapore Airlines or Cathay Pacific flights with a vast number of full service onward connections on SilkAir or the soon to be rebranded Cathay Dragon.
This is what the ‘ginger group’ notes on the first half FY13 figures says, in part:
1. How did Qantas International achieve a 9.1% ($254M) reduction in operating costs (including fuel) in 6 months compared to 1H12, noting that Qantas Group operating costs increased by 2.9%? With regard to fuel costs, the 1H13 results state that the fuel cost was $2181M in both 1H13 and 1H12 indicating that fuel costs have been unchanged. The reduction in operating costs must therefore have come about in other expense categories. Given there has been no significant change in Qantas International’s workforce, the reduction cannot be attributed to a large drop in employment.
2. How can one part of the business incur substantial cost increases and yet another part of the business incur a very sizeable cost reduction? Qantas Domestic costs increased by 6.4% including fuel (which is a non-issue) but Qantas International’s costs decreased by 9.1%. Both these businesses employ very similar types of resources (engineering, maintenance, labour) and use similar inputs. Aircraft operating lease rentals and depreciation are not included in these costfigures so there is possible explanation there.
3. Qantas International Segment Revenue and Other income decreased by 3.5%. With a reduction in revenue, there is less scope to improve the underlying EBIT. To achieve a smaller loss in the context of declining revenue requires an even greater reduction in operating costs. And this is exactly what has happened if one is to believe the 1H13 results. If one was trying to engineer a turn-around in Qantas International, one would need to “produce” a very large cost reduction in the face of declining revenue.
4. Perhaps a reduction in Qantas International capacity is the answer? According to the 1H13 results, Qantas International reduced capacity by 7%. However this capacity reduction cannot translate into anywhere near a 7% reduction in operating costs as many of Qantas costs are fixed costs that cannot be varied in the short run (eg labour).
Whilst some of the cost reduction can be attributable to reduced capacity such as reduced fuel costs, perhaps it is in the order of 3-4%, nowhere near the 9% cost reduction purported in the 1H13 results.
In summary, the 9.1% reduction in Qantas International’s operating costs seems incredulous in light of (i) an increase in Qantas Group costs and a sizable increase in Qantas Domestic Costs (ii) relatively constant fuel prices and a strong Australian dollar (reducing the AUD cost of fuel) and (iii) declining revenue.
What is interesting is that none of the commentary I’ve seen has focused on Qantas International’s “amazing” cost reduction achievement. Nor did Alan Joyce point to it at all. If the cost reduction were the real thing, they would be singing out loud and clear about it.

[600ft-lb]

Well, yes, if the Qantas board stated, they didn't know about it, it is certainly odd.
The director concerned had a duty to report the the board "post haste" and perhaps it qualifies for ASX reporting as well.

I understand presumption of innocence etc and I know it is a trial by media.

She obviously doesn't want attention brought to the Qantas brand which is very admirable given the presumption.

She obviously decided to resign in the best interests of the brand because, it wasn't unknown to her that she was under an investigation, going off the previous newspaper articles - it was only a problem once the story was broken by a newspaper.