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MERGED: Alan's still not happy......

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MERGED: Alan's still not happy......

Old 19th Sep 2014, 05:49
  #5041 (permalink)  
 
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OPINION: Qantas bounce-back requires proactivity

Qantas’s major A$2.8 *billion ($2.6 billion) net loss for the 2014 fiscal year is the price it has paid for holding to a strategy that, arguably, has been set by its competitors and has failed to achieve its objectives.
In its key domestic market, the airline has been in a capacity battle as Virgin Australia expanded to appeal to the lucrative corporate market, following its long-held mantra of keeping to a “profit-maximising” 65% line in the sand. Qantas chief executive Alan Joyce has now softened his rhetoric around that line, while capacity is being kept flat until the end of the year – much to the relief of shareholders.


The pain Qantas is suffering domestically is a result of its failure to really take seriously the Virgin Australia threat to its mainline business. It decided to negotiate the hazard with Jetstar, but Virgin has bolted up-market as

Qantas now tries to close the stable door.


The bigger problem, however, has been its international business, which has been bleeding from the major capacity added to the market by carriers in Asia and the Middle East. Qantas, which arguably had one of the most powerful and recognised brands in the business, failed to really build that into a competitive advantage.


As it works to lessen its international pain, the airline has been able to gain some more points on its virtual network via the tie-up with Emirates, but it is becoming abundantly clear that the Dubai carrier has been the *bigger winner.


“Is it working for us? Yes,” Emirates *Airline boss Tim Clark told Airline Business last year. “We’ve seen growth in all our segments *year-on-year pre-Qantas/post-Qantas, so it’s actually quite a good story. I hope it works for them.”


The solution for Qantas appears to be to split out into its own holding company that will allow up to 49% foreign investment. But with an uncompetitive cost base and product offering, as well as a shrinking network and niche fleet, not even best friend Emirates wants to buy in.
Qantas – like other legacy network carriers – faces the problem that its international business is too high-cost to compete with foreign carriers. But it now lacks the reach to be relevant to most travellers. The network changes leave it with a fleet too weighted towards big jets: Qantas currently operates two-dozen Airbus A380s and Boeing 747s. Meanwhile, its Airbus A330s have an outdated product and lack the range to truly allow Qantas to open up new city pairs.


Qantas’s record of investments in Jetstar’s Asian franchises is also looking rather pale. Despite 10 years in Asia, the offshoots in Singapore, Vietnam and Japan have underperformed in the face of stiff competition from Tigerair, AirAsia and more latterly VietJet, while the future of the proposed Jetstar Hong Kong operation remains in limbo.


Nevertheless, Joyce maintains that there is “tremendous opportunity” in Asia – just how far away Qantas is from realising that is anyone’s guess. To most, the ongoing investments in those offshoots just appear to be good money going after bad.


To be fair, the A$2 billion cost-cutting programme Joyce is implementing should sharpen Qantas’s competitiveness and help to deliver the projected return to profit during the first half of the next fiscal year. But deeper than that, as with any business in a highly competitive market, Joyce and his team must look at innovative ways to gain a competitive advantage over its rivals and start growing revenue again.


Qantas has been boxed in, and instead of leading the way, its strategy is being set by competitors – both domestically and internationally. Put simply, Qantas needs to become proactive and lead the market, rather than be led by it.
But thinking outside of the box rarely comes from within it. Perhaps efforts to secure an investment partner can help inject fresh ideas into the flying kangaroo.
my bold

?OPINION: Qantas bounce-back requires proactivity - 9/17/2014 - Flight Global


An interesting take on the current situation...
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Old 21st Sep 2014, 06:41
  #5042 (permalink)  
 
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Grrr partnership????

“Is it working for us? Yes,” Emirates Airline boss Tim Clark told Airline Business last year. “We’ve seen growth in all our segments year-on-year pre-Qantas/post-Qantas, so it’s actually quite a good story. I hope it works for them.”
Making a deal with the Devil and the inevitable consequences have filled the pages of the world's literature for centuries...

Has it stopped Emirates doing QF any further harm after the ink dried?

Will it in any way influence Emirates' future strategy in Australian-related markets?

Put simply, Qantas needs to become proactive and lead the market, rather than be led by it.
What can QF do to be pro-active while still doggedly refusing to introduce the B787-9 into mainline, simply to cling to desperate measures to prop up Jetstar International (wrong product in the wrong markets and uncompetitive in the true LCIC markets) while hedging their bets on how far they can run down QF International and dreaming of A350 alternatives down track?

I think Flight Global has it in one:

But thinking outside of the box rarely comes from within it.
As Nobel laureate Joseph Stiglitz said recently, we need more people who actually produce something that creates wealth rather than the disproportionate number of rent seekers who just siphon off wealth from those who produce. Perhaps we should start with the QF Board?
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Old 21st Sep 2014, 21:42
  #5043 (permalink)  
 
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I wonder what currencies the Qantas overseas maintenance contracts are written in and therefore exactly who is wearing the currency risk?

To put that another way, if the Australian dollar hits 80 US cents what is the impact on outsourcing costs?
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Old 21st Sep 2014, 22:28
  #5044 (permalink)  
 
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Originally Posted by Sunfish
who is wearing the currency risk?
The shareholders & employees - they are the hedge, those risks will be spun as "unforeseeable".

I've come to the conclusion that Alan is simply a salesman & gambler - a student of language & persuasive techniques. He has continued to double down the grand mistakes of his predecessor, playing for time & praying for "fortuna" to salvage the situation.

The problem for Alan is he is selling a vanishing illusion & no amount of persuasion or the willing of fortune can restore the what has been destroyed (capital in Asia) or given away (Emirates).
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Old 21st Sep 2014, 23:21
  #5045 (permalink)  
 
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Absolutely true and the hedging of fuel costs is just one example. Does anyone remember not so long ago when QF management sprouted the wisdom of their hedging policy and how they were almost fully protected from any adverse move. Guess what happens as you remove the expertise and take a punt for the sake of short term Exec bonuses as costs are driven down?

As one wise investor once said...when the tide goes out you find out who is swimming naked.
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Old 22nd Sep 2014, 06:05
  #5046 (permalink)  
 
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Quote:
Put simply, Qantas needs to become proactive and lead the market, rather than be led by it.
What can QF do to be pro-active while still doggedly refusing to introduce the B787-9 into mainline, simply to cling to desperate measures to prop up Jetstar International (wrong product in the wrong markets and uncompetitive in the true LCIC markets) while hedging their bets on how far they can run down QF International and dreaming of A350 alternatives down track?

I think Flight Global has it in one:

Quote:
But thinking outside of the box rarely comes from within it.
The CEO of Air New Zealand credits their current success to four main factors:

1. Fleet Choice: He refers to the wisdom of the then CEO and Board for the right fleet choice a decade ago.
ANZ: 1, QF: 0.

2. Innovation. Air New Zealand are held up as one of the most innovative airlines in the world. QF once were, being the first to introduce business class for instance. But no longer: QF were dragged kicking and screaming to the Premium Economy space only after it was blatantly obvious that it was the way to. Ditto for seatback IFE in economy. Just a two examples of many.
The Air New Zealand CEO also credits the success of their innovation to their small but diverse and highly motivated innovation team of engineers, cabin crew, interior designers, accountants etc.
ANZ: 1, QF: 0

3. Staff engagement: over the last decade the leadership of Air New Zealand brought their staff with them, convincing them of the need to change. They inspired their staff, led by example and engendered trust. The staff responded accordingly, and helped the company to get where it is today. QF have gone to war with their staff, shut down the airline, repeatedly breached trust, and failed to communicate in anything other than an ideologically motivated monologue from a loud-hailer rammed down the throats of staff sideways. The staff responded accordingly, and depending on your viewpoint helped the company to get where it is today, ie if you're a manager it's all the staffs fault but if you're staff we are where we are DESPITE management failures.
ANZ: 1, QF: 0.

4. Mindset: Air New Zealand do not consider themselves an "end of the line carrier", instead describing themselves as perfectly positioned on the edge of the Pacific Rim. They have found a niche and exploited it. They have worked in unison with the NZ tourism bureau to promote NZ as a destination, they have built the brand, they have kept and promoted the loyalty of the NZ population and they have reaped the rewards. QF have called themselves "legacy carrier", "end of the line carrier", they've cut out Tourism Australia in a spat with Dixon, and they've hung their hopes on low-yield Bogan-Air Asia. Rather than build on the brand strengths of mainline they've trash-talked it and irrevocably damaged the reputation of the worlds longest continuously flying airline with a shutdown. Now we're all reaping the whirlwind. And now Qantas means far less to far too many Australians.
ANZ: 1, QF: 0
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Old 22nd Sep 2014, 09:46
  #5047 (permalink)  
 
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More lies exposed.

We knew it would happen ? more QANTAS Telephone Sales jobs going offshore
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Old 22nd Sep 2014, 10:19
  #5048 (permalink)  
 
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Obvious

Its finally obvious to everyone - The Low Cost Model hasnt worked!
Time to sell Jetstar and watch it implode!
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Old 22nd Sep 2014, 12:30
  #5049 (permalink)  
 
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"End of Line Carrier"

#4 - Mindset; remember Qantas used to operate QF 25/26 AKL-LAX-JFK-LAX-AKL ?
To cope with demand, AirNZ have now had to put on a 3RD (yes,turd) 777 out of AKL EACH NIGHT !!
Role on.....
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Old 22nd Sep 2014, 14:08
  #5050 (permalink)  
 
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Hey Goddamnslacker,

You gotta ask yourself:

As per Nick X's article a few months ago....in 2008, Qantas was some 140 aircraft , Jetstar 30ish ..

Now it's 100 Jetstar, 115 Qantas.

Jetstar has around what, a 40% lower cost base.

So, why , why have they driven Qantas down to this point , only to regrow the airline in its current condition.
Seems pointless .

Any expansion of Qantas will be via a lower cost base.

JQ International has experienced 787 drivers, it get morphed into a Qantas company (Qlink , Jetconnect etc) and Qantas expands. Passengers, none the wiser.

Domestic, they 're making money .

Vietnam, Japan, HK, not so good. Sell their stake, make some money , JQ still not closed down.
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Old 22nd Sep 2014, 21:14
  #5051 (permalink)  
 
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A few half truths, assumptions and disinformation there:


Originally Posted by Ultergra
Jetstar has around what, a 40% lower cost base.
On basis do you make this statement? Are you comparing apples with apples? Are the customers getting comparable levels of service at that lower cost base? It is easy to lower your cost base by providing inferior levels of service through understaffing, making customers wait in long queues, packaged vs fresh food etc. Then there is the issue of the relative fuel burns of equipment.

Originally Posted by Ultergra
Q International has experienced 787 drivers, it get morphed into a Qantas company (Qlink , Jetconnect etc) and Qantas expands. Passengers, none the wiser.

Any expansion of Qantas will be via a lower cost base.
That may be the logic, however, it neglects competitor behaviour. Are EK / SQ / CX / NZ are going to going to roll over and allow QF back on to the routes they have abandoned or reduced presence? Not likely, they will put the boot on the throat of any return. The brand has been trashed, customers have been conditioned to go elsewhere & join their frequent flyer programs. As a result a significant number will not be returning, especially with low cost base service standards.

Vietnam, SINGAPORE, Japan, HK, not so good. Sell their stake, make some money.
They would sell if they could, they know very well they can't get their investment back.
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Old 22nd Sep 2014, 22:14
  #5052 (permalink)  
 
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40% lower cost base! I call bullshit!

Given that approximately 50% of your costs should be exactly the same as the parent company (fuel, navigation charges, landing fees, lease costs) that means on the other 50% you believe Jetstar are 80% cheaper.

Again, BULLSHIT!!

Then again, being so much cheaper and still not able to turn a profit displays true genius and rare talent.

I believe they will never sell any jetstar arm through a prospectus because they would struggle to legally put one together.
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Old 22nd Sep 2014, 22:15
  #5053 (permalink)  
 
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Jetstar cost base advantage myth

Let us all take a step back from the rhetoric and disinformation and look at airline costs in general:

1.Approximately 1/3 of the cost is fuel. Fuel prices are fixed by outside forces, obviously, and can only be modified by hedging activities (which are a zero-sum game and eventually average out to a zero advantage, at best). Qantas hedges its fuel on a group basis.

2. The next third goes to equipment leases, navigation and landing fees, terminal fees, insurance, catering supplies, maintenance and repair costs etc.

Of these, perhaps only catering is relevant to the Jetstar model since it does not use second tier cheaper airports as do the European and some American carriers.

3. The next third is wages. Since Jetstar staff do earn around what? 15% less? That equates to a net 5% savings. That's it. Take whatever pride in that what you will: it comes at your cost.

Jetstar gets its very expensive management costs paid for by the parent, and its insurance and regulatory burden. But mere accounting trickery cannot exist without that robust patent. If Qantas shrinks to just Jetstar you guys can pay Joyce's ridiculous salary on your own.

Back to the catering savings: Lack of expensive catering is why there is also generally a lack of expensive fares: and we all know that a low cost base is useless without a revenue base.
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Old 22nd Sep 2014, 23:42
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2. The next third goes to equipment leases, navigation and landing fees, terminal fees, insurance, catering supplies, maintenance and repair costs etc.
What were we doing for a decade to track the engineering expenses? I have seen with my own eyes that customer recharge forms filled out for work carried out on Jetstar A/C have been binned. I have heard that the practice was widespread. I have heard this from engineers and accountants. When I raised the issue I was told by someone involved in writing the contracts that a certain level of maintenance was included in the contract, so recharge forms did not need completion, and when they were completed by some conscientious engineer ignorant of the finer details of the contract, they were binned. I asked the question why over the last several years haven't we been told what to bill for and what not to bill for, and that time was money and our time is being wasted needlessly completing recharge forms, I was given the blank look that said "OH F#@K." So what was being done to track maintenance carried out vs maintenance included in the contract? We all know the answer to that. Accountants, contract lawyers etc would not know a B-nut from a peanut. What education was provided to engineers and our lower and middle management on the contract inclusions and exclusions? The answer: none. What training was provided to accountants and contract lawyers etc on the finer points of engineering? My guess is none. So not only were Qantas Engineering's expenses higher than Jetstar's, but either our productivity was further eroded by filling out forms we supposedly did not need to fill out and ended up being trashed by the accountants, or Qantas Engineering's contract profitability was not being maximised by a truer reflection of the maintenance carried out on Jetstar A/C, thus increasing the apparent profitability of Jetstar.

Only in the last year or so have we in Engineering seen posters plastered all over the walls saying in effect "When working on Jetstar A/C book everything to expense code Jxxxxxx". And now we regularly see customer recharge forms being completed. And now we hear that Jetstar's cost base has risen and is "higher than it should be". Perhaps, at least from an Engineering perspective, it's because the true cost of actually running an airline is starting to be sheeted home?
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Old 23rd Sep 2014, 00:39
  #5055 (permalink)  
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Good post Australopithecus, however I can say with confidence the pay difference is closer to (& exactly in some cases) 30%. I know it's still not a huge difference, but there other "efficiencies" gained on the leaner "award".
 
Old 23rd Sep 2014, 02:31
  #5056 (permalink)  
 
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A 30% wage delta is huge. On a like for like basis, in some categories, it may be the case. If so, it is illustrative of excess costs that do exist in some QF job categories.

I am told that the JQ engineers and ramp staff are on broadly similar pay as the QF people, albeit with efficiencies written into their agreements. Certainly cabin crew pay scales are different. And pilots too, to be sure. As time goes on though, all revolutions morph into what they once revolutionised. Costs generally approach the mean: long service leave, sick time, retraining all erode a once significant advantage.

That said though, I will again observe that even if everyone in a LCC carrier worked for free, it would equate to a total cost savings of around 30%. But what fraction of a legacy fare can you charge to entice the punter onboard a second time? Revenue is the silent, unfashionable part of the profit equation that you never hear emphasised. Yet no one has ever heard of a Low Revenue Carrier. Or at least not for very long...
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Old 23rd Sep 2014, 03:18
  #5057 (permalink)  
 
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Question

Most LCCs limit themselves to just one aircraft type. At the moment, JQ have three: A320/321, A330 and B787. How can that be efficient and contribute to a profitabe outfit? What's more, most don't operate longhaul and try to cheaply mimic full-service carriers.
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Old 23rd Sep 2014, 05:10
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The A320/321 and the A330 are effectively one aircraft type, most other airlines in the world would run it as a single mixed fleet. CASA in its wisdom though don't allow this, imagine the cost savings of a mixed fleet. As for the 787, I suspect there is 'other' reasons for giving this to Jetstar which will become apparent in the near future.
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Old 23rd Sep 2014, 05:53
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Whilst i dont beleive Jetstar costs are 30% lower than QF, any cost savings Jetstar have over Qantas,isnt just in wages alone, i hear their pilots and Flight attendants award is far simpler than the Qantas awards, and is it true they fly to a roster, not a bidding system?
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Old 23rd Sep 2014, 07:05
  #5060 (permalink)  
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Yes roster with limited bidding. But I can promise you I've witnessed a 30% difference between two captains final salaries (in order to compare apples with apples, a Jetstar A320 captain & a Qantas B737 captain). Having said this, my Qantas friend has highlighted that his hours have fallen back towards their very low min guarantee (53? hours per 28 days?), whereas the Jetstar guy is flying 75 hours a month.
 

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