MERGED: Alan's still not happy......
QANTAS' finance chief has taken a swipe at the airline's "armchair expert" critics and defended its profit-draining strategy of maintaining a 65 per cent market share.
In a blog post on Qantas' website, chief financial officer Gareth Evans said criticism of the airline's strategy and its financial troubles were based on a "fundamental misunderstanding of the aviation market and Qantas itself".
"There is never a shortage of armchair experts with theories on how to run Qantas, and the cabin has been especially crowded recently," he said.
"For many on the sidelines, it seems few businesses are easier to run than the national carrier."
He said the airline had faced a tough global economic environment, high oil prices, and competition from Asian carriers with lower costs.
And he defended the airline's much-criticised strategy of maintaining its 65 per cent market share against rival Virgin, which has has been working to expand its capacity.
"Stepping back from the 65 per cent would effectively be waving the white flag, not to mention abandoning our role in regional Australia and betraying the loyalty of our frequent flyers," he said.
"Imagine someone saying Woolworths should start closing stores in response to the threat from Coles.
"We plan to keep improving and strengthening our competitive advantages, not walking away from them."
In December, Qantas flagged a $300 million underlying loss for the six months to the end of 2013 which prompted ratings agencies Standard and Poor's and Moody's to downgrade its credit rating to junk status.
The airline is cutting costs in response to the loss and has been lobbying the federal government for assistance.
But Mr Evans said Qantas wasn't a "lazy company seeking a government handout" and simply wanted the government to level the playing field with Virgin.
Mr Evans also rejected criticism of its move to expand budget carrier Jetstar into Asia, which some have argued is distracting Qantas management and losing money.
"In truth, the value of these airlines is already significantly more than their foundation capital, and it will increase as the Asian middle class drives nearly half the world's air traffic growth over the next 20 years," he said.
"It takes breathtaking small-mindedness to dismiss this growth as an Asian distraction."
You see we are all wrong, the wheels are coming off , Rome is burning but luckily we have management like Evans to make it work.FFS
In a blog post on Qantas' website, chief financial officer Gareth Evans said criticism of the airline's strategy and its financial troubles were based on a "fundamental misunderstanding of the aviation market and Qantas itself".
"There is never a shortage of armchair experts with theories on how to run Qantas, and the cabin has been especially crowded recently," he said.
"For many on the sidelines, it seems few businesses are easier to run than the national carrier."
He said the airline had faced a tough global economic environment, high oil prices, and competition from Asian carriers with lower costs.
And he defended the airline's much-criticised strategy of maintaining its 65 per cent market share against rival Virgin, which has has been working to expand its capacity.
"Stepping back from the 65 per cent would effectively be waving the white flag, not to mention abandoning our role in regional Australia and betraying the loyalty of our frequent flyers," he said.
"Imagine someone saying Woolworths should start closing stores in response to the threat from Coles.
"We plan to keep improving and strengthening our competitive advantages, not walking away from them."
In December, Qantas flagged a $300 million underlying loss for the six months to the end of 2013 which prompted ratings agencies Standard and Poor's and Moody's to downgrade its credit rating to junk status.
The airline is cutting costs in response to the loss and has been lobbying the federal government for assistance.
But Mr Evans said Qantas wasn't a "lazy company seeking a government handout" and simply wanted the government to level the playing field with Virgin.
Mr Evans also rejected criticism of its move to expand budget carrier Jetstar into Asia, which some have argued is distracting Qantas management and losing money.
"In truth, the value of these airlines is already significantly more than their foundation capital, and it will increase as the Asian middle class drives nearly half the world's air traffic growth over the next 20 years," he said.
"It takes breathtaking small-mindedness to dismiss this growth as an Asian distraction."
You see we are all wrong, the wheels are coming off , Rome is burning but luckily we have management like Evans to make it work.FFS
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Australopithicus,
The last line is where it all begins, for even though you have a vision about the future of the company, you MUST engage your employees to carry it out.
You must listen to their ideas to help you do this and when you are wrong, ADMIT it and then fix it. This can only work when you have their respect. Lose that and you will fail.
The last line is where it all begins, for even though you have a vision about the future of the company, you MUST engage your employees to carry it out.
You must listen to their ideas to help you do this and when you are wrong, ADMIT it and then fix it. This can only work when you have their respect. Lose that and you will fail.
Last edited by AEROMEDIC; 23rd Jan 2014 at 23:51. Reason: Typo
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Stepping back from the 65 per cent would effectively be waving the white flag,
So it would seem that admitting a mistake, re-evaluating and developing different strategies is not on the table for the Q exec. Blindly persisting with a failed strategy because admitting a mistake is not the Qantas way?
Who are these people?
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When are the Journo's gong to take the likes of Gareth Evans on?
130 new aircraft. Yes. But not to the Qantas Mainline International operation.
There has been a serious over in investment in the likes of Jetstar and its foreign franchises to the detriment of Qantas mainline.
The likes of Gareth and Alan are quoting a group wide fleet age of 7.9 years.
It distorts the truth about mainline fleet age. Whilst the likes of Jetstar Asia are renewing their fleet whilst already maintaining an average fleet age of 3.3 years.
In publically available data on the Internet. You can look at the Qantas mainline fleet registrations, then from their Manufacturer serial number (MSN) get the manufacture date.
The result as of late last year is Qantas International fleet has an average age of 12.7 years with no new aircraft on order.
Here are some of Qantas International competitors fleet ages for comparison.
Jetstar Asia 3.3
Etihad 5.1
Qatar 5.3
Emirates 6.4
China Eastern 6.6
China Southern 6.7
Singapore Airlines 7.5
Ethiopian Airlines 8.1
Virgin Atlantic 9.0
Cathay Pacific 9.5
Air NZ 10.1
Qantas (Intl AOC) 12.7
British Airlines 13.4
United Airlines 13.6
Delta 16.8
Alan. I totally agree its an uneven playing field. Your lack of investment in Qantas International has left you with no fuel efficient new aircraft to match your competitors.
MC
130 new aircraft. Yes. But not to the Qantas Mainline International operation.
There has been a serious over in investment in the likes of Jetstar and its foreign franchises to the detriment of Qantas mainline.
The likes of Gareth and Alan are quoting a group wide fleet age of 7.9 years.
It distorts the truth about mainline fleet age. Whilst the likes of Jetstar Asia are renewing their fleet whilst already maintaining an average fleet age of 3.3 years.
In publically available data on the Internet. You can look at the Qantas mainline fleet registrations, then from their Manufacturer serial number (MSN) get the manufacture date.
The result as of late last year is Qantas International fleet has an average age of 12.7 years with no new aircraft on order.
Here are some of Qantas International competitors fleet ages for comparison.
Jetstar Asia 3.3
Etihad 5.1
Qatar 5.3
Emirates 6.4
China Eastern 6.6
China Southern 6.7
Singapore Airlines 7.5
Ethiopian Airlines 8.1
Virgin Atlantic 9.0
Cathay Pacific 9.5
Air NZ 10.1
Qantas (Intl AOC) 12.7
British Airlines 13.4
United Airlines 13.6
Delta 16.8
Alan. I totally agree its an uneven playing field. Your lack of investment in Qantas International has left you with no fuel efficient new aircraft to match your competitors.
MC
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You don't make a profit by siloing and duplication of managerial, supervisory and support roles.
You don't make a profit with 1 manager or supervisor for every 2.1 employees.
You don't make a profit by operating a 4-engine aircraft that burns 30% more fuel and requires more maintenance and spares than a big twin that can do a similar job.
You don't make a profit if you continually erode your core strengths such as engineering training, component maintenance, overhaul, etc etc and don't try to chase work or sell yourself as the best or most experienced in the world.
You don't make a profit by stooping to the lowest common denominator "world's best practice". In so many things we did, WE WERE WORLDS BEST PRACTICE.
You don't make a profit by shutting down the worlds longest constantly operating airline. Over to you, Aeroflot.
You don't make a profit if you alienate those customers with long memories and zero forgiveness (Asians) in the very market you are trying to penetrate and relying on for your future growth. Asians are as parochial as us. We, Qantas, won a toehold in Asia with decades of effort, undone by an overly emotional and needless act - when just the threat of action would have achieved the same result - that to this day will NEVER be forgiven or forgotten by a large proportion of the well-heeled of Asia, our target market. You won't fool them by painting your planes orange and silver instead of red and white. Never treat an Asian like a fool. We are managing to treat them like fools twice. And they will relish the opportunity to pay us back with interest.
You don't make a profit by hanging your hat on securing a chunk of that much vaunted growth in Asia over the next 20 years with a huge fleet of narrow bodies - when Asians' preference is to fly wide bodies; and the airport infrastructure will not cope with the vast new fleet; and airport management do not want you wasting slots in their capacity-restricted airports.
You don't make a profit by alienating, disengaging and fighting your workforce. You make a profit by leading from the front, not managing from the rear.
You don't make a profit when you fail to innovate. We led the world with business class and engine maintenance, but dragged our feet on premium economy, decent IFE, lie-flat beds, internet...
You don't make a profit when you let an accountant/mathematician run the business. Accountants know the cost of everything but the value of nothing.
You don't make a profit when you let HR types build a parasitic empire that insulates the company against its staff.
You don't make a profit when people in offices with no idea about operations dictate practices and procedures upon operational staff that decrease their productivity rather than increase it.
You don't make a profit by spending $600 million on an IT system that results in a 20% loss of productivity, and does little to increase compliance, when a $50 million IT solution would have provided a better result.
You don't make a profit by hiding the true cost of the LCC with highly favourable contract terms, subsidised maintenance and support, gifted routes, etc etc.
You don't make a profit by dithering over the hard decisions. Communicate the need. Make the decision. Act. Support those affected..
You don't make a profit if you don't give your staff the tools to do better, to do more with less: IT, training, logistics, policies, procedures, systems.
You don't make a profit by giving away all your contract work. If nothing else it subsidises your own operations and steals the oxygen from your competitors, preventing them reaching a more competitive critical mass.
You don't make a profit by failing to recognise the inherent weaknesses in your own business model and adjusting accordingly, rapidly and decisively. You don't make a profit by pushing a bad position.
You don't make a profit by drawing a line in the sand. When the tide turns your line in the sand will be wiped clean. You do your best or better with what you have and let your competitors pauper themselves by fruitlessly adding capacity. You run your own race. You act instead of reacting.
You don't make a profit by being a hypocrite. As a business leader you build your foundations on bedrock. You carve your principles, standards, morals and ethics in stone. You live and die judging yourself against what you have carved in stone. You expect the same of your staff. And more than likely you will receive it.
You don't make a profit by lying to yourself or professing to know everything about your business. Disengagement is real and damaging this company. Get real. Get out of the office. Listen. And hear what is said. More importantly act on what you hear.
You don't make a profit with layers of bureaucracy, red tape and bull$h!t. Cut it back, let it go, encourage your staff to participate in fine-tuning your business so that it can sing.
You don't make a profit with 1 manager or supervisor for every 2.1 employees.
You don't make a profit by operating a 4-engine aircraft that burns 30% more fuel and requires more maintenance and spares than a big twin that can do a similar job.
You don't make a profit if you continually erode your core strengths such as engineering training, component maintenance, overhaul, etc etc and don't try to chase work or sell yourself as the best or most experienced in the world.
You don't make a profit by stooping to the lowest common denominator "world's best practice". In so many things we did, WE WERE WORLDS BEST PRACTICE.
You don't make a profit by shutting down the worlds longest constantly operating airline. Over to you, Aeroflot.
You don't make a profit if you alienate those customers with long memories and zero forgiveness (Asians) in the very market you are trying to penetrate and relying on for your future growth. Asians are as parochial as us. We, Qantas, won a toehold in Asia with decades of effort, undone by an overly emotional and needless act - when just the threat of action would have achieved the same result - that to this day will NEVER be forgiven or forgotten by a large proportion of the well-heeled of Asia, our target market. You won't fool them by painting your planes orange and silver instead of red and white. Never treat an Asian like a fool. We are managing to treat them like fools twice. And they will relish the opportunity to pay us back with interest.
You don't make a profit by hanging your hat on securing a chunk of that much vaunted growth in Asia over the next 20 years with a huge fleet of narrow bodies - when Asians' preference is to fly wide bodies; and the airport infrastructure will not cope with the vast new fleet; and airport management do not want you wasting slots in their capacity-restricted airports.
You don't make a profit by alienating, disengaging and fighting your workforce. You make a profit by leading from the front, not managing from the rear.
You don't make a profit when you fail to innovate. We led the world with business class and engine maintenance, but dragged our feet on premium economy, decent IFE, lie-flat beds, internet...
You don't make a profit when you let an accountant/mathematician run the business. Accountants know the cost of everything but the value of nothing.
You don't make a profit when you let HR types build a parasitic empire that insulates the company against its staff.
You don't make a profit when people in offices with no idea about operations dictate practices and procedures upon operational staff that decrease their productivity rather than increase it.
You don't make a profit by spending $600 million on an IT system that results in a 20% loss of productivity, and does little to increase compliance, when a $50 million IT solution would have provided a better result.
You don't make a profit by hiding the true cost of the LCC with highly favourable contract terms, subsidised maintenance and support, gifted routes, etc etc.
You don't make a profit by dithering over the hard decisions. Communicate the need. Make the decision. Act. Support those affected..
You don't make a profit if you don't give your staff the tools to do better, to do more with less: IT, training, logistics, policies, procedures, systems.
You don't make a profit by giving away all your contract work. If nothing else it subsidises your own operations and steals the oxygen from your competitors, preventing them reaching a more competitive critical mass.
You don't make a profit by failing to recognise the inherent weaknesses in your own business model and adjusting accordingly, rapidly and decisively. You don't make a profit by pushing a bad position.
You don't make a profit by drawing a line in the sand. When the tide turns your line in the sand will be wiped clean. You do your best or better with what you have and let your competitors pauper themselves by fruitlessly adding capacity. You run your own race. You act instead of reacting.
You don't make a profit by being a hypocrite. As a business leader you build your foundations on bedrock. You carve your principles, standards, morals and ethics in stone. You live and die judging yourself against what you have carved in stone. You expect the same of your staff. And more than likely you will receive it.
You don't make a profit by lying to yourself or professing to know everything about your business. Disengagement is real and damaging this company. Get real. Get out of the office. Listen. And hear what is said. More importantly act on what you hear.
You don't make a profit with layers of bureaucracy, red tape and bull$h!t. Cut it back, let it go, encourage your staff to participate in fine-tuning your business so that it can sing.
Last edited by Nassensteins Monster; 24th Jan 2014 at 00:52.
Back in the 1980's Delta EMPLOYEES decided to buy the airline a surprise present: they all chipped in and bought a brand new 767, everyone signed it and handed it over to a respected management team.
Engagement, anyone?
Engagement, anyone?
Last edited by Australopithecus; 24th Jan 2014 at 02:28.
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Standard & Poor's Ratings Services has maintained Qantas Airways Ltd's debt rating of BB+, which is considered below investment grade, but removed it from negative watch.
Business Spectator
It's amazing what happens when Alan keeps his mouth shut. Imagine how good the company would be if he DID NOTHING.
Business Spectator
It's amazing what happens when Alan keeps his mouth shut. Imagine how good the company would be if he DID NOTHING.
One of the most interesting things for me about that article is who it comes from. Are all the CEO's too busy rearranging deck chairs to respond to the criticism? Where are the usual mouthpieces? Big changes ahead.
I now wonder if Gazza Evans is simply trying to keep the CFO spot? None of the other executives are hitching their wagons to Joyce's failed plans. I cannot think of a rational reason for Evans' self-righteous justifications if he is angling to be CEO and still retain any credibility. And for him to include Webber as his sole named target reveals something about both of them.
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When are the Journo's gong to take the likes of Gareth Evans on?
130 new aircraft. Yes. But not to the Qantas Mainline International operation.
There has been a serious over in investment in the likes of Jetstar and its foreign franchises to the detriment of Qantas mainline.
The likes of Gareth and Alan are quoting a group wide fleet age of 7.9 years.
It distorts the truth about mainline fleet age. Whilst the likes of Jetstar Asia are renewing their fleet whilst already maintaining an average fleet age of 3.3 years.
In publically available data on the Internet. You can look at the Qantas mainline fleet registrations, then from their Manufacturer serial number (MSN) get the manufacture date.
The result as of late last year is Qantas International fleet has an average age of 12.7 years with no new aircraft on order.
Here are some of Qantas International competitors fleet ages for comparison.
Jetstar Asia 3.3
Etihad 5.1
Qatar 5.3
Emirates 6.4
China Eastern 6.6
China Southern 6.7
Singapore Airlines 7.5
Ethiopian Airlines 8.1
Virgin Atlantic 9.0
Cathay Pacific 9.5
Air NZ 10.1
Qantas (Intl AOC) 12.7
British Airlines 13.4
United Airlines 13.6
Delta 16.8
Alan. I totally agree its an uneven playing field. Your lack of investment in Qantas International has left you with no fuel efficient new aircraft to match your competitors.
MC
130 new aircraft. Yes. But not to the Qantas Mainline International operation.
There has been a serious over in investment in the likes of Jetstar and its foreign franchises to the detriment of Qantas mainline.
The likes of Gareth and Alan are quoting a group wide fleet age of 7.9 years.
It distorts the truth about mainline fleet age. Whilst the likes of Jetstar Asia are renewing their fleet whilst already maintaining an average fleet age of 3.3 years.
In publically available data on the Internet. You can look at the Qantas mainline fleet registrations, then from their Manufacturer serial number (MSN) get the manufacture date.
The result as of late last year is Qantas International fleet has an average age of 12.7 years with no new aircraft on order.
Here are some of Qantas International competitors fleet ages for comparison.
Jetstar Asia 3.3
Etihad 5.1
Qatar 5.3
Emirates 6.4
China Eastern 6.6
China Southern 6.7
Singapore Airlines 7.5
Ethiopian Airlines 8.1
Virgin Atlantic 9.0
Cathay Pacific 9.5
Air NZ 10.1
Qantas (Intl AOC) 12.7
British Airlines 13.4
United Airlines 13.6
Delta 16.8
Alan. I totally agree its an uneven playing field. Your lack of investment in Qantas International has left you with no fuel efficient new aircraft to match your competitors.
MC
789 - 2014
77W - 2008-2014
772- 2004-2006
763 - 1991-2000 (Being phased out)
A320 Int 2003-2006
A320 Dom 2010-2014
733 1998-1999 (being phased out)
72-500 1999-2008
72-600 2012-2014
Q300 2005-2009?
1900 1999-2002
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And how much of the above can be put down to relative aircraft depreciation rates and expansion rates.
Any airline that has been expanding rapidly (the Middle East ones and Jetstar) will automatically have a lower aircraft age.
I suspect that over the last few years and the next few years with the aged 734s, 747s and 767s leaving the fleet that Mainlines average age will drop
TBM,
As for Delta.
How many $s in loans, employee super plans and contracts did Delta write off during its Chapter 11 process.
It would be the same as Qantas making all employees reduntant with no payouts, and then rehiring them on half their previous wages, as well as cancelling the bulk of debt, and walking away from a bunch of plane leases. And effectively sending the share price to zero.
Not something anyone wants I suspect.
Any airline that has been expanding rapidly (the Middle East ones and Jetstar) will automatically have a lower aircraft age.
I suspect that over the last few years and the next few years with the aged 734s, 747s and 767s leaving the fleet that Mainlines average age will drop
TBM,
As for Delta.
How many $s in loans, employee super plans and contracts did Delta write off during its Chapter 11 process.
It would be the same as Qantas making all employees reduntant with no payouts, and then rehiring them on half their previous wages, as well as cancelling the bulk of debt, and walking away from a bunch of plane leases. And effectively sending the share price to zero.
Not something anyone wants I suspect.
Stephen Bartholomeusz in the Business Spectator:
When Qantas chief financial officer Gareth Evans penned his opinion piece for Fairfax Media newspapers this week, was his message directed at their readers, politicians, the airline’s critics or, perhaps, Qantas’ competitor?
It is, of course, possible that he was trying to reach all of those audiences with his rebuttal of criticisms of the group’s approach to the Federal Government for help, its Jetstar brand and its Asian strategy.
He pointed to Qantas’ substantial cost reduction program, the profitability of Jetstar and the value of its equity positions in Asia in response to accusations the group was looking for handouts rather than taking hard decisions, that Jetstar has been cannibalising the parent brand and that Qantas has been pouring capital into loss-making Asian ventures.
The more fundamental issue he addressed, however, was the view that Qantas and Jetstar should stop targeting and defending the group’s 65 per cent “line-in-the-sand’’ market share threshold.
“The 65 per cent strategy is about giving our customers a market-leading choice of destinations, frequencies and seats at the times they want to travel,” he said.
“That scale is part of the premium service we offer and the fares we sell and it reflects the investment we have made over many years in our regional operations and in building a national low-fares network with Jetstar.
“It is prized by our customers and it is a real competitive advantage that allows us to maximise earnings in even the toughest market conditions.
“Stepping back from the 54 per cent would effectively be waving the white flag, not to mention abandoning our role in regional Australia and betraying the loyalty of our frequent flyers. Anyone who advocates this kind of approach does not understand the way the business works. We plan to keep strengthening our competitive advantages, not walking away from them,” he wrote.
As discussed on several occasions recently, Qantas can’t afford not to defend that line-in-the-sand. With a higher cost base than Virgin Australia it has to have the frequency advantage and a network coverage advantage that delivers it dominance of higher-yielding fares.
If it were to lose that dominance, given the cost disadvantages of a legacy airline relative to one that started with a clean sheet of paper, it would be heading down a one-way route to oblivion.
Evans wasn’t going to say that, of course, although Standard & Poor’s “hypothetical” default scenario for Qantas that was issued this week as it confirmed the group’s BB+ credit rating was predicated on intensifying competition through to 2019, as well as weak economic conditions, higher fuel prices and external shocks.
The key to Qantas returning to profitability and stability is to convince Virgin Australia and its three foreign strategic shareholders – Singapore Airlines, Air New Zealand and Etihad Airways – that maintaining a capacity and price war in a duopoly market is pointless and destructive for both groups.
It also needs to show it can withstand indefinitely whatever Virgin throws at it, which is where its strategic review, where nothing has been ruled out, could be critical. If it raises a big lump of cash from selling some of its equity in its frequent flyer program, or some parts of Jetstar, or selling its terminals, it would have an enhanced ability to stare down Virgin.
There are already signs that Virgin’s capacity growth has slowed considerably. John Borghetti has, with the acquisitions of Skywest and control of Tiger Australia and the investment in upgrading Virgin’s product – as well as the capital infusion from his key shareholders – transformed his group.
It is, however, also losing money and the broader economy is facing some challenges this year that could bring their own pressures to bear on the industry.
If there is no near-term strategic gain from competing too aggressively with Qantas – if it is clear that Qantas, as Evans’ commentary indicates – isn’t going to surrender its dominant market share almost regardless of the cost – Virgin might be convinced to take a longer term, incremental approach to chipping away at Qantas’ position while seeking to generate profitability for its own shareholders.
More from Stephen Bartholomeusz
He doesn't say how exactly QF and Virgin would conspire to end the capacity war without incuring the wrath of the ACCC, but I guess all it wouldn't take much to signal such an intent.
In fact, as aviation analyisis goes, the above seems pretty much like padding a word count while saying not much.
It is, of course, possible that he was trying to reach all of those audiences with his rebuttal of criticisms of the group’s approach to the Federal Government for help, its Jetstar brand and its Asian strategy.
He pointed to Qantas’ substantial cost reduction program, the profitability of Jetstar and the value of its equity positions in Asia in response to accusations the group was looking for handouts rather than taking hard decisions, that Jetstar has been cannibalising the parent brand and that Qantas has been pouring capital into loss-making Asian ventures.
The more fundamental issue he addressed, however, was the view that Qantas and Jetstar should stop targeting and defending the group’s 65 per cent “line-in-the-sand’’ market share threshold.
“The 65 per cent strategy is about giving our customers a market-leading choice of destinations, frequencies and seats at the times they want to travel,” he said.
“That scale is part of the premium service we offer and the fares we sell and it reflects the investment we have made over many years in our regional operations and in building a national low-fares network with Jetstar.
“It is prized by our customers and it is a real competitive advantage that allows us to maximise earnings in even the toughest market conditions.
“Stepping back from the 54 per cent would effectively be waving the white flag, not to mention abandoning our role in regional Australia and betraying the loyalty of our frequent flyers. Anyone who advocates this kind of approach does not understand the way the business works. We plan to keep strengthening our competitive advantages, not walking away from them,” he wrote.
As discussed on several occasions recently, Qantas can’t afford not to defend that line-in-the-sand. With a higher cost base than Virgin Australia it has to have the frequency advantage and a network coverage advantage that delivers it dominance of higher-yielding fares.
If it were to lose that dominance, given the cost disadvantages of a legacy airline relative to one that started with a clean sheet of paper, it would be heading down a one-way route to oblivion.
Evans wasn’t going to say that, of course, although Standard & Poor’s “hypothetical” default scenario for Qantas that was issued this week as it confirmed the group’s BB+ credit rating was predicated on intensifying competition through to 2019, as well as weak economic conditions, higher fuel prices and external shocks.
The key to Qantas returning to profitability and stability is to convince Virgin Australia and its three foreign strategic shareholders – Singapore Airlines, Air New Zealand and Etihad Airways – that maintaining a capacity and price war in a duopoly market is pointless and destructive for both groups.
It also needs to show it can withstand indefinitely whatever Virgin throws at it, which is where its strategic review, where nothing has been ruled out, could be critical. If it raises a big lump of cash from selling some of its equity in its frequent flyer program, or some parts of Jetstar, or selling its terminals, it would have an enhanced ability to stare down Virgin.
There are already signs that Virgin’s capacity growth has slowed considerably. John Borghetti has, with the acquisitions of Skywest and control of Tiger Australia and the investment in upgrading Virgin’s product – as well as the capital infusion from his key shareholders – transformed his group.
It is, however, also losing money and the broader economy is facing some challenges this year that could bring their own pressures to bear on the industry.
If there is no near-term strategic gain from competing too aggressively with Qantas – if it is clear that Qantas, as Evans’ commentary indicates – isn’t going to surrender its dominant market share almost regardless of the cost – Virgin might be convinced to take a longer term, incremental approach to chipping away at Qantas’ position while seeking to generate profitability for its own shareholders.
More from Stephen Bartholomeusz
He doesn't say how exactly QF and Virgin would conspire to end the capacity war without incuring the wrath of the ACCC, but I guess all it wouldn't take much to signal such an intent.
In fact, as aviation analyisis goes, the above seems pretty much like padding a word count while saying not much.
And it doesn't explain why if the Qantas management is so good why their share price is where it is and why they have to go cap in hand, begging on their knees for government to take care of their competition....
That little red light blinking in the coroner of their eyes...it isn't a strobe light.
I was going to correct coroner for corner....but I think it works too.
That little red light blinking in the coroner of their eyes...it isn't a strobe light.
I was going to correct coroner for corner....but I think it works too.