Where is the revenue Alan? (EK alliance)

[Tuck Mach]

Has the EK 'alliance' generated a tangible revenue gain for QF?

An astute observer may posit that Joyce fails to mention the revenue generated by the 'alliance' sticking to safe words like 'the customers love it' as financial gains for Qantas shareholders are hard to find.....

A quick look at Qantas' consolidated accounts is revealing.
If we look from FY2010 onward and see just what has been achieved, it is not what is Joyce proudly claims; the total revenue, allowing for a CPI adjustment is completely static. In other words since FY2010 nothing has changed, excluding of course (the management chosen) impairment of the Long haul fleet and a large drop in the jet fuel price.

• FY2010 to FY2016 in real terms, adjusted for inflation the Qantas group has gone nowhere. Revenue is static.
• Operating expenses largely unchanged.
• JQ added 80 odd aircraft, Joyce got rid of 80 odd QF aircraft.

Qantas carries around 30% less passengers to the UK than they did before Joyce and Clifford got their hands on it.

• The EK Alliance commenced on April fool's day in 2013 and since then the numbers have continued to slide (for carriage to the UK), of course that does not include the abandonment of Frankfurt....

Was the Alliance of any financial benefit to customers and shareholders or simply another exercise in 'spreadsheet management theory' that Alan is so fond of? Will the alliance continue until the little fellow and Dorothy the dinosaur (Clifford) have left?

[Snakecharma]

At least they arent going broke like some other airlines

Got to be a plus surely?

[Bula]

What, because the code sharing arrangements have allowed people to traxnsfer direct DXB to the place of their choosing, rather than the UK.

QANTAS group has refocused to Asia. And now, shortly to offer direct services back to the motherland. Sounds like a good play book to me,

From an pilots perspective, you guys can keep the ULH. Sounds like a receipe for ultra extreme out of this world boredom.

[AerialPerspective]

In terms of business economics including airlines, revenue is irrelevant except for determining the percentage of revenue that profit constitutes. If an organization is generating anything approaching 10% of revenue in profit it is doing well and doesn't need to keep increasing every year as 10% equals sustainability in the long term.

People need to realise that revenue is just the money that's coming in the door, it is too often used to talk about how profitable a company is but revenue is simply one component in determining the success of a company - e.g. revenue minus cost = profit.

In terms of that, Qantas is consistently one of the most profitable airlines in the world and I don't include the 2.6bn loss as it wasn't a loss at all but a write down and I'm not convinced it wasn't a case of creative accounting to use as rhetoric to get a better deal out of the government and/or to leverage other benefits such as tax minimization for a number of years afterward.

[What The]

Aerial Perspective,
Possibly the most uneducated and dumbest post ever to grace this board.
Without Revenue, you have no Profit and no Cash Flow.

[AerialPerspective]

Originally Posted by What The

Aerial Perspective,
Possibly the most uneducated and dumbest post ever to grace this board.
Without Revenue, you have no Profit and no Cash Flow.

And ditto, your post is the most arrogantly uninformed post on here. It is irrelevant whether a company makes 2 billion dollars or 20 billion in revenue, as long as sufficient profit (as a percentage of revenue) is earned. My point was that it doesn't matter what the revenue is from the EK deal, it matters what the profit margin is. A company will not survive if it earns 20 billion in revenue every year but spends 25 billion. Revenue comes from activity and the level of activity generates the costs involved as people pay to fly then the airline flies and pays out money for fuel etc so cashlfow is not necessary unless there is activity, generated by revenue received which results in the business activity being carried out. It does not matter a jot whether the flight is on EK metal or not, as long as QF make a profit on the segment.

[Bula]

AerialPerspective you are correct, if however, a little myopic. Of course it's creative accounting to bring forward asset depreciation, however it's not negative in saying that. Its a financial management tool.

I'm sure can you can agree it is never that simple.

What The, Have a look at VAH. Year on year increasing revenue yet profits are few and far between due to being heavily leveraged (like all airlines), and decreasing shareholder equity (massive share and cash deal with Hinan Group).

It's not that simple either.

[aerostatic]

I would suggest the EK alliance was more about protecting the down side. With the proliferation of ME and asian carriers offering one stop services to Europe something had to be done. From that point of view I'd say it's been pretty successful. The direct flights from Perth should be a bit of a game changer for the airline.

[AerialPerspective]

Originally Posted by Bula

AerialPerspective you are correct, if however, a little myopic. Of course it's creative accounting to bring forward asset depreciation, however it's not negative in saying that. Its a financial management tool.

I'm sure can you can agree it is never that simple.

What The, Have a look at VAH. Year on year increasing revenue yet profits are few and far between due to being heavily leveraged (like all airlines), and decreasing shareholder equity (massive share and cash deal with Hinan Group).

It's not that simple either.

I agree Bula, none of it is that simple. In VA's case, cashflow seems to come from endless injections of billions of dollars from the owners (or most of them).

[AerialPerspective]

Originally Posted by aerostatic

I would suggest the EK alliance was more about protecting the down side. With the proliferation of ME and asian carriers offering one stop services to Europe something had to be done. From that point of view I'd say it's been pretty successful. The direct flights from Perth should be a bit of a game changer for the airline.

I would agree with that. It was an attempt in some ways to counter the increasing dominance of the ME carriers by leveraging off them - the old saying... "better to have them in the tent p-ssing out, rather than outside the tent p-ssing in".

The plan has always been to use the 787 to do things like PER-LHR and to use them in Europe as well, flying possibly between DXB and CDG, FRA, IST or other centres. To me, with a one-stop to LHR it opens up the possibility of flying to DXB but not on to LHR, but other European centres. People need to remember that while Qantas has pulled out of FCO, CDG, FRA, etc. so have all the older Euro carriers pulled out of Australia. It works for EK and SQ and EY, etc. because they can hub and spoke over a city closer to Europe. Qantas can't fly smaller aircraft around Europe fed from 747s or A380s at a hub because they don't have the traffic rights. It is why I think any 'shuttle' into Europe with a 787 will start its journey as a lower density flight to DXB from somewhere else (MEL or SYD) which will then link with QF1 or QF9 passing through.

Qantas may not fly to all those European cities but it didn't fly to DFW and JFK 20 years ago either. It doesn't fly to a lot of places in the Pacific anymore either because it used to have to stop on the way to get to the US West Coast.

[p.j.m]

Originally Posted by aerostatic

The direct flights from Perth should be a bit of a game changer for the airline.

Can't see it, sure some people from Perth may prefer a direct and longer flight to the UK, but no one from the eastern states in their right mind would prefer Perth over Singapore or Dubai as a stopover.

[Tuck Mach]

I would agree with that. It was an attempt in some ways to counter the increasing dominance of the ME carriers by leveraging off them - the old saying... "better to have them in the tent p-ssing out, rather than outside the tent p-ssing in".

I appreciate the quote, but can you show me what tangible benefit 'leverage' accrues to Qantas from the alliance? If not revenue then what?

Herb Kelleher Founding CEO of Southwest said and I paraphrase 'Revenue alone is not important, neither is cost, the gap between the two is.'..

QANTAS group has refocused to Asia.

Yes that is correct, Joyce did., with board approval 'pivot' to Asia.With the JQ Asia 'franchise' in its 13th year and no tangible profit, with JQ having more aircraft than QF does Where is the tangible financial upside? Ever wonder why JQ is not De aggregated into two operating (domestic and international) segments like Qantas is?


Presumably the statutory accounts show exactly the leverage (financial) obtained through the EK alliance. Can someone tell me which revenue line it is in the accounts?

[TBM-Legend]

...or as it was said in the Machiavelli's The Prince

"The new Prince must strive to hold close his allies, but it is of more importance to hold close his enemies..."

[AerialPerspective]

Originally Posted by Tuck Mach

I appreciate the quote, but can you show me what tangible benefit 'leverage' accrues to Qantas from the alliance? If not revenue then what?

Herb Kelleher Founding CEO of Southwest said and I paraphrase 'Revenue alone is not important, neither is cost, the gap between the two is.'..

Yes that is correct, Joyce did., with board approval 'pivot' to Asia.With the JQ Asia 'franchise' in its 13th year and no tangible profit, with JQ having more aircraft than QF does Where is the tangible financial upside? Ever wonder why JQ is not De aggregated into two operating (domestic and international) segments like Qantas is?


Presumably the statutory accounts show exactly the leverage (financial) obtained through the EK alliance. Can someone tell me which revenue line it is in the accounts?

Well for a start, EK pax bookings on QF domestically went through the roof compared with the BA arrangement, something like a whole year worth of BA bookings in one month from EK pax. I don't have the info at hand but could probably find the quotes and the stats. It definitely had an impact and almost straight away. In the 70s, Qantas pulled out of New York and used it's arrangement with AA to fill the gap. No one complained or said it was the beginning of the end. It actually allowed QF to maintain a presence in NY and not incur the cost of flying their own metal there again until it reached a point of critical mass where it became financially viable to return.

[Bula]

Originally Posted by Tuck Mach

[/I]Yes that is correct, Joyce did., with board approval 'pivot' to Asia.With the JQ Asia 'franchise' in its 13th year and no tangible profit, with JQ having more aircraft than QF does Where is the tangible financial upside?

Ever wonder why JQ is not De aggregated into two operating (domestic and international) segments like Qantas is?

[/I]

JQ Asia is only minority owned by the QANTAS group, as is all the other JQ "franchises". At the end of the day, they are all representing the JQ brand. Competition is tuff in Asia, yet the QF group is still making $200 million from such investments. What they are yielding is another matter entirely. Perhaps the long term game will see where it ends up, though it would be silly as, guess what, JQ Asia revenue is also climbing, albeit a lot slower rate than forecast, with manageable leveraging.

As for the whole QF Domestic and International being aggregated as opposed to JQ, one will find this is a hold over from the Australian Airlines almalgamation. And while they can use this segregation to leverage industrial and political opportunities, can you actually blame them for not combining these two parts of the business?

Interestingly though, if memory serves me correctly, JQ used to report international and domestic financials separately. Now they only report yields and RSK's as a percentage of change.

[lc_461]

I think you will find as well there has never been a separate financial report for JQ long haul...
Given all the new toys but their traffic stats have never been as good as mainline in places such as Japan ~ and they are frequently known to have 2 for 1 deals etc.

As for EK, I imagine one of the ideas was - if you can't beat them, at least neutralise and ?profit out of one of your biggest and most aggressive competitors! This then allowed a refocus on high growth areas (Asia) and high cost competitors (USA) where QF can actually make money. Domestic oncarriage from EK also would have been major compared to BA as mentioned (~100 flights/week compared to ?7).

[Keg]

Originally Posted by Bula

As for the whole QF Domestic and International being aggregated as opposed to JQ, one will find this is a hold over from the Australian Airlines almalgamation.

I distinctly remember QF making a big song and dance about splitting the reporting of QF DOM nad QF INT a bunch of years back. Increased accountability of some spin like that. Of course the immediate question of why that doesn't apply a,so to JQ was never answered.

Originally Posted by Bula

And while they can use this segregation to leverage industrial and political opportunities, can you actually blame them for not combining these two parts of the business?

I suspect this was the reason for the spilt back when they did it a bunch of years ago.

Originally Posted by Bula

Interestingly though, if memory serves me correctly, JQ used to report international and domestic financials separately. Now they only report yields and RSK's as a percentage of change.

I don't know about this but I recall a bunch of years ago The Cutest of Borg demonstrating that the pax numbers for 'JQ international' included their NZ domestic airline so the numbers have always been open to manipulation.

[AerialPerspective]

Originally Posted by lc_461

I think you will find as well there has never been a separate financial report for JQ long haul...
Given all the new toys but their traffic stats have never been as good as mainline in places such as Japan ~ and they are frequently known to have 2 for 1 deals etc.

As for EK, I imagine one of the ideas was - if you can't beat them, at least neutralise and ?profit out of one of your biggest and most aggressive competitors! This then allowed a refocus on high growth areas (Asia) and high cost competitors (USA) where QF can actually make money. Domestic oncarriage from EK also would have been major compared to BA as mentioned (~100 flights/week compared to ?7).

My point above. The oncarriage from EK to domestic benefits QF substantially more than still flying to FRA or CDG. It was in fact a smart move by QF and look at the rules that surround the bookings which ensure that QF makes a profit out of every seat it sells to EK on QF domestic and regional in that way, it provides sufficient incentive that it is not worth an EK customer flying on VA or anyone else in terms of their status and points.

[tail wheel]

"...except for determining the percentage of revenue that profit constitutes..."

"...as long as sufficient profit (as a percentage of revenue) is earned..."

A little simplistic or myopic perhaps? The relevance of profit is as a return on capital equity (ROE), one of the first owners/shareholder consideration.

Devaluing assets by $2.6 billion erodes shareholder's market equity whilst inflating return on investment in the longer term. ROE can also be high if a company is heavily leveraged.

QAN ROI is 30.68%, a result of being heavily leveraged. Qantas debt to equity in December 2016 was 1.387, versus 0.1027 twenty years previously in December 1996.

[AerialPerspective]

Originally Posted by tail wheel

A little simplistic or myopic perhaps? The relevance of profit is as a return on capital equity (ROE), one of the first owners/shareholder consideration.

Devaluing assets by $2.6 billion erodes shareholder's market equity whilst inflating return on investment in the longer term. ROE can also be high if a company is heavily leveraged.

QAN ROI is 30.68%, a result of being heavily leveraged. Qantas debt to equity in December 2016 was 1.387, versus 0.1027 twenty years previously in December 1996.

Qantas received a total of $147m in capital from the government during 45 years of government ownership. The company managed to put away $967m in profits over the years. $80m of what the government injected was when the 747-300s and 767s were purchased.

When it was floated, the Keating Government gave $1.1bn of the proceeds back to Qantas as a capital injection, wiping out just about all of the debt. Strong then claimed the next year he'd turned the company around and that's how reputations are made, didn't explain how his stewardship of TN led to a 5/95 debt/eq ratio though.

Bottom line, it's easy to improve performance when most of your debt is paid off. To be fair, Qantas did not always have that d/e ratio in 1996 in prior years, it was fairly highly geared because of the need to fund aircraft and after the injection post float, it had by then a lot of aircraft that were owned. Aircraft get sold, loans are raised for new aircraft and to be fair, since 1996 Qantas has added something like 10-12 747-400/400ERs, 75 737-800s, 30 odd A330s (albeit many at a discount for not cancelling the A380), 12 A380s and is now adding 787s, not to mention $80m to start up JQ in 2003/4 and the purchase of all the A320, 21s, etc.

Airline leverage goes in cycles and it's not good allegedly to have zero debt, about the middle 50/50 is about right as it has tax benefits with interest payments, etc. My last check, QF had about $4-5bn cash which not many airlines can boast of, certainly not their main competitor which is a sheltered workshop.