Geez Qantas that was quick!
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The cost base is a furphy. If you think that is so important then you would agree selling tickets for 40++% more and packing them in is more important.
Just think about fuel price vs ticket price.
Just think about fuel price vs ticket price.
The fundamental metric is best summed up unsurprisingly by Herb Kelleher. ( I paraphrase)
'Unit cost is important, but ought not be an obsession. You can be the generate the biggest revenue in the business, or have the lowest cost but in either case, you can still go broke.The fundamental metric is the difference between your costs and your revenue.'
Not having a fuel efficient fleet when the cap ex spend is on the lower side due the interest rate suppression and revenue is relatively robust is perhaps the most critical error an airline executive management can make.
Qantas got lucky with the fuel price.
They can continue to focus on their labour unit cost and outsource as much work as possible, but the fuel included CASK ( no matter the crew cost they achieve) is an order of magnitude on the wrong side.
Qantas need a new fleet.
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This statement alone best describes the whole group, from one end to the other. The people at the campus simply don’t get it.
We could discuss the role of business schools generating cookie cutter MBA and commerce graduates but suffice to say, there is a renewed inwards focus as the direction is lost.
This is why we state repeatedly 'lower labour unit cost' is the obsession.
Regular surveys, usually conducted by the big accounting firms show the sole focus most CFO level executives have:
Cost control
It isn't aircraft replacement, competitor activity or FX exposure, it is time after time, cost. This is not to say cost is not important but it can detract from strategic vision and forward thinking decision making, where large amounts of capital may need to be expended NOW in order for some future benefit; like an aircraft purchase.
As such this cost obsession permeates downwards, and the rush is on to save cost, labour being an important component of airline cost...
The Network decision is evidence of it, indeed the unchecked growth of JQ growing beyond scale is arguably evidence of it.
All the while the big picture is lost as the MBA class, all taught the same way focus on cost reduction, their KPI depend on it!
Recalling a comment of a poster that Qantas had ordered not a single aircraft in the Clifford/Joyce regime, if correct (we will check) is a big tell.
Qantas still need a new fleet.
Ask yourself why you do not drive a Tesla Model S even though it costs far less in energy to drive it from A to B than the fossil-fuel powered motor vehicle you currently own.
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Qantas International (or any other full service, premium airline) cannot compete effectively against Scoot, Air Asia, Malindo, Norwegian or any of the multitude of International LCCs that have thrown their hat in this arena. The cost base is too high.
Depending on data source fixed or sunk costs of airlines amount to 70-80% of total cost.
- Air frame cost* the same
- Fuel cost the same
- Air Nav charges the same
- Landing and terminal costs (same airport) very similar
Flying 'point to point' rather than a 'hub' can save and likely that represents a difference in fixed cost, terminals, lounges and such are costly to run.
Low fare airlines have a role; they stimulate a demand elastic market segment. They by definition are low yielding, high load factor required businesses.
Their competition has these higher costs as they have built brand differentiation, but they also face less demand elasticity, particularly in the product differentiated J class, where significant margin exists. . Less elasticity allows yield to be captured. As yield is far easier to build and maintain, add in a frequent flyer business and a hub and spoke network suddenly adds yield potential. This cannot be replicated by a basic low fare airline model. Do these businesses have brand value or are they merely 'cheapest on the day' models is an interesting question.
So the cost base is a component of the discussion, it is not all of it.. Established airlines are well able through scale and brand value to 'compete'. They also can stimulate demand in the Y cabin, adding capacity and reducing the ability of the Low Fare Airlines to build any yield as flights move closer to the day of departure( by increasing price). Ask Mr O'Leary (Ryan Air) or Mr Fernandes (Air Asia) how this affects their ability to build yield and you may understand how Mr O'Leary can apparently suggest that use of the toilet will cost a pound: He struggles to build yield.
Control of the yield premium is something that means an airline can maximise the difference between wherever its cost base resides and the revenue it can generate for a seat sold. It is after all the gap between the revenue generated and the costs incurred that represents the operating profit. This margin is the important one. (Apologies to Herb Kelleher)
Qantas still need a new fleet.
You are wrong because you assume the only cost associated with operating an aircraft is how much it costs to fill it up with Jet A1.
Ask yourself why you do not drive a Tesla Model S even though it costs far less in energy to drive it from A to B than the fossil-fuel powered motor vehicle you currently own.
Ask yourself why you do not drive a Tesla Model S even though it costs far less in energy to drive it from A to B than the fossil-fuel powered motor vehicle you currently own.
As for Tesla.... I suppose 'you' (as in third person - not directing this at you personally, it's such a common misunderstanding I hesitate to direct it at one person) think PV cells on roofs are 'efficient'.
I admire what Musk is 'trying' to do, but PV cells, and even worse - their loathsome batteries are woefully inefficient. Nor are they clean. They are VERY clean if you happen to live in Australia, US or Europe and you don't consider either the transport costs, environmental ills caused by their manufacture (and I've been to a factory in Shenzen - it's nothing short of disgusting what pours unregulated into the SCS for the benefit of 'clean' Western nations). Then there are the batteries. Solar/Tesla Batteries basically have a (short) half life. Their manufacture on an ecological cost is off the charts. Their disposal is currently even worse.
Iv'e had this discussion with Qf's Andrew David and at this point I stopped getting responses. In short it is a JOKE.
I applaud people 'trying' to gain efficiency, but if you really espouse 'efficiency' (in a domestic situation) you go for a Model T Ford or a VW Beetle and the most efficient local power source you can. Ideally, nuclear.
Where I see MAJOR economic costs is in burning fossil fuels that have a finite supply for no reason. And THAT is where I put the blame firmly on QF. Whether or not you believe in 'Global Warming' is to my mind completely irrelevant. We 'SHOULD' be living cleaner, because we can.
In the case of running an airline is an absolute financial necessity. For the managers of QF that is completely unnecessary and a waste of resources while you can 'kick the can down the road' and put the cash in your own pocket.
Even then, I'd sort of excuse that myopic attitude IF they didn't ram down my throat every week their impeccable (but to anyone with even a 1st grade education - absolute and complete hogwash) 'Green' credentials. It's yet another complete lie from the Ministry of Truth.
"Qantas still need a new fleet."
B747-8I
B797
B787
A320
Regional Jet for Link
B747-8I
B797
B787
A320
Regional Jet for Link
