New QF Chairman of the Board.
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You keep squeezing on to that 20% JM 
Almost 80 per cent of readers surveyed by The Australian Financial Review believe that Qantas chairman Richard Goyder should resign and that former chief executive Alan Joyce should be stripped of his bonuses following a string of controversies involving the airline.
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You keep squeezing on to that 20% JM
What makes AFR readers experts?
I accept that they are dissidents.
BTW I am not an AFR reader in recent times and I don’t pretend to be an expert on CEOs. I prefer to let the shareholders decide.
I’d suggest that a lot of the keyboard warriors on here are not shareholders. Just the disgruntled. Maybe even employees.
Quite simply if you don’t like what’s on here don’t read or participate. You seem to be the only one who constantly complains , people can make their own minds up.
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Qantas hits turbulence with "accounting and strategic trickery" and an ageing fleet
The national carrier has been in the spotlight for all the wrong reasons, and Roger Montgomery doesn't see things improving any time soon
19 HOURS AGO
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Chris ConwayLivewire Markets
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CONTACTThe last six months have been tumultuous for Qantas Airways (ASX: QAN). Former CEO Alan Joyce departed amid controversy around Qatar being denied an opportunity to fly routes in Australia and the alleged sale of tickets on flights that were already cancelled.
Trust in the national carrier has plummeted, something acknowledged by new CEO Vanessa Hudson, who is aware that rebuilding that trust will be crucial to Qantas' fortunes moving forward.
So, how are they doing so far?
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Based purely on the latest numbers, which beat consensus expectations, one might be forgiven for thinking Qantas is faring 'OK'. But the share price reaction post the results yesterday tell a different story, as does Roger Montgomery, from Montgomery Investment Management, who is unequivocal in his thoughts on the company;
"After years of accounting and strategic trickery, the true cost of running the airline is only just beginning to be revealed".In the following, Montgomery doesn't hold back, laying out the case for why he wouldn't want to own the stock and why he and his team don't see it as "quality".
As an added bonus, he names a handful of stocks he believes do fall into the Quality bucket and outlines his bullish thesis for markets out to 2026.
Key first-half results
- H1 underlying PBT $1.25 billion vs expectations of $1.17 billion
- NPAT $869 million vs $852 million
- Revenue $11.13 billion vs $10.89 billion
- EBITDA $2.20 billion vs $2.22 billion
Outlook:
- H2 travel demand remains strong across the portfolio
- Unit revenue is expected to remain stable for domestic and continue to normalise for international as market capacity return
- Group RASK to continue to moderate vs 2H23 as international capacity returns to pre-COVID levels
Note: This interview took place on Friday, 23 February 2024.
Roger Montgomery, Montgomery Investment Management1. In one sentence, what was the key takeaway from this result?
After years of accounting and strategic trickery, the true cost of running the airline is only just beginning to be revealed.2. Were there any major surprises in this result that you think investors should be aware of?
This isn't a high quality business. Investors should focus on quality, just as we do in the funds that we manage and distribute. For example, in the Montgomery Small Companies Fund, businesses like Megaport, Macquarie Technology is high quality. In The Montgomery Fund, we've got Macquarie Group, Cochlear, and CSL. And then over at Polen Capital, the managers of our Global Small Cap Fund, are businesses like Topicus and Fevertree. And in large caps, they have Amazon, Alphabet, and Adobe.
When I look across all of our managers, who all put quality first, none of them own Qantas.
Most importantly, Qantas will be a very, very different business over the next 10 years compared to the last 15 years. And here's a really important insight: over the last 15 years to 2023, presided over, remember, by a single CEO, and using statutory after-tax profits as they were contemporaneously reported by the airline, total net profits over that 15 years amounted to a loss of $116 million.
In other words, no money was made on a net basis over the last 15 years. And here's the interesting thing: the business spent $2.2 billion buying back shares and it spent another $1.7 billion on dividends. So the question is, if it made a loss, how did it fund almost $4 billion in dividends and buybacks?
Well, the answer to that is partly with borrowings, which rose by just over $1 billion in those 15 years. And then that leaves a shortfall of about $2.8 billion, which happens to match the $2.7 billion the government handed Qantas in COVID support.
So remember, those economics... and this is the other thing: those economics aren't allowing for the airline's fleet of aircraft to age. In other words, if the airline had purchased aircraft such that its fleet hadn't aged, the numbers would've been a lot worse.
3. Would you buy, hold, or sell this stock on the back of this result?
Rating: SELLI wouldn't want to own the stock over the next period, when the fleet needs to be largely upgraded. And that's really important.
4. What’s your outlook on this stock and the sector over the year ahead? Are there any risks investors should be aware of?
The average age of a plane in Qantas's fleet is 15 years, which is the highest of any major international airline in Australia. So, if you look at Cathay, Emirates, and Qatar, the average age of a plane is 10 years. And Qantas's average age back in 2006 was eight years, and just before the pandemic, it was 11. So the profits that it's reported recently have been - one way of saying it is - artificially boosted by the fact that they haven't been keeping their fleet up to date.
What would be revealing is whether Montgomery owned the stock over the preceding 15 years and whether his fund made any money off the back of the share price resurrection from less than $1 a few years back. In other words, is this an epiphany or years of consistent assessment of Joyce's tenure?
What would be revealing is whether Montgomery owned the stock over the preceding 15 years and whether his fund made any money off the back of the share price resurrection from less than $1 a few years back. In other words, is this an epiphany or years of consistent assessment of Joyce's tenure?
In defence of the airlines though the rest of the world has better tax depreciation scheduling than Australia which is why QF have traditionally had old fleets.
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None of the other research I have read has been as critical. Is that because they are from major finance institutions with CC membership I will never know.
An oldie but a goodie…
An airline was interviewing candidates for one of its senior executive positions. The interview comprised just one question: "What is two plus two?"
Various candidates gave various answers but the successful candidate, on being asked the question, got up from his chair, went over to the meeting room door, closed it, came back and sat down. He then leant across the table and said in a low voice, "How much do you want it to be?"
An airline was interviewing candidates for one of its senior executive positions. The interview comprised just one question: "What is two plus two?"
Various candidates gave various answers but the successful candidate, on being asked the question, got up from his chair, went over to the meeting room door, closed it, came back and sat down. He then leant across the table and said in a low voice, "How much do you want it to be?"
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He was rubbishing QF 15 years ago with the same rhetoric. Not sure if he changed his mind in the intervening years, at a guess I'd suggest not. It appears he sees through the Joyce spin.
In defence of the airlines though the rest of the world has better tax depreciation scheduling than Australia which is why QF have traditionally had old fleets.
In defence of the airlines though the rest of the world has better tax depreciation scheduling than Australia which is why QF have traditionally had old fleets.
short flights long nights
So!
What makes AFR readers experts?
I accept that they are dissidents.
BTW I am not an AFR reader in recent times and I don’t pretend to be an expert on CEOs. I prefer to let the shareholders decide.
I’d suggest that a lot of the keyboard warriors on here are not shareholders. Just the disgruntled. Maybe even employees.
What makes AFR readers experts?
I accept that they are dissidents.
BTW I am not an AFR reader in recent times and I don’t pretend to be an expert on CEOs. I prefer to let the shareholders decide.
I’d suggest that a lot of the keyboard warriors on here are not shareholders. Just the disgruntled. Maybe even employees.
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But they are not increasing the fare, then discounting it. That's illegal. They are offering another intangible product as the "reward" for purchasing a ticket during the promo period. It would be up to the customer to decide if the cost outweighed the benefits.
I guess the issue the customer has is if they choose not to take up the offer, they still pay the new price. Again, their choice.
I guess the issue the customer has is if they choose not to take up the offer, they still pay the new price. Again, their choice.
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I just watched the latest episode of John Oliver’s show. It’s all about Boeing and its corporate culture…
The similarities between the strategy at Boeing and Qantas are striking….
The similarities between the strategy at Boeing and Qantas are striking….
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