VB Under Pressure if third Domestic Begins?
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VB Under Pressure if third Domestic Begins?
Drinking last week with a few good mates from VB.
We were debating the chances and likelihood of this mysterious third airline and whether they will start, when and also the effect it would have on VB.
Any thoughts guys?
We were debating the chances and likelihood of this mysterious third airline and whether they will start, when and also the effect it would have on VB.
Any thoughts guys?
I would think far greater pressure would come on the 86% market share holder, rather than the 14% market share holder!
And as the 86% market share holder has geared up their borrowings to the meet the fleet requirements of their market share, continuation of their current profitability must be in doubt.
And as the 86% market share holder has geared up their borrowings to the meet the fleet requirements of their market share, continuation of their current profitability must be in doubt.
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I think that Virgins bosses have already given their opinion......all of a sudden they're VERY keen to get into the terminals!!!
But only if someone else will pay for the privilege.
There is a good future in being a discount airline, if you can compete with the buses for backpackers etc, you are assurred to pick up a bigger customer base, whose only focus will always only be on cost . There will not be the same demand for increase at middle or top end of the market.
But only if someone else will pay for the privilege.
There is a good future in being a discount airline, if you can compete with the buses for backpackers etc, you are assurred to pick up a bigger customer base, whose only focus will always only be on cost . There will not be the same demand for increase at middle or top end of the market.
Last edited by gregm; 2nd Sep 2002 at 01:36.
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But only if someone else will pay for the privilege.
Head down to YMML and notice how much money QF have spent trying to make the place look slightly more attractive!
The airports want a s*itload of money for what?
Infrastructure that is so old and drab?
I think that Virgins bosses have already given their opinion......all of a sudden they're VERY keen to get into the terminals!!!
VB is looking at the future and see the "main terminals" as a way to fight with the pricks of Australian aviation.
I would think far greater pressure would come on the 86% market share holder, rather than the 14% market share holder!
Time will tell.....
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Torres .
I actually disagree here that QF will be the loser here.
Business practice dictates that it would be VB who will be the most adversely affected.
The reason is thus:
All successful low-cost carriers have the bulk of their prime routes being less than 2 hours duration.
Compare a $129 SYD-MEL fare (1 hour) with a SYD-PER fare ($269 for a 4-5 hour flight).
Do the economics - it aint rocket science.
Now SQ starts up on the SYD-MEL-BNE routes and takes away not only market share to begin with but also after a period of competition and the inevitable price wars (and it will go stupid again) Virgin Blue will be starved of cash effectively.
Not a good position to be in especially for an airline.
The result?
VB will seek to expand on relatively less profitable routes (such as SYD-PER or SYD/BNE-DRW) at the cost of their bread and butter runs so to speak on the east-coast.
SQ will definitely start a price war and it wont be VB on the winning team.
He with the deepest pockets will always win.
Interesting to see how Brett Godfrey will sqeal and bleat when this non-Australian airline gives him a taste of his own medicine!
I actually disagree here that QF will be the loser here.
Business practice dictates that it would be VB who will be the most adversely affected.
The reason is thus:
All successful low-cost carriers have the bulk of their prime routes being less than 2 hours duration.
Compare a $129 SYD-MEL fare (1 hour) with a SYD-PER fare ($269 for a 4-5 hour flight).
Do the economics - it aint rocket science.
Now SQ starts up on the SYD-MEL-BNE routes and takes away not only market share to begin with but also after a period of competition and the inevitable price wars (and it will go stupid again) Virgin Blue will be starved of cash effectively.
Not a good position to be in especially for an airline.
The result?
VB will seek to expand on relatively less profitable routes (such as SYD-PER or SYD/BNE-DRW) at the cost of their bread and butter runs so to speak on the east-coast.
SQ will definitely start a price war and it wont be VB on the winning team.
He with the deepest pockets will always win.
Interesting to see how Brett Godfrey will sqeal and bleat when this non-Australian airline gives him a taste of his own medicine!
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Interesting comments.
Consider this though, QF has a profit of $460 million with 86% of the market and VB has a potential profit of over $100 million with 14% of the market.
Reversing the market share may provide a view of efficiency etc. perhaps.
If QF had 14% their profit would be $75 mill.
If VB had 86% their profit would be $614 mill.
My money would be on QF feeling the pressure.
Ahab
Consider this though, QF has a profit of $460 million with 86% of the market and VB has a potential profit of over $100 million with 14% of the market.
Reversing the market share may provide a view of efficiency etc. perhaps.
If QF had 14% their profit would be $75 mill.
If VB had 86% their profit would be $614 mill.
My money would be on QF feeling the pressure.
Ahab
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Ahab old son.
My money here is with 1013 as his logic is sound and the method by which these successful low-cost-carriers described to a T.
Unfortunately not everything is on a constant scale of ratios AHAB.
An airline is a very complex monster to say the least and cant be described in financial terms by juggling percentages.
Yields play a huge part as do foreign exchange earnings and successful hedging policies (of which I am not aware that VB have).
If another operator does start then VB's yield will decrease accordingly on its prime east coast runs as 13 stated.
As yield decreases so do profits eventually unless they derive huge earnings offshore or through freight.
Floating the operation also will be a no go in the eyes of the markets not to mention underwriters.
One point of note - remember a few years back when Ansett made a profit of some A$125m under Rod Eddington?
The bulk was actually derived through foreign exchange earnings (ie: Hedging in particular) rather than efficient operations as we were led to believe.
Consult the company report if your sceptical.
As Rupert has been known to say "A profit is a profit".
My money here is with 1013 as his logic is sound and the method by which these successful low-cost-carriers described to a T.
Unfortunately not everything is on a constant scale of ratios AHAB.
An airline is a very complex monster to say the least and cant be described in financial terms by juggling percentages.
Yields play a huge part as do foreign exchange earnings and successful hedging policies (of which I am not aware that VB have).
If another operator does start then VB's yield will decrease accordingly on its prime east coast runs as 13 stated.
As yield decreases so do profits eventually unless they derive huge earnings offshore or through freight.
Floating the operation also will be a no go in the eyes of the markets not to mention underwriters.
One point of note - remember a few years back when Ansett made a profit of some A$125m under Rod Eddington?
The bulk was actually derived through foreign exchange earnings (ie: Hedging in particular) rather than efficient operations as we were led to believe.
Consult the company report if your sceptical.
As Rupert has been known to say "A profit is a profit".
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Captahab, you may not be comparing apples with apples here. No one knows (externally) what VB's books look like because they are a private company. How is the $100 million figure determined?
(******, TIMEEE got in a minute before me!)
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A new carrier will get [about] 10% of the market share on start up. If 5% comes from each carrier that means VB fall to 9% and QF to 81%. The new start up has 10%.
[rough guides from my high school economics books]
Dickson will watch with interest, but provided he and his team keep there eye on the ball, I think they will do alright for a while yet anyway.
[rough guides from my high school economics books]
Dickson will watch with interest, but provided he and his team keep there eye on the ball, I think they will do alright for a while yet anyway.
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a message to hmm... Very angry words my friend. You would not have been knocked back by QF would you. Remember that QF has been the backbone of Australian aviation and will remain.
1013 said it best. He who has the deepest pockets win. That is true.
While I am not degrading DJ, I think that the pay and conditions there is a global situation happening which they are contributing to. That is a lowering of standards and pay.
I have heard a large number of horror stories out of the DJ camp in regards to flying situations. Mind you we also have ours. But it seems there are more than others coming from DJ.
I think if a new Ariline starts up, especially if SQ runs it, it will be a good little set up.
1013 said it best. He who has the deepest pockets win. That is true.
While I am not degrading DJ, I think that the pay and conditions there is a global situation happening which they are contributing to. That is a lowering of standards and pay.
I have heard a large number of horror stories out of the DJ camp in regards to flying situations. Mind you we also have ours. But it seems there are more than others coming from DJ.
I think if a new Ariline starts up, especially if SQ runs it, it will be a good little set up.
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When will this country accept the historically proven fact that it is simply not big enough for three major airlines competing for the market!!!
I can think of at least four individual airlines that have failed in the last twelve-or-so years largely as a result of the price wars and competition they can't fight. It's not because Qantas is the behemoth of Australian skies - it's because there aren't enough passengers willing to pay!
What kind of pattern are some of us trying to promote??
Compass starts, Compass fails (Ansett comes close)
Compass II starts, Compass II fails
Virgin starts, Impulse fails
Ansett fails
Singapore starts.... Singapore/Virgin/Qantas fails?
Now I know there are a lot of other factors involved with these 'failures' (and I use the term for want of a better one), but the fact remains - there have only ever been two successful major domestic airlines in this country at any one time! And here we are again talking about another one coming, and which airline will subsequently go...
Hasn't our industry been put through enough?!
The ACCC claims that more airlines means more competition, but their definition of competition is somewhat distorted at times - especially when ultimately, the paying passenger is the loser when their ticket becomes invalid after the airline collapses.
Singapore, it's not worth the worry and heartache!
All the best to Virgin with their plans
Hmm..., Why should Virgin pay for cra*ppy terminals? Well, firstly the Ansett terminal isn't all that bad, and secondly, business practice dictates that the highest bidder wins! SACL have decided that Virgin is not meeting their reserve, and someone else will - that seems perfectly ethical.
Ahab, are tax considerations part of your figures? 100mil for Virgin may be before tax, as Qantas's 460mil was after...
Lancer
I can think of at least four individual airlines that have failed in the last twelve-or-so years largely as a result of the price wars and competition they can't fight. It's not because Qantas is the behemoth of Australian skies - it's because there aren't enough passengers willing to pay!
What kind of pattern are some of us trying to promote??
Compass starts, Compass fails (Ansett comes close)
Compass II starts, Compass II fails
Virgin starts, Impulse fails
Ansett fails
Singapore starts.... Singapore/Virgin/Qantas fails?
Now I know there are a lot of other factors involved with these 'failures' (and I use the term for want of a better one), but the fact remains - there have only ever been two successful major domestic airlines in this country at any one time! And here we are again talking about another one coming, and which airline will subsequently go...
Hasn't our industry been put through enough?!
The ACCC claims that more airlines means more competition, but their definition of competition is somewhat distorted at times - especially when ultimately, the paying passenger is the loser when their ticket becomes invalid after the airline collapses.
Singapore, it's not worth the worry and heartache!
All the best to Virgin with their plans
Hmm..., Why should Virgin pay for cra*ppy terminals? Well, firstly the Ansett terminal isn't all that bad, and secondly, business practice dictates that the highest bidder wins! SACL have decided that Virgin is not meeting their reserve, and someone else will - that seems perfectly ethical.
Ahab, are tax considerations part of your figures? 100mil for Virgin may be before tax, as Qantas's 460mil was after...
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also keep in mind not all of that 460 million was from the 86% of the domestic market
Australia can suport 3 major airlines, provided those airlines focus on yeilds and profits, not market share
DJ will survive..
Its not all that difficult to picture QF losing customer ala the ansett 767 grounding. Strikes don't help matters either...
when push comes to shove QF can take a hit because the cost to australia of losing it is much more the nz losing air new zealand, and their government came to the rescue. And QF will take a hit, the unions (theres enough of them, one of them is sure to go too far) will be the ones making it
if an airline can make 100 million with 14% market share, then in theory if QF went backwards by another 14% theres rom for a lot of profit to be made...
Sure QF have more capacity on the way, but as the international ops pick up the balance will go further back to normal and qantas will do the smart thing and sacrifice market share for profitability
If that makes sence and being up at 4am isn'tr warping my mind
Australia can suport 3 major airlines, provided those airlines focus on yeilds and profits, not market share
DJ will survive..
Its not all that difficult to picture QF losing customer ala the ansett 767 grounding. Strikes don't help matters either...
when push comes to shove QF can take a hit because the cost to australia of losing it is much more the nz losing air new zealand, and their government came to the rescue. And QF will take a hit, the unions (theres enough of them, one of them is sure to go too far) will be the ones making it
if an airline can make 100 million with 14% market share, then in theory if QF went backwards by another 14% theres rom for a lot of profit to be made...
Sure QF have more capacity on the way, but as the international ops pick up the balance will go further back to normal and qantas will do the smart thing and sacrifice market share for profitability
If that makes sence and being up at 4am isn'tr warping my mind
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Sorry guys, I am not Qantas bashing....just trying to state the obvious (perhaps too simplistically).
There is one simple baromemeter of any (listed) company performance and that is their share price and the effect that any (potentially) negative news may have on the share price.
Blind freddy could have seen the Enron problems 6 months before it happened just by looking at their share price.....meanwhile Sullivan and the institutions were extolling the the virtues of them being the biggest and best.
Now take a look at QF, a month ago they were going to do the instos etc a big favour by issuing shares to them at $4.20 to raise $200 mill when the actual share price was around $4.60.
You can now buy the shares 'off the rack' at $3.99....are the instos going to continue and buy at a 5% loss....or is the capital raising in jeopardy ?
The bigger they stand, the harder they fall especially when you you are entrenched in outdated work practices and 1980's public service mentalities.
Sure VB and others to follow have lowered the bar substantially but this has happened in the UK years ago and the likes of Ryanair etc were progressing while BA management were massaging each others egos with a "Jolly good show old boy" mentality.
The leanest and meanest will be the survivors and any organisation with an inverted pyramid structure will always be vulnerable.
Please, I am not QF bashing, I hope they stop patting themselves on the back because blind freddy is starting to rub his eyes again.
Ahab
There is one simple baromemeter of any (listed) company performance and that is their share price and the effect that any (potentially) negative news may have on the share price.
Blind freddy could have seen the Enron problems 6 months before it happened just by looking at their share price.....meanwhile Sullivan and the institutions were extolling the the virtues of them being the biggest and best.
Now take a look at QF, a month ago they were going to do the instos etc a big favour by issuing shares to them at $4.20 to raise $200 mill when the actual share price was around $4.60.
You can now buy the shares 'off the rack' at $3.99....are the instos going to continue and buy at a 5% loss....or is the capital raising in jeopardy ?
The bigger they stand, the harder they fall especially when you you are entrenched in outdated work practices and 1980's public service mentalities.
Sure VB and others to follow have lowered the bar substantially but this has happened in the UK years ago and the likes of Ryanair etc were progressing while BA management were massaging each others egos with a "Jolly good show old boy" mentality.
The leanest and meanest will be the survivors and any organisation with an inverted pyramid structure will always be vulnerable.
Please, I am not QF bashing, I hope they stop patting themselves on the back because blind freddy is starting to rub his eyes again.
Ahab
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Ahab, not sure why the shareprice has dropped below 4 bucks, but it's fairly standard for the price to fall by the amount of profit per share returned to the holder... It was about 40c I think, so after the shareholder return was announced the price dropped by that amount to around 4.20.
Of course, that doesn't account for the other 20c! bugga!
I got a bit fired up in my last post, but it's just a shame to see all the mess from the past looming up again in the future... The repitition of airline history in Australia seems to be fairly rapid!
Lancer
Of course, that doesn't account for the other 20c! bugga!
I got a bit fired up in my last post, but it's just a shame to see all the mess from the past looming up again in the future... The repitition of airline history in Australia seems to be fairly rapid!
Lancer
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VB AGAIN
The airports are a monopoly and the government was stupid enough to sell them for short term cash in the bank.
Serves them right and they can charge what they like so you have to adjust your costs accordingly.
Funny to see all the staff bitching on the news, that is the type of passengers they will attract although not as good looking as there F/As .
3rd airline will take 20% of market and if the aircraft are owned outright no lease payments then the cost base will be about 3/4 of VBs. Profits could be around $500 m by second year.
Compass was a money spinner for Brian Grey, SQ have been in the business for years and really wont want to stuff this up , who do i pay my $30000 to to get out of my bond .
The Qf profit will be good this year thanks to all the bonded people going to greener pastures...
Serves them right and they can charge what they like so you have to adjust your costs accordingly.
Funny to see all the staff bitching on the news, that is the type of passengers they will attract although not as good looking as there F/As .
3rd airline will take 20% of market and if the aircraft are owned outright no lease payments then the cost base will be about 3/4 of VBs. Profits could be around $500 m by second year.
Compass was a money spinner for Brian Grey, SQ have been in the business for years and really wont want to stuff this up , who do i pay my $30000 to to get out of my bond .
The Qf profit will be good this year thanks to all the bonded people going to greener pastures...
