Qantas Frequent Flyer - Qantas forecasts profit to slide by up to 90%

Qantas said it expects its profits to fall by as much as 90% amid growing losses at its international operations and its "highest ever fuel bill".

It has forecast a profit before tax of between A$50m ($48.6m; £31.6m) and A$100m for the year ending 30 June.

That's down from a profit before tax of A$552m during the same period a year earlier.



The airline said that fuel costs for the period are expected to rise to A$4.4bn, an increase of approximately A$700m from the same period a year earlier.



One of the biggest areas of concern for Qantas over the past few years has been its international operations.

The division has been hurt by slowing demand in its key markets as well as higher costs of operation.
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The firm said that losses at the division are expected to more than double to A$450m in the financial year ending 30 June.

http://www.bbc.co.uk/news/business-18327652

I wonder how different things would look today had that private equity takeover 5 years ago gone through

It's not all bad.
A $50m profit gives plenty of room for another handsome bonus to the CEO this year.

and grounding the whole fleet is only estimated to have cost a mere $100 million. Nice round figure. Wonder how they estimated that....

The structural issues in the business have been compounded by the impact of global economic factors – including increased fuel costs, the high Australian dollar and weakness in the UK and Europe market – as well as the $100 million one-off cost of industrial action.

I wonder how different things would look today had that private equity takeover 5 years ago gone through

The airline wouldn't exist any longer because it would have gone bankrupt.

I just hope it doesn't all collapse before my flight in August! :rolleyes:

/AE

Better book your tickets by boat. Seems like Australia is incapable of keeping any airlines afloat.

There is only one thing to blame for the demise of Qantas. And that is Qantas.

Whether it is a decaying inefficient 747 fleet, archaic Business Class seats on flights into Asia (A330 - don't get me started on Honolulu!), a declining international network or staff members and management who sincerely don't give a damn, Qantas is now feeling the impact of treating its core customer base with contempt.

If Qantas dies, then so be it. Its share price indicates today that once you factor cash on the balance sheet, the goodwill of the Qantas group is close to zero, if not negative.

The thing that puzzles me about the continual finger pointing at International and its loss making performance is that I don't recall being on too many flights with what I'd consider a sub-par load. This is backed up by the monthly stats http://www.qantas.com.au/infodetail/about/investors/trafficStats/April2012.pdf which show the International Division having the highest load factor.
So are costs too high or fares too low?

One thing that piqued my bemusement when I first heard this on the radio was a Qantas rep claiming the government should give QF additional traffic rights. They don't even use the rights they have!

Look at recent axings - half the capacity to London, HKG-LHR, AKL-LAX, not to mention a swag of destinations where they have rights and coukd be profitable if operated appropriately.

Dave

Fares are too low!

Several years ago, with the cheapest of sales, fares Oz-LAX return were in the order of $1700 (NYC-$1900).

In January you could get them for as low as $1100 ($1400).

One thing that piqued my bemusement when I first heard this on the radio was a Qantas rep claiming the government should five QF additional traffic rights. They don't even use the rights they have!

Look at recent axings - half the capacity to London, HKG-LHR, AKL-LAX, not to mention a swag of destinations where they have rights and coukd be profitable if operated appropriately.

Dave

Good point Dave. But, were these specifically traffic rights for QF or the QF Group? :p

The Paris argument always comes up, but in the current environment I really doubt CDG would be profitable even at daily (especially with a 747 at current fuel prices, even CX is taking the 747 of its CDG flights).

I do however laugh at the QF spin though about needing to focus on Asia despite having such a limited network. But QF has no flights to PEK, ICN or KUL, less than daily to CGK and MNL, only fly from SYD to BKK and PVG and less than daily flights PER/BNE-HKG. Not to mention the J Class fares to Asia are ridiculously expensive compared to the competition. No wonder I have seen and heard stories about EMPTY J Class cabins to PVG, and 1/3 full cabins the A330 flying back from HKG on a Friday night.

Surely AJ isn't that inept that he hasn't a strategy for QF international operations?? If he indeed has not, then it's clear they seperated the buisness to allow international to die a slow death.

Isn't it time the board and shareholders started to question this guys ability to steer QF- the news has been nothing but negative and semi supported by Qantas for a long while now. Is it time for new blood? Would I be forgiven for thinking he's waiting for his tenure to end-get his bonus and run..fast!

You have to read the numbers very carefully, there is some truth to claims that QF is moving profit from QF International to JQ and saddling international with the costs of the failed Asian expansion strategy.

Some interesting facts:
1. About AUD 160 million "loss" is due to revaluation of the QFF plan (a change in presumed redemption rates).
2. Over AUD 50 million of the "loss" is due to drop in interest rates raising the "cost" of employee leave accrued but not yet taken ... this will become "profit" when interest rates rise. QF has over AUD 450 million in accrued staff leave on the books, fwiw.
3. The various labour-related disruptions are now being charged at AUD 200 million, despite having been reported by Joyce as costing AUD 100 million ... somehow that "cost" has magically doubled.

Lots more in QF financials, but the bottom line is that QF International has posted a profit in 16 out of the last 16 quarters operationally -- despite high fuel prices, poor fleet and route structure, and lots of competition. In fact for 10 of those 16 quarters it has had a higher RPK than QF domestic; yet no talk of QF International propping up the airline then.
Many of these facts are published, see for example the Australian Financial Review.

QF now trades for less capitalization than cash on hand. How often can you buy $100 bills at a discount? :) Says volumes about the market's faith in QF management.

num6 not sure where those numbers have come from - broker reports?
given the revised numbers are only a forecast... not proper financials.
On some of your specific points.

1. Reval of $160mm in FF - wouldnt that be posted in FF, Not in QInt
2. How does interest rates impact accrued leave - the ultimate cost of accrued leave is the employees salary on the day they take it - which equals todays salary plus some time/inflation factor.
3. My read on the disruptions from a newspaper was total cost $200m - split 50/50 between QInt and QDom.

Unsure where you get the Quarterly Profit numbers for QInt. Qantas only publishes semi-annual and the last two periods plus this latest forecast have disclosed a loss for QInt.

RPK - No point comparing RPK for Domestic v Int. Different aircraft, different segment lengths - different cost structures. Equally High RPK but low load factor could be ugly.

Cash - Shouldn't look at cash in hand without considering liabilities - eg. debt, but more importantly in QAN's case Unearned Revenue (ie tickets sold cash collected, not yet flown) and FF Points liability (it is a cash liability if everyone reedems for vouchers)

QF Group continually point the finger at QFi and quote two major cost bases: Labor and Fuel.

Interesting that the international cost of Jet-A1 has declined over the last three months. Platts talk of European prices (in $US) at a 5 month low, whilst their tracking of Rotterdam, Singapore and US prices all show drops in the mid-teen percentage, whilst the Aussie has actually gained against the greenback over the same period.

Did someone hedge too high??

Regards,

BD

QF now trades for less capitalization than cash on hand. How often can you buy $100 bills at a discount? :) Says volumes about the market's faith in QF management.

Now the share price is around 96c I have to wonder when it becomes a buy.
But a lot of their cash will be chewed up by the B787 purchases next year and some $1 billion+ of debt which is apparently due for repayment. Maybe it's time to separate QFF and IPO 49% of it.