Peer from under the umbrella €“ there are clearer skies ahead
Sydney Morning Herald
Thursday August 20, 2009
It is hard not to be struck by the difference in styles between Qantas's previous chief executive, Geoff Dixon, and the new boss, Alan Joyce. Dixon was forever alert to ways to reshape the airline business €“ split the brands, privatise the business, spin off parts or merge with competitors.There was a restlessness about Dixon that Joyce doesn't seem to possess.There was a sense of relief for Joyce, in releasing the first full-year profit since he took the top job, that the last two reshaping plans inspired by his predecessor, the merger with British Airways and the spin-off of the frequent flyer business, were knocked on the head.Joyce is not about looking for structural change of this kind within Qantas. Indeed, he remains adamant that no matter what the sharemarket conditions the frequent flyer business will remain under the Qantas umbrella.This was the really bright spot in the 2009 result released yesterday. Qantas Frequent Flyer out-earned the Qantas mainline business by almost $380 million after tax and interest and one-off charges.The mainline carrier plunged into losses of $77 million thanks to aircraft write-downs. Stripping away the one-offs, the mainline carrier produced earnings before interest and tax of $4 million.The group was also bolstered by a reasonable result from Jetstar but, after all the adjustments, the bottom line result was $123 million.It was a poor result by Qantas standards. But relative to the world aviation market, it fared well.Joyce had already issued warnings to the market that the result ($181 million before tax) would be well down on the $500 million reported in the previous year. And at the time he issued that warning, the world had never heard of swine flu, which in the last quarter lopped another $45 million off the result.The market was not of a mind to be concerned about Joyce's confirmation that 2009 had been a bad year. Instead investors were fixated on finding signs that the worst is over.And this is just what Joyce gave them. The all-important yield measure had started to stabilise and load factors were improving.Joyce was reluctant to indicate how this improvement in conditions might translate into an improvement in earnings.To some extent this reflects understandable caution on his part €“ expectations could get ahead of results.But it also reflects the fact that there are many unknowns in the aviation market, in particular the behaviour of competitors.At this stage there is still plenty of capacity on most of Qantas's major routes and this retards its pricing power.Loads are healthy but this is in response to cheaper fares. The next step for the industry is to test the waters with higher fares. And this is probably not too far off.Six months ago passengers were staying away in droves, particularly on overseas routes (and particularly at the premium end), because people were concerned with conserving cash in the event of a protracted economic downturn and job losses.They were fairly insensitive to fare reductions.But Australian consumers are now far more optimistic about their financial future and are happy to spend some of the savings gained from historically low interest rates.As confidence returns, they are more willing to take advantage of some cheaper airfares.If we do not experience the double dip that some economists are warning of, those that jumped into Qantas shares yesterday will be well rewarded.The airline has the ability to lift capacity quite quickly. It has eight planes parked in the desert and another two only partially in use.If some of the benefits of its cost reduction programs flow through in the current period and yields start to improve, it will be positioned for a significant improvement in earnings.The balance sheet is clean thanks to a $500 million equity issue earlier this year and the arrangement of $1.1 billion for future aircraft deliveries.The company's shareholders shrugged off the news that they would not receive a final dividend and pushed the stock up 3.5 per cent.
© 2009 Sydney Morning Herald
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