Fares to nosedive as Qantas gambles on higher capacity

[anat0l]

Fares to nosedive as Qantas gambles on higher capacity

Airlines and their shareholders may be facing renewed uncertainty but travellers are set to reap even lower fares as Qantas and Virgin Australia slug it out in the domestic market.

The chief executive of Qantas, Alan Joyce, upped the ante - and the stakes - this week when he announced that the Flying Kangaroo and its budget offshoot, Jetstar, will boost capacity on domestic routes by as much as 11 per cent within the next four months.

Qantas and Jetstar have decided to take what they hope will be short-term pain to fend off Virgin's advances and, to a lesser extent, a revived Tiger Airways.

Apart from travellers, the indirect beneficiaries of cheaper fares are the country's airports, which stand to gain from more passengers passing through their terminals.

But pity the holders of airline stocks. The deluge of extra seats on routes across the country will force down fares, crimping earnings for Qantas and Virgin in a market from which they make the bulk of their money. The increases will be most pronounced on the main routes on which Qantas and Virgin compete.

Why when I read this do I think of the Black Knight sketch from Monty Python, where in this case the Black Knight is Qantas? "'Tis but a scratch!" "A scratch?!! Look, your bleedin' arm's cut off!"

Plus, the article of course is probably gambling on Jetstar doing most of the 11%, if we actually see 11% "growth".

I realistically don't see how much Qantas can afford to cut its prices at its current state without prostituting itself on the cheap.


And feeling for shareholders? Nah.........

 

[yohy?!]

smacks of desperation, i expect to see dirt cheap Y fares on both QF and JQ to try and strangle VA and TT. Unfortunately I don't think it's going to work though, the problem is a lack of credibility from both QF brands now to the point that people have stopped listening (cant help thinking how similar they are to the gillard government!).

 

[oz_mark]

Just for some context, what AJ said last week was:

In the domestic environment we aim to maintain our profit-maximising 65% market share.

Given current conditions, domestic capacity is expected to increase by around 9% to 11% in the first half, compared to the first half of FY12.

As always we have the flexibility to adjust capacity should conditions change.

About Qantas - Media Room - Media Releases - Alan Joyce Speech Qantas Group Full Year Financial Results

 

[smit0847]

If you are travelling to either OOL or PER, expect to pay less than you ever have before. This is an extremely good time to be travelling domestically.

 

[Robert Qld]

The picture accompaning the article amuses me. With grass in the foreground being a visual distraction it looks like both the QF & DJ plane have their fuselage sitting on the ground with no wheels, like as they'd be in the plane graveyard.

 

[amaroo]

And feeling for shareholders? Nah.........

Shareholders.....I wonder if they can remember their last dividend?
[TABLE="class: basic, width: 760"]
[TR]
[TH]

Year​

[/TH]
[TH="width: 25%, bgcolor: initial, align: left"]

Dividend​

[/TH]
[TH="width: 25%, bgcolor: initial, align: left"]

Amount per share​

[/TH]
[TH="width: 25%, bgcolor: initial, align: left"]

Franking​

[/TH]
[/TR]
[TR]
[TD="align: left"]2010/11[/TD]
[TD="align: left"]Final
Interim[/TD]
[TD="align: left"]0 cents
0 cents[/TD]
[TD="align: left"]0%
0%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2009/10[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]0 cents
0 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]0%
0%[/TD]
[/TR]
[TR]
[TD="align: left"]2008/09[/TD]
[TD="align: left"]Final
Interim[/TD]
[TD="align: left"]0 cents
6 cents[/TD]
[TD="align: left"]0%
100%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2007/08[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]17 cents
18 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%[/TD]
[/TR]
[TR]
[TD="align: left"]2006/07[/TD]
[TD="align: left"]Final
Special[/TD]
[TD="align: left"]15 cents
15 cents[/TD]
[TD="align: left"]100%
100%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2005/06[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]11 cents
11 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%[/TD]
[/TR]
[TR]
[TD="align: left"]2004/05[/TD]
[TD="align: left"]Final
Interim[/TD]
[TD="align: left"]10 cents
10 cents[/TD]
[TD="align: left"]100%
100%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2003/04[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]9 cents
8 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%[/TD]
[/TR]
[TR]
[TD="align: left"]2002/03[/TD]
[TD="align: left"]Final
Interim[/TD]
[TD="align: left"]9 cents
8 cents[/TD]
[TD="align: left"]100%
100%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2001/02[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]9 cents
8 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%[/TD]
[/TR]
[TR]
[TD="align: left"]2000/01[/TD]
[TD="align: left"]Interim[/TD]
[TD="align: left"]9 cents
11 cents[/TD]
[TD="align: left"]100%
100%[/TD]
[/TR]
[TR="class: alt last"]
[TD="bgcolor: #F9F9F9, align: left"]1999/00[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Special
Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]37 cents
11 cents
11 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%
100%[/TD]
[/TR]
[/TABLE]

 

[toowongman]

Nobody wins a price war. Profitability dives, eventually service standards will drop, it drags the brand down and it grows false expectations in the customer base that prices should be lower all the time.
The QF group won't get rid of TT - they're here for the long haul. (If they weren't - they would have left when grounded). And there's a few more people lately that like flying VA more than saving some money.
Nevertheless, interesting times ahead.

 

[sumthinfornuthin]

Don't forget that this effectively reduces the value of our amassed QFF points as well as the dollar cost of the seat drops.

My intention is to buy base fares and then use points for upgrade to J, which I think gives better value than burning lots of points when the fares are low.

Maybe I am wrong what do others think ?.....

 

[anat0l]

Don't forget that this effectively reduces the value of our amassed QFF points as well as the dollar cost of the seat drops.

My intention is to buy base fares and then use points for upgrade to J, which I think gives better value than burning lots of points when the fares are low.

Maybe I am wrong what do others think ?.....

No, you have an excellent point in there, but it does depend on what actually happens.

It is already a bit trying to redeem domestic Y (especially if it's a Y Classic cf. Y ASA were you get some points back), let alone international Y awards (96k points + rebate from earn + taxes, or $1100 - hmmm....). I only find redemptions on Y domestic useful where the air fare has become very expensive (e.g. popular travel time, or no sales), or I really don't want to pay the money (for whatever reason, e.g. tight budget). If you have 2 or more travellers, this argument becomes less pronounced (because the high points cost somewhat offsets the larger absolute cash not paid instead).

Mind you, we'll have to see what kind of fares actually drop. It may just be the sale period restricted Economy fares (viz. the sale Red e-Deals). You have to consider the "rack rate" (non-sale) Red e-Deal prices, and flexible Economy prices (for JQ, this encompasses the prices of adding Plus and Max packs; for QF mainline this will be the price of Flexi Saver and Fully Flexible). For QF mainline, there's also then Business to be considered.

If it's only the on-sale, restricted Economy fares that will drop considerably, the effect of the argument that you state is reduced, because many people will still enjoy redeeming for JASAs. If all domestic fare buckets start to fall, people may start buying more expensive fares in full cash rather than on ASAs, which will mean more points will be used (at least for members on this forum) on JASAs and FASAs (or just premium Classic awards) for international travel or international upgrades. That will certainly make the latter activity even more difficult than it already is, even for WPs and above which have a somewhat greater advantage in accessing such inventory.

 

[elbarto]

Shareholders.....I wonder if they can remember their last dividend?
[TABLE="class: basic, width: 760"]
[TR]
[TH]

Year​

[/TH]
[TH="width: 25%, bgcolor: initial, align: left"]

Dividend​

[/TH]
[TH="width: 25%, bgcolor: initial, align: left"]

Amount per share​

[/TH]
[TH="width: 25%, bgcolor: initial, align: left"]

Franking
​

[/TH]
[/TR]
[TR]
[TD="align: left"]2010/11[/TD]
[TD="align: left"]Final
Interim[/TD]
[TD="align: left"]0 cents
0 cents[/TD]
[TD="align: left"]0%
0%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2009/10[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]0 cents
0 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]0%
0%[/TD]
[/TR]
[TR]
[TD="align: left"]2008/09[/TD]
[TD="align: left"]Final
Interim[/TD]
[TD="align: left"]0 cents
6 cents[/TD]
[TD="align: left"]0%
100%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2007/08[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]17 cents
18 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%[/TD]
[/TR]
[TR]
[TD="align: left"]2006/07[/TD]
[TD="align: left"]Final
Special[/TD]
[TD="align: left"]15 cents
15 cents[/TD]
[TD="align: left"]100%
100%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2005/06[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]11 cents
11 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%[/TD]
[/TR]
[TR]
[TD="align: left"]2004/05[/TD]
[TD="align: left"]Final
Interim[/TD]
[TD="align: left"]10 cents
10 cents[/TD]
[TD="align: left"]100%
100%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2003/04[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]9 cents
8 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%[/TD]
[/TR]
[TR]
[TD="align: left"]2002/03[/TD]
[TD="align: left"]Final
Interim[/TD]
[TD="align: left"]9 cents
8 cents[/TD]
[TD="align: left"]100%
100%[/TD]
[/TR]
[TR="class: alt"]
[TD="bgcolor: #F9F9F9, align: left"]2001/02[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]9 cents
8 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%[/TD]
[/TR]
[TR]
[TD="align: left"]2000/01[/TD]
[TD="align: left"]Interim[/TD]
[TD="align: left"]9 cents
11 cents[/TD]
[TD="align: left"]100%
100%[/TD]
[/TR]
[TR="class: alt last"]
[TD="bgcolor: #F9F9F9, align: left"]1999/00[/TD]
[TD="bgcolor: #F9F9F9, align: left"]Special
Final
Interim[/TD]
[TD="bgcolor: #F9F9F9, align: left"]37 cents
11 cents
11 cents[/TD]
[TD="bgcolor: #F9F9F9, align: left"]100%
100%
100%[/TD]
[/TR]
[/TABLE]

I think improving the share price is more important at this point in time. Get all aspects of the business humming along producing consistent, solid profits and returns on investment and then worry about giving some back to the shareholders. With the way things are going at the moment, there's really nothing to give.

 

[amaroo]

there's really nothing to give.

Quote from QF press release:-

We have liquidity with $3.4 billion in cash, and $300 million available via an undrawn facility.

 

[anat0l]

Quote from QF press release:-

We have liquidity with $3.4 billion in cash, and $300 million available via an undrawn facility.

What does that mean (both in the literal sense (because I don't exactly know what 'liquidity' is) and the practical sense)?


The way it sounds, that money is as good as inaccessible; rather, it's an "in emergency, break glass" situation.

 

[medhead]

It means they have $3.4 billion in cash sitting in the bank. They also have a $300 million loan that hasn't been drawn.

In other words they have money they could pay to shareholders, if they wanted to and of they weren't keeping it to pay for aircraft or pay down other debt.

Sent from the Throne

 

[amaroo]

What does that mean (both in the literal sense (because I don't exactly know what 'liquidity' is) and the practical sense)?


The way it sounds, that money is as good as inaccessible; rather, it's an "in emergency, break glass" situation.

They have a truck load of cash in the bank!

If this company wasn't hamstrung by Government intervention (Qantas Sale Act + current Senate enquiry + whatever else is around the corner) the private equity vultures would already be feasting of the carcass.

 

[oz_mark]

They have a truck load of cash in the bank!

If this company wasn't hamstrung by Government intervention (Qantas Sale Act + current Senate enquiry + whatever else is around the corner) the private equity vultures would already be feating of the carcass.

Ah yes, a $3.4 billion dividend would be paid pretty shortly after PE got control

 

[JohnK]

Cheap airfares sound good to me. It has been getting harder and harder to pay for the ever increasing airfares recently until the recent OOL specials.

If this company wasn't hamstrung by Government intervention (Qantas Sale Act + current Senate enquiry + whatever else is around the corner) the private equity vultures would already be feasting of the carcass.

Let's not get started on private equity vultures. I think the sooner they introduce capital punsihment the better for anyone caught stripping companies of cash and assets and making them look attractive to poor unsuspecting souls.

 

[Moopere]

It means they have $3.4 billion in cash sitting in the bank.

Do you think thats really what this means in QF's context? I wonder. If its true, then management have no idea whatsoever. Why you leave such a mammoth amount of capital essentially stuffed in the mattress? Bank rates, even 3.4B nicely negotiated rates are barely ever able to keep up with (real world) inflation, its essentially dead money. Surely, outside of normal operational requirements and prudent management reserves, a business would be far better off making investments or paying down debt? Sheesh, even feeding a billion or so out to shareholders would probably make more sense than just stuffing it away for a rainy day.

One wonders if this massive sum is as liquid as they make it sound? Or is it stashed away to fund their fuel hedging endeavours? Cash? Sure, probably, but cash that can't be spent on just anything.

 

[medhead]

Do you think thats really what this means in QF's context? I wonder. If its true, then management have no idea whatsoever. Why you leave such a mammoth amount of capital essentially stuffed in the mattress? Bank rates, even 3.4B nicely negotiated rates are barely ever able to keep up with (real world) inflation, its essentially dead money. Surely, outside of normal operational requirements and prudent management reserves, a business would be far better off making investments or paying down debt? Sheesh, even feeding a billion or so out to shareholders would probably make more sense than just stuffing it away for a rainy day.

One wonders if this massive sum is as liquid as they make it sound? Or is it stashed away to fund their fuel hedging endeavours? Cash? Sure, probably, but cash that can't be spent on just anything.

I was using the KISS principle in making that statement. Of course, in reality they won't just have a big savings account with the qantas credit union.

As for the reasons for holding the "cash" I alluded to some of the uses they have mentioned for their cash reserves - pay for new aircraft, pay down debt. Both seem sensible options.


Sent from the Throne

 

[Moopere]

I was using the KISS principle in making that statement. Of course, in reality they won't just have a big savings account with the qantas credit union.

Yes, my thoughts as well. I guess I was coming from the angle of their potentially being a $3.4B "war chest" with which to fight DJ in a price or capacity war. In actuality, I seriously doubt this would be true.