Qantas fleet rebuild piece

[RooFlyer]

In the Oz on-line: Why Qantas chief Alan Joyce isn’t prioritising Qantas’ ageing fleet If paywalled, try 12ft – Hop any paywall

A few excerpts. Would be interesting to see a graph of average age of the QF fleet (or even just the jet fleet) over the past 20-30 years or so.

Faced with its oldest average plane fleet age in living memory – at 15.4 years including freighters – Qantas Airways has determined this measure is no longer a main strategic requirement, according to Qantas group treasurer Greg Manning.

“Average age has always been a factor in our fleet planning process, but it’s definitely not the main factor and hasn’t been for some time,” Mr Manning said.

“For the period of time we keep most aircraft, we’ll replace the cabins and replace or refurbish engines, so it’s not as simple as the date of manufacture.”

It’s a significant change from previous management who liked to keep average fleet age at about 10 years and cited the better fuel efficiency, longer range and greater reliability of newer aircraft as a key reason to spend figures such as $US110m ($164m) per Boeing 787 aircraft.

Airliners.net place the average age of the group they cover at 14 years. I found this on-line

Numerous former top-level executives shake their heads at the idea that chief executive Alan Joyce and his team no longer consider fleet age a main strategic imperative for Qantas.

“He is leaving a financial mess for the next CEO to contend with and it was a mess that was developing long before Covid,” says one senior staffer.

There are certainly many who question whether Qantas has been deferring capital expenditure to boost profitability and boost the share price. Its other decision – while understandable – to write down the value of aircraft parked in the desert during Covid – has also given it an unusually depreciation expense-free period.

And a bit of discussion on Joyce's successor

Even looking at the record profit – when Mr Joyce was asked “is this as good as it gets” – there remains some tricky figures among the detail.

The company’s net assets per ordinary share is 0.01 cents as at December 2022 and debt to debt plus equity ratio is at 99.8 per cent. Qantas’s current assets to liabilities shows a near $5bn shortfall, and revenue received in advance – which is a cash advance from passengers prior to travel and frequent flyer credits – has bulged to $5.7bn.

This figure is high in part because of the difficulties people have had getting refunds or flights from Covid-stalled travel.

So how does this play into who should be the next CEO?

At first glance the Qantas board might think Ms Hudson, the current chief financial officer, will be best placed to steady the plane when it comes to fleet strategy. However, she has also been the direct line into Mr Joyce on all fleet decisions since becoming CFO.

Ms Wirth, the CEO of the highly profitable frequent flyer unit, has been distant from decisions on fleet – having run marketing and customer service units – before taking on her current position.

 

[exceladdict]

Very interesting.

 

[robbo135]

Won't be AJ's problem when he jets off into the sunset having milked a fat cat salary over the years and cashed in all of his Qantas shares.

When the next CEO reports lower profits ( higher depreciation and lower revenue from people leaving in droves) and higher debts (to fund fleet capex), it'll make AJ look like a genius.

 

[oz_mark]

AJ has taken an approach similar to private equity.

 

[ozziflyer]

A small counter point - they were also waiting to see where the next major aircraft capex was going, being Airbus or Boeing (777X only commencing 2020).
With the effects of covid though, I'm not sure if they can manage to self-fund the life of the new fleet that is coming.
Airlines continue to be terrible businesses to own.

 

[justinbrett]

If you want to maintain a young fleet, lease them.

If you're going to buy them, fly them until close to end of life to get your money's worth.

Would like to see the stats once the A320s start arriving en masse. Doesn't seem to be any signifiant changes in average life at the milestones of 767 retirement (2014) and 747 retirement (2020).

 

[pauly7]

Still desperately miss the 763 fleet!

Doesn’t bother me from a comfort POV if airlines fly older aircraft’s as long as they are maintained well and product is still fit for my needs.

 

[Quickstatus]

What does "ageing" really means and what is an old aircraft. There are metrics such as flight hours, flight cycles. A fully depreciated aircraft may still be a profit producing asset depending on various factors.

Is UA and DL fleet age is still higher than QF?

 

[moa999]

Think you've also got to look at the type of fleet.
Qantas has spent big $$s on widebody replacement (380s/787s).
But hasn't taken a cheap 737 since I think 2014.

As the 321XLRs and A220s arrive in numbers the fleet average will drop quickly.

 

[jakeseven7]

And in more good QF fleet news, just read A380 number 7 is now back in rotation!

(Apols if I’m a little late on that news I’m sure other more avid aviation watchers already knew this).

 

[exceladdict]

Still desperately miss the 763 fleet!

Doesn’t bother me from a comfort POV if airlines fly older aircraft’s as long as they are maintained well and product is still fit for my needs.

It may be complete marketing talk but I did feel like my recent (and first) 789 flight had a different cabin pressure experience to the usual 737 or 330. IFE, though I didn't use it extensively, was way snappier too. So there are minor comforts that the newer planes have - don't know if these will extend to the new narrowbodies though

 

[Mwenenzi]

What does "ageing" really means and what is an old aircraft. There are metrics such as flight hours, flight cycles. A fully depreciated aircraft may still be a profit producing asset depending on various factors.

Is UA and DL fleet age is still higher than QF?

For some QF aircraft types they are (very) long in hours but short in cycles. Much maintenance/life is in cycles. Routes are longer than many international airlines. For USA/EU/UK airlines 8-11 hours for USA to EU/UK trip. That time is only ~half way for AU long haul trips.

Even the BNE-SYD-BNE triangle has longer flight than many EU-UK flights
BNE-MEL=857
LHR-MIL=607 (over several countries)
LHR-MAD = 773

A map from the Great Circle Mapper

A map from the Great Circle Mapper

www.gcmap.com

 

[oz_mark]

A small counter point - they were also waiting to see where the next major aircraft capex was going, being Airbus or Boeing (777X only commencing 2020).
With the effects of covid though, I'm not sure if they can manage to self-fund the life of the new fleet that is coming.
Airlines continue to be terrible businesses to own.

It's interesting, as over the last 10 years or so, Qantas has sold off a lot of assets. and indulged in significant share buybacks. How they find a fleet renewal will be interesting

 

[jakeseven7]

Think you've also got to look at the type of fleet.
Qantas has spent big $$s on widebody replacement (380s/787s).
But hasn't taken a cheap 737 since I think 2014.

As the 321XLRs and A220s arrive in numbers the fleet average will drop quickly.

I much prefer the Airbus narrow body range over the 737 options. Looking forward to these arriving.

 

[eastwest101]

If you want to maintain a young fleet, lease them.

If you're going to buy them, fly them until close to end of life to get your money's worth.

Would like to see the stats once the A320s start arriving en masse. Doesn't seem to be any signifiant changes in average life at the milestones of 767 retirement (2014) and 747 retirement (2020).

Yeah some capital-intensive hurdles in acquiring new aircraft, they are expensive. Perhaps I could re-word your first sentence to:

"If you want to maintain a young fleet, lease them at an appropriate price otherwise you are flying the wings off them to return the capital to the leasing companies, e.g. you are essentially working for the leasing companies."

"If you are going to buy them, fly them to the end of life with a cabin/engine upgrade if possible."


I think the most instructive part of the article was this, which refers to competitive pressure, there is a noticeable difference in the quality of products and services in a market that is very competitive vs a market that is a monopoly or duopoly:

 

[Assassin]

For me, given the increased efficiency of the newer planes, how much is it costing Qantas per flight to hang onto the older planes. For example. how much more does it cost to run an A330 from Sydney to say Singapore than an A350? I know there are a whole bunch of complexities with this type of analysis and Qantas has undoubtedly run the numbers, but there must be a significant operating cost saving associated with renewing the fleet.

 

[Peasant]

Alan likes to remind us that he is a genius, but let's see how history judges his decision to delay replacing the fleet when he could (or should?) have done so in a non-inflationary environment with low interest rates, minimal supply chain problems and a stronger AUD. Let alone plentiful availability of aircraft delivery slots. None of those tailwinds currently exist.

And we will conveniently forget to mention that Qantas' green credentials are considerably worse than most competitors considering it is flying last generation aircraft which, on average, burn 20% more fuel per passenger.

 

[Quickstatus]

when he could (or should?)

I don't think it's as easy as that. Aircraft purchases are not like going to a car dealer on a Saturday and saying I'll get the one on the showroom floor.

 

[Assassin]

I don't think it's as easy as that. Aircraft purchases are not like going to a car dealer on a Saturday and saying I'll get the one on the showroom floor.

No, my guess is there’s much more involved - all expenses paid trips to Toulouse and Seattle, lavish dinners, fine wines and so on….

 

[Quickstatus]

No, my guess is there’s much more involved -

Lol, I suspect the expense account line items are basically small change when negotiating billion dollar transactions
Separately they have to have a balance sheet that supports such purchases or cash flow if leased, then negotiations with unions and others. new aircraft = pilot and cabin crew conversion training, changes in maintenance practices, etc etc.

What's the best bang for the buck. What is the sweet spot in fleet age. 15 years?. 10 years?. Again, what makes an aircraft old?. Should an airline rush out and but the latest and greatest as soon as one comes into the market?. I don't think we can really criticise an airline for an "ageing" fleet until there is a consensus about what really constitutes an "ageing" fleet.