Qantas fleet rebuild piece

[moa999]

My point wasn't that it should have replaced the 737s.. just that a simple average age figure is meaningless given the makeup of the QF fleet.

The 777 is an interesting one. Qantas (under James Strong) signed on for the A380 in 2000 (about the same time the 777-300ER was formally launched) with both beginning delivery a few years later.

With hindsight would have QF been better ending up with say 16 777s rather than 12 A380s.
Economically maybe, but I think the A380 has brought marketing benefits that the 777 wouldn't.

 

[RichardMEL]

My point wasn't that it should have replaced the 737s.. just that a simple average age figure is meaningless given the makeup of the QF fleet.

I see. I had interpreted your wording to be that rather than buying the 787's, but spending that money that would go to that on a fleet renewal would lower the average age of the fleet.. though of course putting that money into new 787's - which they did - achieves the same thing, though of course the average age is still older simply due to the lower number of shells involved (eg: say 8 or 12 787's vs 40-50 or whatever A32x).

I do think that average age of an overall fleet of an airline can get meaningless with a spread of types and uses - specially for larger carriers.

Heck, replace the 717's with A220's will have a huge impact on the average fleet age for QF just because those birds are 20+ years old. (for example)

The 777 is an interesting one. Qantas (under James Strong) signed on for the A380 in 2000 (about the same time the 777-300ER was formally launched) with both beginning delivery a few years later.

With hindsight would have QF been better ending up with say 16 777s rather than 12 A380s.
Economically maybe, but I think the A380 has brought marketing benefits that the 777 wouldn't.

oh hindsight is wonderful isn't it?

I think at the time of Strong and even Dixon - at the start of the new century - QF was highly focused on capacity - the 744's worked well in long haul routes to LAX and Europe. I suspect the feeling at the time (with LHR under slot control as such), pressures on ports like NRT (HND was a long way off being international), potential issues at HKG and even SIN meant that QF probably saw (as EK did) a future in higher capacity options - and more or less to look to replace the 744's medium term with 380's with a similar (or higher) capacity. The 787 was a glimmer in Boeing's eye (as was the 350) and the concept of two engine, long range, medium capacity aircraft making longer, thinner routes become economical was some time off in terms of reality. The 77W is a GREAT aircraft for many airlines as we've seen - and certainly the precursor to long haul ops with a slightly lower capacity to the 747's at a much more attractive cost to run - look at how the 77W has worked so well for carriers like CX, SIN, EK and QR. Even plucky NZ made it really work on a route like AKL-IAH.

Probably though QF may have looked at projected ranges for the 777-even the 77W - from SYD and MEL and thought that it may not offer much more range vs capacity compared to the existing 744's(which at the time still had well over a decade left) and the potential of the 380 with capacity advantage. I wonder if they felt the 77W in a typical QF config could handle routes beyind SYD-LAX (ie: SYD-DFW). It certainly can't go all the way to Europe, so still would require a stop somewhere, while carrying perhaps 1/3 less pax (depending on the config) than the A380. It may have been seen, at the time, as a disadvantage for QF - and again I personally reckon there was a bit of a bias towards the bigger capacity aircraft such as the 744 and A380.

I think history has proved with the 77W and the 789/350, that longer haul ops with less overall capacity (though the A350-900 had been touted as a 747 replacement capacity wise over the smaller 787 back in the day). QF I think saw how the 77W was being used, and saw the 787 on the horizon and finally went down that route with promise of extra rage opening up these routes they felt could give an advantage over the opposition. The natural succession of course is Project Sunrise with the A350-1000's more or less being the ultimate evolution of this philosophy.

I think perhaps QF now sees the A321XLR's as the same type idea - as the US and euro carriers have proved with trans-atlantic ops, to open up near SEA routes that may not support an A330 size aircraft, but provide service to these places with frequency and spread being a possible aim. Also see VA's 737 MAX CNS-TYO service.

the A330 seems the only section of the fleet with a question mark over it for me - the medium-longer range 200-250 seat aircraft that can fly routes like SYD-HNL, SYD-HKG, etc. While the A321XLR's offer the bottom end of that capacity at around 200pax depending on config, they couldn't do the longer routes so I think QF still probably wants to look for something to fill that role - A330-900neo's would seem to make some sense in an overall airbus heavy environment but that then begs the question what of the 787's? They are still very young of course with the oldest now just over five years of age. Still some question marks longer term imo.

As an aside, back in 1996 when the 777 was a wee baby (the 772's first flight was in 1994 and first commercial flight was in June, 1995 - which I was on one of), I was invited to a Boeing presentation to AN in MEL for the 777 (they'd previously seen QF in SYD with the prototype they were spruiking). Of course these first 777's had far less range, and it was a hard sell (and well we know AN was never a chance) but he effort they went to, range maps from MEL for the 777-200 "A" and "B" (as they were known then) versions - the B becoming more or less the 777-200ER - was fascinating. It pretty much would have meade it to near south east Asian cities (ie MEL-SIN more or less) but AN had no interest there that I could tell. The pitch went nowhere of course, but it was a fun time had by all with a tour of the prototype for AN folks, airport ops people at MEL, and others including yours truly). I often wondered even with that far less powerful version of the jet what if a QF or AN had taken it up what might have been.

 

[justinbrett]

The main problem with this thread is "average fleet age" as a metric, covering all aircraft types, is not a useful metric (and I suspect is only used by these accounting types). At very least needs to be broken down for each aircraft type, and the only aircraft type that is aged anywhere near the 20 year mark that's not actively being replaced is the A330s. I think this is the fleet most at risk and the replacement program should be expedited - having said that I remember flying on some pretty old 767s in the end and they seemed to be doing OK.

Arguably owning an entire fleet as QF does is less common these days, and is a major factor of how QF survived Covid (as it used the assets as collateral for loans).

If VA1 owned its widebody fleet, could it have survived? More likely yes. Would VA2 be flying widebodies today? Even more likely yes. No doubt the high fares on long haul routes around the world are helping to pay off the debt incurred during covid.

So this talk about having an older fleet screwing over the shareholders is a bit hyperbolic IMO.

 

[Quickstatus]

Vanessa Hudson last year has said QF is looking to replace the A330 but the overtures have not converted into a "Project...".

One of the main downsides of the A330 is the lack of crew rest areas and no PE.

 

[RooFlyer]

"Average fleet age" is a common and widespread metric used by many sectors, yes accounting types but particularly analysts - but it's only one of many. Analysts will recommend funds and brokers hold or avoid certain stocks, and in the end that will affect our super funds, so it's not entirely academic. And it's not about one aircraft type Vs another; it feeds into an overall assessment of an airline's standing.

It's best used not as a one off measure but as it's been used above - to track an airline's performance over time. If average age starts increasing after a period where the average has stayed much the same - the analyst will ask - what's changed? Is it related to some issues in the company - are they running the airline on a shoestring; is the current management doing something clever etc ( talking generally here).

Also used in a broad comparison between peer airlines. If 5 peers have an average age much the same and the next peer has an average much higher, again the question will be asked why? Close inspection may find a very reasonable operational explanation or it may identify a possible issue. Do you recommend holding a stock that is safe and part of the pack, or an outlier?

That's one of the reasons people look at average fleet age but obviously it's only one of many metrics.

The 2 journos (one News the other Fairfax/Nine) have also looked into the issue of average fleet age, and both have determined that it looks like some 'policy' of the current management to defer major expenditures. Coincidentally or not, to mainly be after the current CEO departs. If the journos had applied their analysis to peers of Qantas, they may have found that it's widespread phenomenon at the moment. Then their conclusions would be less sound.

So this talk about having an older fleet screwing over the shareholders is a bit hyperbolic IMO.

Shareholders have done very well out of the current policy - witness the very large profit and share buyback announced recently. Future shareholders who may not fair so well, but time will tell.

 

[justinbrett]

"Average fleet age" is a common and widespread metric used by many sectors, yes accounting types but particularly analysts - but it's only one of many. Analysts will recommend funds and brokers hold or avoid certain stocks, and in the end that will affect our super funds, so it's not entirely academic. And it's not about one aircraft type Vs another; it feeds into an overall assessment of an airline's standing.

It's best used not as a one off measure but as it's been used above - to track an airline's performance over time. If average age starts increasing after a period where the average has stayed much the same - the analyst will ask - what's changed? Is it related to some issues in the company - are they running the airline on a shoestring; is the current management doing something clever etc ( talking generally here).

Also used in a broad comparison between peer airlines. If 5 peers have an average age much the same and the next peer has an average much higher, again the question will be asked why? Close inspection may find a very reasonable operational explanation or it may identify a possible issue. Do you recommend holding a stock that is safe and part of the pack, or an outlier?

That's one of the reasons people look at average fleet age but obviously it's only one of many metrics.

The 2 journos (one News the other Fairfax/Nine) have also looked into the issue of average fleet age, and both have determined that it looks like some 'policy' of the current management to defer major expenditures. Coincidentally or not, to mainly be after the current CEO departs. If the journos had applied their analysis to peers of Qantas, they may have found that it's widespread phenomenon at the moment. Then their conclusions would be less sound.


Shareholders have done very well out of the current policy - witness the very large profit and share buyback announced recently. Future shareholders who may not fair so well, but time will tell.

Well thank goodness the analysts aren't running the airline.

The main problems I have with the metric is
-You're weighting aircraft equally. So an A380 with a list price of 450M is treated equally as a Q400 with a price of 30M.
-The assumption that aircraft age is relevant. Life of an aircraft is measured in flight hours and cycles, not years.
-No consideration of the lifespan of the asset and treating all assets equally
-Doesn't account well for the aviation industry where assets aren't constantly acquired and retired - but fleets (aircraft type specific) are procured in batches, flown for the desired lifespan and then retired

Considering 737s make up the majority of the QF fleet, and they've just started their replacement program, of course the average age will be at its highest before the A320s start being delivered. But measure again when the last 737 is retired, you'll probably get a very different answer.

Likewise the discussion of peers, if you took AA a decade ago it would have been far higher than QF.

For what purpose are we measuring this? Current value of the assets? Decision points for fleet procurement? Both require far more detail than this metric.

 

[RooFlyer]

Well thank goodness the analysts aren't running the airline.

The main problems I have with the metric is
-You're weighting aircraft equally. So an A380 with a list price of 450M is treated equally as a Q400 with a price of 30M.
-The assumption that aircraft age is relevant. Life of an aircraft is measured in flight hours and cycles, not years.
-No consideration of the lifespan of the asset and treating all assets equally
-Doesn't account well for the aviation industry where assets aren't constantly acquired and retired - but fleets (aircraft type specific) are procured in batches, flown for the desired lifespan and then retired

Unfortunately you've missed the point entirely. The arguments you are addressing are not about operations - what planes are in service, when and why. I get that's your focus and understand that; however there is another world - finance and securities - out there . 'Average fleet age' is but one of many metrics that allow comparison of a single airline over time or between airline peers; its a broad management/corporate/strategic metric. Airlines too use it for various reasons - Qantas have said they no longer value it - but they previously did use it more openly and I bet they still tally it.

Considering 737s make up the majority of the QF fleet, and they've just started their replacement program, of course the average age will be at its highest before the A320s start being delivered. But measure again when the last 737 is retired, you'll probably get a very different answer.

Likewise the discussion of peers, if you took AA a decade ago it would have been far higher than QF.

Exactly! But analysts and others then ask - what has brought these trends about and, in the newspaper articles' cases, the timing? As I said above, it might be for perfectly understandable reasons - Covid and the cessation or slow down in aircraft production would be one to increase an average age - but it might be for other reasons, and that's the type of analysis I and the journos are talking about. If you combine a trend in average fleet age with other measurements, someone might come to a more pessimistic view of a particular airline.

So what? Well, if you are a shareholder, you may choose to sell or hold on. Your super fund may choose to sell or hold on a big bunch of shares that may affect the price. A ratings agency might mark down the company's debt rating a notch. Or, it might go the other way if the metrics look good.

For what purpose are we measuring this? Current value of the assets? Decision points for fleet procurement? Both require far more detail than this metric.

I've tried to explain why its measured by several sectors outside the airlines and that its just one metric among a bunch. Within an airline you can bet that someone keeps tabs on this, and the same measurements for its peers. Its at least like an airline will keep tabs on when its peers last refurbed its business cabins etc, what seat pitches are used on equivalent aircraft types, at least to see if its getting out of whack with peers. Of course it gets factored into decisions on procurement and its not 'stand alone'. Anyone running a fleet of anything will want to know what the average age - or hours on the clock - is, amongst other things.

I think its completely unremarkable that average fleet age is measured and used by various groups - including airlines - as part of a picture of the overall health of the entity. The more in-depth analyses would try to drill down to flight cycles/hours etc. The journos used this one measure in a narrow way, looking at management decision-making and timing of significant capex.

 

[Auzzieflyer]

Considering fleet age as a metric is entirely useful for predicting reliability and costs associated with maintenance . For example the 717 fleet is the most unreliable part of the Qantas operations. Additionally, costs with regards to maintenance also increases with the fleet age.

 

[justinbrett]

Unfortunately you've missed the point entirely. The arguments you are addressing are not about operations - what planes are in service, when and why. I get that's your focus and understand that; however there is another world - finance and securities - out there . 'Average fleet age' is but one of many metrics that allow comparison of a single airline over time or between airline peers; its a broad management/corporate/strategic metric. Airlines too use it for various reasons - Qantas have said they no longer value it - but they previously did use it more openly and I bet they still tally it.



Exactly! But analysts and others then ask - what has brought these trends about and, in the newspaper articles' cases, the timing? As I said above, it might be for perfectly understandable reasons - Covid and the cessation or slow down in aircraft production would be one to increase an average age - but it might be for other reasons, and that's the type of analysis I and the journos are talking about. If you combine a trend in average fleet age with other measurements, someone might come to a more pessimistic view of a particular airline.

So what? Well, if you are a shareholder, you may choose to sell or hold on. Your super fund may choose to sell or hold on a big bunch of shares that may affect the price. A ratings agency might mark down the company's debt rating a notch. Or, it might go the other way if the metrics look good.



I've tried to explain why its measured by several sectors outside the airlines and that its just one metric among a bunch. Within an airline you can bet that someone keeps tabs on this, and the same measurements for its peers. Its at least like an airline will keep tabs on when its peers last refurbed its business cabins etc, what seat pitches are used on equivalent aircraft types, at least to see if its getting out of whack with peers. Of course it gets factored into decisions on procurement and its not 'stand alone'. Anyone running a fleet of anything will want to know what the average age - or hours on the clock - is, amongst other things.

I think its completely unremarkable that average fleet age is measured and used by various groups - including airlines - as part of a picture of the overall health of the entity. The more in-depth analyses would try to drill down to flight cycles/hours etc. The journos used this one measure in a narrow way, looking at management decision-making and timing of significant capex.

I haven't missed the point at all, and I'm not sure we are disagreeing. I said it wasn't a useful metric, and nothing you have posted has changed my mind on that - and I support QF no longer valuing it. At very least, it should be aircraft type specific if it is to have meaning.

It's a simplistic metric that I get is used by some people/sectors who need a quick snapshot of comparing companies but in terms of running an airline - which QF is doing - they're right not to focus on it. They have access to far more specific, useful contextual data.

Guilty though, I come from the operational side of the aviation industry, I'm not an accountant, so that is indeed my focus.

Considering fleet age as a metric is entirely useful for predicting reliability and costs associated with maintenance . For example the 717 fleet is the most unreliable part of the Qantas operations. Additionally, costs with regards to maintenance also increases with the fleet age.

Yes - if it is aircraft type specific, which the one being used in these articles is not.

Although technically speaking the aircraft hours is a better measure for maintenance costs.

 

[jpp42]

-The assumption that aircraft age is relevant. Life of an aircraft is measured in flight hours and cycles, not years.

This isn't entirely true, besides the broader business implications that have already been discussed, there are a number of maintenance items where age plays a role. I understand these aren't all that significant compared to those based on hours/cycles, but they do exist.

 

[Quickstatus]

I think the easiest/only? way to maintain a average fleet age at X is to have a single fleet type with no changes in routes requiring a different type. This way the old aircraft progressively go out the door while new ones come in. Anytime there is a change in operation/routing new types of aircraft are required, and it is not possible to progressively exchange old for new. A route like an ultralong haul (any haul for that matter) can't run on just one aircraft. They have to necessarily come in batches.

Passengers (those who care about type of aircraft - mainly the premium ones) also become unhappy when there is a mix of old and new aircraft for a particular route. There are lots of discussion in these parts when new aircraft are operationally replaced by an old one at the last minute and they are mainly negative

 

[justinbrett]

This isn't entirely true, besides the broader business implications that have already been discussed, there are a number of maintenance items where age plays a role. I understand these aren't all that significant compared to those based on hours/cycles, but they do exist.

And that's where fleet management comes in to move aircraft between tasks so the flight hours get logged somewhat equally - that you aren't thrashing one airframe and letting another be under utilised.

Not my area but I have worked closely with those who do this and it's a complex beast.

 

[QFflyermelbourne]

Imagine if QF got all 65 prior to Covid
Even now QF does not have enough marketshare to fill all those seats.

And its all just a rubbery measure. Its utility more or less depends on the outcome you seek from the accounting analysis.

There's 28 A330s to replace. The original plan was that later 787 orders would be the replacements.

 

[Peasant]

I don't think anyone is arguing that average fleet age is the only factor, but it has to be considered as a key metric for airlines if only for the fact that aircraft have a finite life (in flight hours and cycles) and are very expensive to replace. It is different to most other industries in this regard.

Perhaps the biggest issue with the fleet being almost twice the average age that it was a decade ago is that it throws up uncertainties. And lots of questions. As we all know, investors and the market get jittery as uncertainty increases. For me as an investor, here's my list of questions that would make me wary:

1. Does QF have the maintenance capacity to maintain its fleet? If QF's aircraft retirement policy has now been extended from 20 years to between 24 to 26 years, that significantly increases the amount of maintenance they need to do on their fleet. For example, that will mean extra D checks for 737s, A330s and A380s that would probably not have been required previously. Joyce has said many times over the years that they have culled their engineering workforce because newer aircraft require less maintenance, yet the Qantas fleet is twice as old as it was, and these aren't so-called next generation aircraft. Given the issues they've had reactivating the A380s, they're going to need to invest very heavily in their engineering facilities and workforce. Will they be able to?

2. If up to 75 737s, 28 A330s and 10 A380s will require these additional D checks, and other associated maintenance, what's the cost to the P&L going to be? QF says on its own website that these checks cost millions of dollars per aircraft, so let's assume (and I'm completely guessing here) that it's going to cost between $5m and $10m per aircraft. Extrapolated, is that an additional $1b-$2b in maintenance costs over the next few years?

3. Heavy maintenance checks are not fast, lasting anywhere from 6 weeks to 3 months for the major overhauls. What will the impact be on fleet productivity? Considering how lean the deliveries of aircraft will be for mainline, will they need to cut their flying schedule to be able to complete these checks?

4. What about the fuel burn impairments of flying older generation aircraft? Qantas is flying older A330s that burn somewhere in the vicinity of 15-20% more fuel than an A350 or B787 that their competitors are operating. It would be a similar differential for the 737-800 versus an A321neo. What will the cost penalty be to their CASK inclusive of fuel and will this result in Qantas' unit costs actually falling behind the competition that are much more advanced in their re-fleeting?

5. At what point will customers become frustrated by older aircraft? Yes, Qantas can refurbish the A330s and B737s again so that the product remains fresh, but will they? And if they do, at what cost? Would spending up to $1b on aircraft refurbishments be prudent on airframes that are 20 years old? I'm sceptical, so what would the passenger response be to flying on clapped out aircraft? Will that mean they start to lose their pricing power and consequently command lower yields?

6. Will Qantas have the ability to re-fleet now that it actually needs to? The issue with kicking the can so far down the road means you're at the mercy of future uncertainty. Interest rates are now materially higher and the AUD is materially lower against the USD, making re-fleeting more expensive than it was in the last decade. Most importantly, Airbus and Boeing's order books are now full. Even if Qantas goes to the market for an A330 replacement at the end of this year, when will they actually get aircraft? They're now behind United, Air India and Riyadh Air - among others - so it will be many, many years from now. And we know that QF only has 20 A321s on order for mainline due for delivery between now and FY29, so even if they wanted to, could they get more sooner?

 

[Quickstatus]

For me as an investor, here's my list of questions that would make me wary:

I'm sure that 1-6 are not the only considerations

 

[moa999]

It's one metric.
Works best in super large airlines (like the US ones) who are continually replacing all types of aircraft.
And also in airlines with single fleet types (like most of the LCCs).

It has its failings in small-mid carriers who will purchase fleet in lumps so they have a sufficient mass of aircraft of similar specs.

Other measures you could look at is $ Capex per year to depreciation (adjusting both for leases)

On average global fleets spent 12-18 months doing nothing so the next major maintenance requirement is pushed out.

 

[Quickstatus]

key metric

One metric

 

[Peasant]

One metric

You're very welcome to share the metrics you consider to be more acceptable.

 

[moa999]

And we know that QF only has 20 A321s on order for mainline due for delivery between now and FY29

And 29 220-300s in a 10J 127Y config which are predominately 717 replacements (but there are only 20 717s and they are smaller at 12J/98Y)..
So let's say 10 replace 737s routes.

So with the 20 321XLRs in a 20J 180Y, and 10 223s
That's.
500 J 4870 Y over 30 aircraft

Vs 30 737-800 (at 12J 162Y)
360J 4860Y

So by 2029 QF could have retired 40% of the 737 fleet (pretty much all the 2002-2006 deliveries), all the 717 fleet and got a big uplift in J seats

 

[justinbrett]

You're very welcome to share the metrics you consider to be more acceptable.

What's the metric for? That's the question.

if only for the fact that aircraft have a finite life (in flight hours and cycles) and are very expensive to replace.

Well for one aircraft age does not equal flight hours, so why would use one to measure the other?

If you are measuring this to determine future spend on replacement, that won't work either as the cost of replacing a fleet of Dash 8s will be much cheaper than replacing a fleet of 787s, and yet we've recorded the old Dash 8s on an equal weighting with the new 787s.

In reality even though "Qantas Fleet" is used here in the singular, in actual practice it's "Qantas Fleets" plural, each aircraft type/family is managed separately and merging the stats between them lose meaning - from an operational/maintenance point of view.