QF half yearly ASX trading annoucement

[Melburnian1]

The most interesting item in QF's half yearly profit announcement (for the six months to 31 December 2019, ASX notified on 21 February 2019) was that buried on page 11 of the Powerpoint presentation under 'Qantas International' was the statement 'Competitor capacity growth moderated to 3.8 per cent in the first half of 2019.'

However, reading across, QFi's growth in capacity was only 1.3 per cent for the half year (measured by 'available seat kilometres').

So sure for QF it may be trying to make it a 'yield game' (even though its operating margin dipped, and profit for this division declined from $224 million to just $90 million before interest and tax), but if one's competitors are expanding at (on average) almost four times the rate you are, QF must be under a fair bit of pricing pressure.

It also says 'London doing well.' That's nebulous and doesn't indicate it's profitable.

We can assume from the statement 'Strong competition on (sic) the USA market' that QF flights to and from it, overall, are highly likely to be unprofitable. UA's forthcoming reduction in frequency may help a little.

Of course, fuel prices can decline as quickly as they rose, but I can't see the A$ rising in the next few months, and the latter is a drag on airlines that have a lot of revenue in say A$ and many costs in US$.

 

[moa999]

QFi has been losing share for years so nothing new there.
Just look at all the Chinese airlines flying to Australia or the impact of the LCCs

 

[eastwest101]

The most interesting item in QF's half yearly profit announcement (for the six months to 31 December 2019, ASX notified on 21 February 2019) was that buried on page 11 of the Powerpoint presentation under 'Qantas International' was the statement 'Competitor capacity growth moderated to 3.8 per cent in the first half of 2019.'

However, reading across, QFi's growth in capacity was only 1.3 per cent for the half year (measured by 'available seat kilometres').

So sure for QF it may be trying to make it a 'yield game' (even though its operating margin dipped, and profit for this division declined from $224 million to just $90 million before interest and tax, but if one's competitors are expanding at (on average) almost four times the rate you are, QF must be under a fair bit of pricing pressure.

It also says 'London doing well.' That's nebulous and doesn't indicate it's profitable.

We can assume from the statement 'Strong competition on (sic) the USA market' that QF flights to and from it, overall, are highly likely to be unprofitable. UA's forthcoming reduction in frequency may help a little.

Of course, fuel prices can decline as quickly as they rose, but I can't see the A$ rising in the next few months, and the latter is a drag on airlines that have a lot of revenue in say A$ and many costs in US$.

All good points there - I think the exchange rates may play more of a part myself, exchange rates slow down outbound tourist traffic out of Australia (but may encourage more inbound but depends on which currency pair and inbound market we are talking about), cost of fuel can be adversely affected by exchange rates as well so if jet fuel prices and exchange rates both go against Qantas then things will get tougher for them.

 

[Melburnian1]

...exchange rates may play more of a part myself, exchange rates slow down outbound tourist traffic out of Australia (but may encourage more inbound but depends on which currency pair and inbound market we are talking about)....

In December 2018, inbound arrivals from mainland China were up 3.4 per cent compared to December 2017, but on a year-on-year basis, arrivals to December 2018 were up 5.5 per cent. So arrivals from that very large market are slowing, not surprising when AFF members with firsthand knowledge such as yohi?! remind us that discretionary spending there has slowed and state owned enterprises are in a lot of trouble.

QF is mainly exposed to the mainland Chinese market through JQ (although HKG also sees its share of mainlanders).

 

[Pleb Status]

I wonder how much of the 60% drop in QFi EBIT is due to their self imposed fare war with VA on the SYD/MEL-HKG routes.

I am pretty sure that VA do not want to sell seats sub $500 return to HKG, so prices would rise back to normal levels with QF wanted that to occur...

 

[Melburnian1]

I wonder how much of the 60% drop in QFi EBIT is due to their self imposed fare war with VA on the SYD/MEL-HKG routes....

It may be relatively minor, perhaps a few million, as HKG would be less than 15 per cent of revenue for QFi given busy (but short distance) TransTasman, other Asia (NE and SE), USA, seasonal Canada, minor others (POM, NOU etc) and limited frequencies to UK, SCL and JNB.

 

[dajop]

We can assume from the statement 'Strong competition on (sic) the USA market' that QF flights to and from it, overall, are highly likely to be unprofitable. UA's forthcoming reduction in frequency may help a little.

This is a good point. As recent as 2007, IIRC, between Australia & the contiguous 48 states there were 6-7 flights a day (4-5 QF flights + 2 UA flights). Now there are up to 15 (5-6 QF , 2-3 VA , AA, DL and 3-5 UA flights). Also 3 AC flights vs 1.

 

[flying_double]

If you look at revenues, unit revenue was up approximately 5% for QFi so it’s not a pricing or specific competitive issue per se. It’s all about fuel.

The most interesting part for me is the 7.5% increase in unit revenue for QFd on 2.1% lower ASKs... capacity/yield management to screw more out of every passenger at its finest!

 

[moa999]

Domestically it's fairly clear that fares have been on the increase for a while, way more than fuel.
Can't remember the last sub-$100 QF fare I saw.

That said with the margins they are getting it's probably the limit before you start attracting the interest of new upstarts.

Reality however is both QF and VA need this sort of level of profitability over the next few years in order to catch up Capex on fleet.

 

[Melburnian1]

Domestically...Reality however is both QF and VA need this sort of level of profitability over the next few years in order to catch up Capex on fleet.

Important point, as by the end of 2019, 29 of QF's 75 B738s will be 15 years of age or older. The oldest is already 17. Good maintenance is the key, but apart from that, basics that passengers see such as seats, tray tables, walls, carpets, loos and so on start showing their age. Operating costs may also become higher for older planes as QFi finds with its B744s.

Eastern Australia's VH-TQG is 23 years old. Cobham has at least one B717 that turns 20 at the end of 2019.

Because it generates more clicks, there's much media attention on the international fleets, but far less domestically.

 

[moa999]

Yep .The last $s that went into domestic (other than the extra row) was the original RetroRoo delivered 2014.

I suspect the oldest 737s may get replaced with 797/MoM if Boeing ever launches it.

 

[Melburnian1]

Apart from the strange mention of 'berths' in economy - a Y seat on an airline doesn't equate to a lie flat second/economy or first class train sleeping berth - this is an interesting Bloomberg article:

https://www.canberratimes.com.au/bu...ious-plan-could-backfire-20190222-p50zhr.html

 

[jb747]

Yep .The last $s that went into domestic (other than the extra row) was the original RetroRoo delivered 2014.

I suspect the oldest 737s may get replaced with 797/MoM if Boeing ever launches it.

They will be in wheelchairs by then. 321 NEO would be the sensible bet.