Qantas 787 cancellation could kill its long haul operations
The consequences of the Qantas decision to strip firm orders for new airliners off its long haul international operations could cause its collapse or sale to predators in the near future.
Some critics of its current management and board have already said this is ‘the plot,’ and it may well be.
However it isn’t necessary to believe in such a strategy or conspiracy to identify the likely negative outcomes of the decisions, which involve cancelling $US 8.5 billion worth of orders including 35 keenly bargained Boeing 787-9 Dreamliners.
The very act of cancelling those orders is of direct benefit to Virgin Airlines alliance partner Singapore Airlines, a 787-9 customer that had been adversely affected by the program’s delay; has an expressed intention to use the Dreamliners to replace its fleet of A330s; and can now look forward to deploying them as a support airliner to its A380s on its multi-daily services to Melbourne, Sydney, Brisbane and Perth much sooner than it had hoped.
These larger, more capable Dreamliners were always said to be the key to modernizing and growing the Qantas fleet on secondary international routes, and Cityflyer domestic routes currently flown by a mixture of aged and increasingly inefficient 767s and more recent and larger A330s, some of which are due to be returned to Qantas from Jetstar when the budget carrier gets the initial version of the Dreamliner, the 787-8, from sometime in the second half of next year.
The cancellation leaves in place fixed price/fixed date production options for 50 Boeing 787-9s from 2016, which are much cheaper to keep alive than is the case for ‘firm’ orders, but Qantas will need to spend serious money to convert them to orders, and conversion train or otherwise recruit the pilots and operational support for these opportunities no later than about 18 months before the options expire.
In the case of a management that has expressed contempt, anger and frustration over the performance of the international division, much of which reflects poorly on management itself, it is a big ask at this stage to believe that by this time in 2014 it is going to begin reinvesting in the full service long haul brand.
And even if it did, its competitors will not have been marking time. They will by then be bigger and better equipped competitors who have been growing their presence on routes and to markets Qantas can’t or won’t serve, and can’t reclaim or contest without new and more cost efficient airliners.
The market rewarded Qantas this afternoon for cutting capital expenditure and continuing the dividend drought into a fourth year. But without that expenditure the value of Qantas as a brand and product of diminishing relevance to travellers will implode. Qantas isn’t just losing customers, but experienced pilots, engineers, and executives to Virgin Australia and foreign carriers.
If the company is averse to the risk of a transformational order for new airliners, surely it is going to be resistant to exercising options to spend the same amount of money per jet as it negotiated when it did the 2005 deal to buy or option up to 115 Dreamliners for delivery from 2008.
Painful though the cancellations may be for Boeing up front, every one of those relinquished manufacturing slots will be sold for at least twice and probably three times the original price tags of between $US 76-90 million apiece agreed for the original Qantas orders, using figures extracted over a period of time by the world’s leading 787 reporter Jon Ostrower.
The so called fleet restructuring that was given the soft sell by Alan Joyce this morning is arguably of latent lethality to the very future of a modern, relevant and competitive Qantas, and a bonus to any airline desperate to get 35 shiny new and suddenly available 787-9s.