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aviation

Nov 3, 2012

Why this reporter will have to buy Qantas shares

After enduring the Qantas AGM on the small streaming video screen it is clearly necessary for this reporter to make a new investment in the airline's stock. It is the only

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After enduring the Qantas AGM on the small streaming video screen it is clearly necessary for this reporter to make a new investment in the airline’s stock.

It is the only way to ask questions at the meeting. Questions that were not asked at the meeting, yet questions that the institutional and longer suffering retail shareholders ought to have been pressing on the management and the chair with some urgency given the trashing of the brand, the stock price, the dividend sensitive investors, the company’s greatest asset, which is its people, and such unfashionable intangibles as the ‘national interest’.

In fact, the dividend drought was raised, but not explored.

If in truth the company is going to place the emphasis on debt reduction in place of capital expenditure, the real world consequences needed to be queried, and the hidden inspirational brilliance of management genius allowed to shine forth into the darkness of the uninformed hall in Canberra’s Hotel Realm.

There is a perverse, toxic relationship between slowing a company’s growth down in order to ‘catch up’ and being totally run over by competitors that know a company of fools when they see them, and will continue to eat them alive.

Would it not have been a good idea for someone to ask management what happens if Qantas stands still, or imitates standing still, for the three years CEO Alan Joyce says it will take to restore Qantas international to profitability, while the rest of the market keeps growing at a notional 6% per annum, making it almost 20% larger by then than it is now?

Would it not also have been a good idea to ask if on the resumption of significant capital investment at that point what real prospect Qantas would have of reclaiming all of those customers it would have lost to its competitors, whether Australian or foreign, or hybrid, like Virgin Australia Holdings?

There are some encouraging signs that Qantas understands that to survive in the Asia Century it needs to engage with Asia and invest in Asia and fly in Asia. These are the same encouraging signs you can observe in a year 10 classroom, when some beaming luminary from either side of politics poses for a photo opportunity, and gushes nonsense about how well informed the children are. Well done Qantas.

But the test of what Qantas does in Asia isn’t its mastery of buzz words or an ability to look at an atlas. It is about what it actually does in Asia, or more to the point, hasn’t done, or has totally stuffed up, like Jetstar Pacific, which at this stage of the proceedings, is a disaster, or the Red Q nonsense that our asleep-at-the-wheel institutional investors signed up for.

Although some of them also unsigned from it, completely, and reportedly quit the stock.

Qantas should have been asked on what basis it thinks that connecting to the Jetstar franchise at Singapore Airport, after as much as 4-6 hours between flights, to complete a journey to points in China, India, Malaysia, Thailand or wherever, after flying full service Qantas from Australia, is actually going to cut it with business travellers?

What makes Qantas think it is acceptable to change from Qantas to Jetstar anywhere on a trip involving a connection? What is Qantas going to do about it? When Qantas puffed up the Red Q nonsense it specifically said it would be different to and better than any other regional premium experience in Asia.

Well poor struggling, second rate lesser premium Singapore Airlines owned single aisle carrier SilkAir is reporting margins of around 20%. What was Alan Joyce smoking when he said the things he was telling the Australian market about Red Q little more than a year ago, why hasn’t he been held to account for this, and why, in a few words, isn’t it much more competitive for an Australian business traveller going to much of Asia, or an Asian business traveller going to much of Australia, to do so flying the full service all-the-way offerings of Singapore Airlines, SilkAir and their Australian partner, Virgin Australia?

Why didn’t anyone ask the bleeding obvious?

No-one asked the really embarrassing question as to what happened to the wicked, evil, union death threats claim that Qantas trotted out just over a year ago, which caused the NSW government to deploy state police resources into a special investigation which without explanation, ended its inquiries? Where is the evidence? Why didn’t it support criminal charges? Did Qantas in fact just make it all up, goodness me, surely not, but if it did, has it been called to account for a PR stunt that involved false or misleading statements? Causing police engagement with allegations of death threats it a serious matter. Where is the accountability for the outcome?

When it came to the spontaneous decision to ground Qantas, costing shareholders $194 million and ruining the travel plans of willfully deceived booked passengers world wide, no-one asked the really burning questions.

Which is why instead of dramatically going for both the customers and the unions in one grandstanding hit, why didn’t Alan Joyce announce that unless the intolerable provocation of protected industrial action was ended forthwith by Fair Work Australia, he would indeed, have no option but to lock out both the customers and workers early the following week in order bring matters to a head, as Qantas was entitled to do, in law, but without causing so much misery to everyone.

Joyce would have achieved precisely what he achieved with the grounding, without costing the company anything like the same amount of money, without ruining the travel arrangements of 70,000 passengers, and without inflicting the longer term damage to the reputation and brand of Qantas which he says was miraculously totally 100% reversed and even further improved by the end of last November.

No-one raised any questions about how the partnership with Emirates, subject to approval, will win back to Qantas a single passenger from Emirates, nor why it means Qantas is telling its customers to fly Emirates as its preferred partner to Europe from most of the geographical spread of Australia from next April.

The claim that the partnership was one of equals wasn’t explored. What precisely is equal about eight arrivals or departures per day of Qantas A380s through Dubai providing daily returns to London from Sydney and Melbourne compared to dozens of Emirates A380s and 777s a day serving more cities in Australia, not counting its additional flights between Australia and New Zealand or up to Asia?

There were some really serious questions like this that needed to be pursued from the floor yesterday.

They weren’t pursued, notwithstanding some well articulated anger from some of those present, and some fawning, please hurt me even more type of questions.

True, the decision to buy Qantas shares in order to ask questions at AGMs, or possibly, some special shareholders meetings in the future, may seem perverse.

But if you believe in this country, and you believe that ultimately, remorselessly bad or sub-standard management will give way to something better, Qantas makes sense at such depressed price levels. It can and will (or must) rise above this.

There is no rational reason why both major Australian airline groups cannot grow, prosper, compete ferociously, and reward their owners. There is no reason why in the Asian century, they will not do that in a way that participates in growth that will mostly come to and from abroad, rather than originate in this country.

But it demands in the case of Qantas, something considerably better than it has in its management today, and as far as Virgin Australia is concerned, it will soon, very soon, be judged against similar tests of its leadership, and the challenges that arise from the participation in its structure of a range of not necessarily compatible foreign airline interests.

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