Nov 15, 2012

Qantas buy back announcement includes poor outlook

Qantas has broken some bad, if not infuriating news with its announcement of a buyback of around 4% of its shares. This is the ASX release about the buy back:

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Qantas has broken some bad, if not infuriating news with its announcement of a buyback of around 4% of its shares.

This is the ASX release about the buy back:

This is the ASX guidance information for the first half of FY13, or the six months to 31 December this year:

In the corresponding half to 31 December 2011 Qantas reported an underlying profit before tax of $202 million, and a statutory profit before tax of $58 million.

A careful reading of the full disclosures to the ASX this morning show that the misery is significantly self inflicted through a determination to add capacity to the domestic market of up to 9%, which means a fare war with Virgin Australia rather than any effort to do something about the state of the Qantas product or its loss of competitive advantage to a much better managed entity with an engaged rather than alienated work force.

No matter how it is read, it does not claim in any way that Qantas will successfully deal with the Virgin threat other than by adding seats which will force it down into lower yielding territory, and raise operating expenses by flying more empty seats than before.

What it does read like is a page taken from the business school playbooks that wrought substantial damage to legacy US and European carriers in similar price and capacity wars.

What is missing from the Qantas guidance is any sign that it is as smart as Singapore Airlines, or Cathay Pacific, in lifting its game to a level where a premium for excellence is the appropriate way to compete, and as a daily read of the fare offerings of its low cost brand Jetstar compared to those of soon to be Virgin controlled Tiger Australia is concerned, there is clearly something fundamentally flawed with the current application of the Qantas dual brand strategy.

There are no doubt many arguments to be had as to who is the most to blame for this.  But cutting through all of the fawning apologies that get generated in the general media and from ‘analysts’  the bottom line is that Qantas is appallingly badly managed.

Shareholders who have been burned by the worst chairman and most incompetent CEO ever foisted on Qantas shareholders have nothing to celebrate either from being locked in to a trashed share price, or an incredibly disappointing outlook.



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29 thoughts on “Qantas buy back announcement includes poor outlook

  1. Flying High

    Ben, your are hitting a new low with this latest posting. I dont know what Qantas has done to you but it is plainly obvious your reporting is biased and unbalanced. This latest posting is more akin to a rant than a well thought out article.

    You have turned a good news story of debt reduction and share buyback into a negative with yet another dig at Qantas, Jetstar and their management.

    The share buyback is very good news for Qantas shareholders and is a clear demonstration of its financial strength. It is also its best use of funds in the current circumstances – the long term benefit of the share buyback will be much greater than plunging $100m into Qantas International to add capacity and lose more money or to plunge the $100m into Qantas Domestic to further increase its capacity or to plunge $100m into a bonus for the already highly paid Qantas staff so they can become more “engaged”.

    The only disappointing part of the share buyback is they limited it to 4% of the outstanding shares – I would have been pleased to see them buyback up to 10% at these levels.

    If this was Virgin announcing a debt reduction and share buyback you would be singing the praises of Borghetti.

  2. Ben Sandilands

    Correction. Qantas has hit a new low. Its management is destroying the airline and savaging its shareholders. The quality of decision making, and the contempt it evidences for its customers and its staff needs to be reported.

    If you want to be violated or disadvantaged by the actions of this management, read the comforting rubbish that gets published elsewhere. Or talk to some independent analysts who have seen the damage heaped upon the brand through bad decisions and failed promises time upon time.

    Don’t take my word for it. There are some very harsh and well qualified licensed analysts for you to seek out through your own diligent, open eyed inquiries, should you so wish, and there is evidence in the market that they have been heeded since early June if you want a further hint.

  3. Someone

    “Its management is destroying the airline and savaging its shareholders”

    Seems like shares are currently up 6%, out-performing the market on all levels. Also, just another rant on Qantas, move along!

  4. Cat on a PC©

    @Flying High: I don’t really understand this share buy-back and accounting stuff but I do understand Qantas could spend less time fiddling the books and getting back to being the excellent full service premium airline it once used to be. Like Singapore and Cathay are now. I agree that lifting its game would be the better way to compete. You’d be surprised how many people would pay extra for a decent airline experience; even those who travel economy.

  5. Harry Rogers

    Hear! Hear! Ben. Some people are so blind they cannot see. Thankfully I’m not a shareholder just one of the mob who were regular customers. Isn’t it about time the whole board was held to account for the demise of this company.

    Cosgrove gets paid $270,000 p.a. for what and the rest of the board include the usual Australian public company incestuous group of directors.

    The Australian public company market knows no bounds of greed or knowledge of ethics or personal responsibility.

    I’m afraid, Ben , your comments will continue to fall on deaf ears and just watch when Clifford and Joyce finally go there will be no money left except their payouts.

  6. julius grafton

    I’ll support you, Ben. There’s too much truth in what you say to ignore. Grounding the fleet. Code shares on Jetstar that burn off QF customers. Red Star, Premium Asian airlines. Oh, and now I hear in the media that QF think it would be better to communicate with staff than with the unions!

    Emirates was the only deal they could do – and it puts the Heathrow flights through the sandpit at 2am, with bugger all connections.

    Qantas is mired in its history. What other board could support a junk bond buyout, that had it happened would have ruined the company?

    Just search for fares and you’ll find QF has the most expensive business class fare of the day, every day, against every airline ex Australia.

    People who care only about share prices and shareholder value usually take a short view, whereas you Ben have the credibility of a life of commentary on the industry.

    Keep it up!

  7. Allan Moyes

    I agree with Ben but there are a few posters here who see nothing wrong with the way the current board have mismanaged Qantas.

    If you dare comment and agree with Ben, you usually get personal condescending attacks from the Harvard school experts who wouldn’t really know s*** from sugar, although the way a couple in particular go on, they obviously manage several airlines. One even comes on “for fun” to see how insulting he/she can be.

    As someone who has flown QF for years and would prefer to see it a proud name once more, it strikes me that for years, under the current and previous management, the only interest is their own pockets and to hell with the airline and it’s customers. The only solution seems to be cut back on routes and throw us on Emirates unless you happen to live in SYD or MEL.

    Well there are quite a few of us who don’t and I certainly won’t be leaving Brisbane at some ridiculous time of the day (or early morning) to fly 16 hours to a middle eastern equivalent of Disneyland and then transfer to another aircraft to fly on to Europe.

    There are many other alternatives. I can see QF eventually servicing only SYD to MEL or perhaps they should just go back to flying between Charleville and Cloncurry. Those towns must be booming by now!

  8. Flying High

    Cat on a PC, At least your honest when you say “I don’t really understand this share buy-back and accounting stuff”.

    Ben, this latest post is only a rant on your part. Tell us why the share buyback itself if bad? Why is it bad for Qantas to repurchase up to 4% of its share capital? Why is it bad for Qantas to use surplus cash to reduce its debt?

  9. Pilotpete

    Allan Moyes you have got to be joking right??

    The whole thing with blogs is that most people who read them agree with what the author has to say! You are much more likely to get flamed for disagreeing with a blogger than agreeing. All the comments before yours only proved this point even more.

    And Ben why would Qantas outline how it was going to change it’s domestic product in oder to tackle Virgin. Wouldn’t that just let Virgin know what they were doing so they could counter them?????????

  10. J.W.

    if you disagree with ben feel free to buzz off 🙂 i suspect the loudest noises come from internal sources anyway.

    any idiot can see the forest for the trees: ie the shrinking market share, growing competitors, toxic workplace and the lies and spin permeating qantas.

    talk about defending the indefensible lol

  11. Ben Sandilands

    There would be very substantial numbers of retail shareholders for whom a buyback at anything less than around $2 would be a deeply wounding confirmation of the disastrous performance of this company.

    For those who bought at 97 cents or even $1.25 the buyback will, if the share price climbs upwards a bit by December when the company intends to begin the purchases there will be rewards.

    For those Australian who supported a once great brand and expected a total dividend of around 30 cents a share largely franked the last three years have been terrible, and the buyback tells them those three years have been in vain. The miserable performance of this management has caused deep harm to such investors, including the overly trusting.

    It is true, investing in stocks comes with risks. For those who believed in Qantas that lesson is being forced upon them with little if any prospect of an escape.

    If Qantas were to seek a significant benefit from a buyback in terms of a worthwhile return to dividends and share price, it would be for more than 4% of common stock, but for the reasons outlined in the ASX filings, the performance of this management may frustrate such a larger buyback occurring.

    I regard it as nauseating for the statement to express concern about how the market has undervalued the stock, when their actions, or failed promises, are a cause of this weakness.

  12. Harry Rogers

    I guess the share buyback has nothing to do with the compensation deal with Joyce etc where it is based on EPS!!
    An increase in EPS (Earnings per Share)always is the outcome of a share buyback.

    Shares buy backs also mean that Management hasnt’t a clue what to do with it’s surplus cash. Institutions rarely sell into a share buy back so guess who loses in the long run??

  13. Allan Moyes


    I actually agree with your para about blogs, but it became a bit of a personal thing with two posters in particular (whom I admit I haven’t seen here for a while). They normally resorted to insult and condescension rather than discussion if you happened to agree with Ben’s comments about QF management.

    Sorry, Ben – my post wasn’t intended to be inflammatory.

  14. moa999

    “for whom a buyback at anything less than around $2 would be a deeply wounding confirmation of the disastrous performance of this company”

    Do you understand the maths of a buyback at all?
    A $100m buyback at $1.33 buys back 75m shares. A $100m buyback at $2 buys back 50m shares. Which is better for shareholders???

    Whilst ALL shareholders would like a higher share price, it is better for the company to take advantage of a lower share price to buyback shares when it has excess cash and the implied return of the buyback is better than deploying that capital.

    As for comparisons to Virgin, it has been forced out of the low cost market that it once created, and it still seems to be struggling at the premium end – two SYD-PER flights were under 50% at the front and recent SYD-BNE have been no better.
    Agree that Tiger is typically cheaper than Jetstar, but undoubtedly Jetstar is a better brand, has greater routes and provides better services inc lounge access for Qantas elites and doesn’t operate from a shed (MEL T4)… Why should it not try and charge a premium for this.

    On your comment on QFInt lifting its game to SQ/CX… Well lets see. EK deal to provide better connections to Europe, likelihood of rejig of Asian flight timings post EK approval, new J Class duvet service, A380 seats/IFE on older 747s, SelectOnQ-Eat — they certainly aren’t not doing anything, albeit I think QF already tries to get a fare premium.

  15. Ben Sandilands

    Let me be blunter and yet more concise. Whatever the price, this is a reminder to long term retail investors that they have been done over by an appalling bad management, and to others, that Qantas is more a numbers game or play than a serious committed strategically focused carrier.

    Do the reverse audit. Tell us all, what has Joyce actually achieved in dollars for Qantas shareholders? In statutory reporting figures please.

  16. xhilde

    Your recent report (http://blogs.crikey.com.au/planetalking/2012/11/13/emirates-flies-more-charges-more-doubles-half-year-profit/?wpmp_switcher=mobile) expands your view that Emirates has a gold standard management team.

    So if we take your view on fact value, what do you make of TC’s recent ( and ignored on this blog) comments?


    On Alan Joyce’s implementation of new strategy at Qf international-

    ‘”This was a structural problem and couldn’t be solved overnight with a magic wand’

    On militant hr management-

    “I couldn’t have done anything else”
    “these issues – the grounding – are watersheds that had to happen to reposition the airline”

    On concentrating capex on Jq and Qf domestic-

    ‘ The Emirates boss added that Mr Joyce had picked out the things that were working – such as Jetstar, the frequent flyer program and Qantas domestic – and was growing them’

    I’m sure this will be justified with some bleating about ‘junior partner getting a gold star from father.’ Or could it be that you will be “eating [your] words” in three years as TC suggests?

  17. Harry Rogers

    “Do you understand the maths of a buyback at all?
    A $100m buyback at $1.33 buys back 75m shares. A $100m buyback at $2 buys back 50m shares. Which is better for shareholders???”

    So in the end QANTAS on a financial analysis is doing so well that it can buy back its shares as it has more than enough cash to carry out its strategies? Hope you people increase your shareholdings at these basement! prices.

    EK, even in the Middle East market now is considered second rate to Etihad perhaps because Abu Dhabi has had to bail out Dubai so many times. Oh and yes what a great stopover location (mainly at 0200)..Hmmm hmmm Dubai. People could spend weeks exploring this fascinating city.

  18. Ben Sandilands


    Have just read Macquarie Bank’s proprietary analysis which I will not quote here out of respect to its intellectual property, but I am chastened for having been far too gentle on Qantas today. Will be interested in seeing whether some of the financial columnists overnight are in a position to quote from that document,which implies that Qantas will make far less in underlying profit when matters which shouldn’t be counted are removed from the guidance the company has quoted.

  19. xhilde

    I look forward to subsequent reporting .

    So in Other words macbanks guidance negates the head of EK’s opinion.

    This is the macbank which valued qantas at ~5.50 In that ‘dead set disaster’ APA bid. (http://blogs.crikey.com.au/planetalking/2009/06/17/ba-work-for-free-plea-points-to-a-second-great-escape-for-qantas/?wpmp_switcher=mobile ,

    Macquarie is a professional organization and I trust their Chinese walls are strong. I point out the APA bid because it underlines that analysts are analysts are analysts. Goodness knows they disagreed with your gloomy view of the share buyback today (4% rise http://finance.ninemsn.com.au/newsbusiness/aap/8564750/qantas-moves-to-improve-share-price). They know much, much more than me and they know probably more than you.

    But they certainly don’t run Emirates. Tim Clark is, according to you, prescient, powerful and smarter than nearly any other airline head.

    So are you saying his endorsement of AJ was wrong/untruthful?

    Is it not worth pointing out that opinion and acknowledging that views on qantas aren’t so black and white?

  20. Flying High

    “Qantas is more a numbers game or play than a serious committed strategically focused carrier”

    So you are telling us that Qantas is not:
    *serious; and
    *committed; and
    *strategically focused.

    We all have our opinions over their decisions and their correctness but it is very far fetched to claim Qantas is not serious and committed about its business. Further Qantas is arguably one of the most strategically focused large companies in Australia.

    Anyway I am pleased to see that you have taken your reader comments on board and have made the wise move to read up on the financial aspects of Qantas. If you need some help understanding any of it you only have to ask:)

  21. Flying High

    “If Qantas were to seek a significant benefit from a buyback in terms of a worthwhile return to dividends and share price, it would be for more than 4% of common stock”

    So, from the above, I take it you think the buyback is a good idea. You wouldn’t be suggesting Qantas should buy back more if you thought it was a bad idea.

    Qantas are limited by ASX rules to a maximum of 10% without obtaining explicit shareholder approval. But there is nothing to prohibit Qantas announcing a further buyback once they have completed the 4% (as long as they stay under the 10%).

    Qantas could easily have repurchased more capital instead of repaying debt but the 4% might give them the most bang for their buck. It certainly throws sand in the face of those analysts, such as Macquarie Bank, that were saying Qantas was going to raise more capital. The capital raising speculation pushed the share price down to $1. In the current market any prospects of a capital raising is a lead balloon for any companies share price.

  22. Flyer Solo

    It’s clear that Ben is angry and frustrated with the direction Qantas management and board has taken in recent years. His anger and frustration is emblematic of the loyalty and faith most Australians have in our iconic airline. While at times Ben’s passion may detract a little from his arguments, the fact remains many Australians (like Ben) are very concerned at what is happening to Qantas under the Joyce/Clifford regime.

    Now, I’m a little sympathetic to Joyce. He cops a lot of flak in the media that is personal and unfair. But he doesn’t help himself. People don’t trust what he says because of his actions. Under his leadership, Qantas has been unnecessarily combative and aggressive towards it’s employees. The airline has been contracting and innovation is near absent. There has been far too much focus on Jetstar.

    Alan Joyce has said Qantas International will be re-focussing on Asia. Many analysts and consumers say this is desperately needed. If Joyce is to be believed, the next weeks will be very instructive.

    Today, the 131st IATA Slot Conference for the 2013 northern summer schedule begins in Toronto for four days. Based on Joyce’s declarations, one should expect Qantas to be working hard to get extra slots for new additional services to Singapore and Hong Kong, better timed for business travelers and same-day intra-Asia connections.

    Qantas should be flying twice daily to Singapore each from SYD, MEL and PER, and once daily from BNE, as a minimum with its red tails in addition to Emirates codeshares. For Hong Kong, Qantas should be flying as minimum twice daily from SYD and MEL, once daily from PER and BNE. That’s if it’s serious about business and Asia. Such a schedule would be a true commitment which matches the rhetoric.

    Beyond a revised Asia schedule, Qantas is surely overdue to make an announcement about the 15 787-8s. If those aircraft aren’t going to QF Intl over the current announced plan for JQ Intl, then QF Intl will surely need some extra hardware to fly an increased Asian schedule taking into account planned old 744 disposals. And QF will surely need to refresh it’s A330 Intl fleet with Skybed MkII to be competitive with SQ and CX.

    Qantas needs some good news of substance, and soon. If the market and the traveling public doesn’t see an announcement post-IATA Slots before Christmas, alarm bells should sound.

  23. Ben Sandilands

    To some extent in discussions like this we seem to end up discussing the colour of the flames in a burning building rather than the fact that it is on fire.

    The issue is that Qantas in my opinion is very badly managed, and nothing its management has promised to do or said has actually worked or been true.

    The share price is trashed and it is engaging in a capacity war which it admits will hurt it.

    One of the better stories in the general media this morning is by Elizabeth Knight in the Fairfax media which does seem to selectively and favorably quote from the Macquarie analysis but even then would give a reader serious pause.

    The unpublished part of that analysis points out that the gloomy view it takes as to what an underlying PBT of less than $40 means in the in-trading terms strong half of FY13 in relation to the usually, in fact always, weaker second half of the financial year. I think many who understand the situation will see Qantas as a group being seen by the Macquarie analysis as likely in statutory reporting terms to be a loss making enterprise for the entire year. By extension, in a price and capacity war, this could also be the case for Virgin Australia.

    Xhilde is right that I have respect for Tim Clark and Emirates. I never believed the disgraceful slanders Qantas was pushing about Arab airlines in Canberra late in May when it thought the deal was off, after which it suddenly remembered its obligations to inform the market of its profit downgrade 21 days before the end of the financial year, and threw the share price over a cliff.

    But Xhilde has fabricated the adjectives or she attributes to me.

    And it is true that people need to remember what financial analysts and the finance sector sets out to do, which is to sow and harvest the need for services that generate fees.

    They are not there to help us, but to screw us. Nicely, or not, as the case may be.

  24. xhilde

    What adjectives have I misattributed? I haven’t as far as I can see. Everything I said has been a factual representation of everything you write.

  25. Flyer Solo

    Great CAPA piece here on the untapped Australia-India non-stop market. Really shows it beggars belief that Qantas can’t make a good buck from a daily SYD-Mumbai or SYD-Mumbai-Delhi triangle service. Let alone flights three or four times a week from MEL or PER.


  26. Harry Rogers

    Some very fair comments in this piece. I for one have no financial or employee interest in QANTAS.I am just a very frequent inetrnational flyer of many years and of course having been running businesses in small and large companies for the same time.

    I know where Ben comes from and it would be very useful to know where the others commentators come from.

    I’m slightly dumbfounded by the persistent support for QANTAS when it is patently clear on any financial or management analysis that Clifford, Joyce and Dixon are and were failed managers. They need to be sacked … simple as that.

    I have absolutely no personal angst against these people and can only judge them by thei actions which as a dipassionate observer I believe the entity of QANTAS deserves much better.

    I can only say that in the past as a traveller I felt a certain loyality to QANTAS. That loyality has dissipated to almost zero over the past 5 years. When can QANTAS get it through their head that thos that vehemently criticise QANTAS are doing so out of concern NOT vitriol. I speak to QANTAS staff all the time on my domestic and internationalflights and their is clearly no respect for management. FYI tis is also the same with Finnair staff.

  27. Harry Rogers

    FYI I am also a lousy typist. Apologies.

  28. timjack Elton

    Qantas is a great airline, damaged by a Chairman and CEO who lack the people skills required to run an airline. For the past three years, Joyce and Clifford have only produced bad vibes blaming everyone and any thing but themselves. The reality is people are voting with their feet quietly because they are tired of all the broken promises from Joyce regarding the Qantas brand. I think it is obvious now Clifford and Joyce favour the Jetstar brand, which was made possible because of Qantas in the first place, other words, Jetstar has canibalised the traditional Qantas business, the main reason why I refuse to fly Jetstar out of respect for the Qantas staff, I support them. I wish a few more Australians would do the same, as I said, Qantas is still a damn good airline by world standards, sadly in my view run by a ship of fools,.
    I salute the QF operational staff who do an exceptional job considering the dysfunctional management they have to work with. The problem with many Australian business leaders today is they are happy to sell out Australian jobs for their shareholders, the big institutional ones who are all foreign owned… go figure.

  29. discus

    Qantas execs should be held accountable for allowing the company to have such a low share price in the first place. To then make the buy back some kind of triumph for shareholders is quite cynical. In doing this they are saying this is the best thing we can do with your money. It is not investing in people , product or brand. Purely a case of trying to boost EPS. The market is a fickle beast that may not reward them.

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