Did I understand this right? Are Qantas saying that they need international investors to turn a profit?
How does this work, or did I get it completely wrong?
Yep. It's not that complicated; international capital looking to diversify into AUD aviation assets will accept a lower return (pay a higher price for shares), than the domestic capital to which Qantas is currently limited.
This means that the cost of raising capital for Qantas is higher than it is for competitors (not necessarily airlines) who are not bound by the same rules. It's not a level playing field.
In an industry with margins as low as those in aviation, this is the difference between a profit and a loss.
I find it sad to see one of the safest and oldest airlines in the world on the rocks like this.
Could be Ansett 2.0....
Hopefully they can turn it around!
When it comes to buying a plane ticket, most people opt for the cheapest seat. They don't take much notice of the safest airline with the best record.
When an aircraft crashes, everyone harps on about "Why does an airline cut safety by saving a few dollars on fitting cheap parts, or cutting safety margins?" etc.
The fact is, airlines which do not cut costs and safety are in competition with airlines which do, so it really is a race to the bottom.
Airlines which continue to offer gold plate safety and service will go under if people continue to buy seats on airlines which operate closer to the line between the break even point and aircraft crashes.
A lot of luck is involved when you operate on the edge, and luck can change in just one year.
Malasian Airlines is a good case in point.
What was the cost in flying around a war zone rather than over it? Not a lot, but they chose not to. It made the tickets cheaper.
Qantas flew around it, but then their tickets cost more.
Maybe people should re-assess their priorities.
Joyce has his head stuck in the sand of Jetstar Asia; it has bled the company dry with massive losses, in write downs and head to head running cost and still doing so. He won’t take any council on the matter, just ploughing along getting the guts ripped out of him and company.
It was never to reach the size it is, and always recommended from all parts, be about 5-7% in comparison to business equity.
Qantas didnt make a loss.
They pumped some cash into Jetstar to keep the that dream alive
The family and I used to fly exclusively on QANTAS cos wifey be scared of flying and only Q was safe enough. Then they cut our direct route. The price and discomfort of using them the long way round was the nail in the coffin from our perspective.
Interesting will be to know how boss remuneration was growing over all this time company profits were down...
www.smh.com.au/business/companies/qantas-chief-alan-joyce-gets-1m-raise-20130906-2tab9.html
and
www.theage.com.au/comment/qantas-chief-alan-joyce-has-many-questions-to-answer-20140827-108wov.html
Select to expand quoteAUS1111 said..
Yep. It's not that complicated; international capital looking to diversify into AUD aviation assets will accept a lower return (pay a higher price for shares), than the domestic capital to which Qantas is currently limited.
This means that the cost of raising capital for Qantas is higher than it is for competitors (not necessarily airlines) who are not bound by the same rules. It's not a level playing field.
In an industry with margins as low as those in aviation, this is the difference between a profit and a loss.
There is no share issue occurring because there is no need for extra capital, it's profit they need. One shareholder selling shares to another shareholder does not involve qantas and will not fix the problem with profit. More investment just means they need even more profit to earn a return on that too. Profit is revenue less expenses and share price doesn't influence that. It's the other way round, good profits push up the share price and losses make it go down. It's just some shareholders looking for a quick buck and off load. Qaint-arse's problems are too aggressive expansion into asia and oversupplying the domestic market in an ego driven penis size off with john spaghetti at virgin in a battle for market share.
Well, that's true if they don't intend to raise more equity by way of issuing more shares, but when they want to buy a whole lot of new planes, they will probably have to do that.
There's no point in issuing more shares on the australian stock market because they would never sell them without flooding the market and driving the share price down, making the success of the capital raising doubtful.
However, at various times there have been overseas airlines wanting to put money into qantas but couldn't due to overseas ownership restrictions.
That has left qantas with no way of raising new capital because australians wont buy it.
With restrictions lifted, or raised, they can issue a big block of new shares to one or two overseas companies without killing the share value here.
In fact, it would have the opposite effect because existing shareholders would gain confidence in the fact that someone else with deep pockets was on the share registry, with sufficient money invested to make it likely they would throw in more to prevent it going belly up, if such an event became likely.
The same thing happens in the mining industry. That's why there is some serious chinese investment in a lot of australian mining companies. Specially the smaller ones. They want the security of supply and we need the security of guaranteed capital investment.
It's a good safeguard against the company being left high and dry when the australian money dries up.
And unfortunately, australian money dries up at the drop of a hat, or iron ore price, or aluminium price, or nickel price, or coal price, or any other price.
Most australian investors want a high return right now, today, and some more tomorrow. When it stops, they're out.
Chinese investors tend to look ahead five years.
Alan Joyce is backed by a business consortium , he's put in power, then drives the cost of the airline downward ,only to be rescued by the private buyer at a massive discount , just watch
Select to expand quoteLittle Jon said..
There is no share issue occurring because there is no need for extra capital, it's profit they need. One shareholder selling shares to another shareholder does not involve qantas and will not fix the problem with profit. More investment just means they need even more profit to earn a return on that too. Profit is revenue less expenses and share price doesn't influence that. It's the other way round, good profits push up the share price and losses make it go down.
Rubbish.
The share-price is everything. Qantas has a constant need to rollover it's debt and the value of it's equity is critical in determining the required yield, and the optimal debt/equity mix. It's about the cost of capital. Ownership restrictions drive up the cost of capital.
