Qantastative Easing: Why are Qantas shares surging? Because overnight, the airline has gone from gloom to boom
Few amusement parks can match the thrill of investing in Qantas. This time last year, the airline’s shares were down by nearly a quarter y/y. Then came spring in the southern hemisphere, when they began a sharp ascent after CEO Alan Joyce declared: “We have now come through the worst.” Another encouraging set of financial results announced in late February sustained the momentum, and a bullish investor day presentation last week lifted shares another 7%. By Friday, they had nearly tripled from a year ago, an appreciation in value unmatched by any other airline in the world except China Southern.
As discussed in Airline Weekly’s Sept. 1, 2014, cover story (“Thunder Down Under”), Qantas had suffered through one of its most troubling periods during the first half of that year. Australia’s economy was slowing and the Australian dollar was weakening, making then-still-high fuel prices all the more so for Qantas. Foreign competitors, including longhaul LCCs like AirAsia X and Scoot, were flooding the market with waves of new capacity. At home, Virgin Australia was growing aggressively. Suddenly even Jetstar was losing money. So was the perennially profitable mainline domestic operation. And the mainline international operation? Losses amounted to more than $200m in just those first six months of 2014.
But that same cover story identified a plethora of lesser noticed but just as significant green shoots heralding a turnaround. Major cost cutting was taking root, a carbon tax had been repealed, depreciation costs were dropping and competitive capacity was easing significantly. The weak Australian dollar, although inflating fuel costs, was also discouraging foreign carriers from serving the market: better to send longhaul planes to the U.S. and earn strong U.S. dollars. Virgin Atlantic was one airline that had exited Australia while expanding to America. In the meantime, just as in the U.S., consolidation was leading to fare increases at home—Virgin Australia and Tigerair were now one.
Qantas itself froze capacity at home and cut some overseas routes like Perth-Singapore. It boosted aircraft utilization by reducing aircraft turn times, modernized its maintenance practices, secured wage freezes from most work groups, retired older fleet types (B767s and B737-400s), densified B737s, paid down debt, sold non-core assets like airport terminals, suspended Jetstar growth overseas, began flying B787s at Jetstar, formed marketing partnerships with China Eastern and China Southern and developed joint ventures with American, Emirates, Japan Airlines, Vietnam Airlines and China Eastern (the last three…
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