10 ways Alan Joyce could fix Qantas

I'm no expert, but here's 10 ways I think Qantas could take giant strides on its way to profitability

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We've already seen Qantas Airways (ASX: QAN) reporting a $235 million loss today.

As a result, CEO Alan Joyce says the result is unacceptable and tough measures need to be taken, including cutting 5,000 full time jobs — which will be much higher, if part time roles are included in that list.

Here's another 10 ways Qantas could fix the airline.

  1. Lease planes rather than buy them outright. That means no more large capital expenditure on new planes and lower depreciation charges.
  2. Abandon its strategy of maintaining at least a 65% share of the domestic market. If the airline gave ground to Virgin Australia (ASX: VAH), it might find that its major competitor would return to more rational behaviour and allow both to run profitable domestic operations. As Alan Joyce said himself, the domestic profit pool was $700 million in 2012, now it's less than $100 million.
  3. Jettison Jetstar – both domestically and in Asia. Both operations are unprofitable.
  4. Separate the international and domestic divisions like Virgin has done, allowing more foreign ownership of the domestic operation.
  5. Sell off all non-core assets, possibly including a partial sale of Qantas' most profitable operation, its Frequent Flyer program, and its holding in Helloworld (ASX: HLO) ex-Jetset Travelworld.
  6. Raise domestic airfares. Qantas needs to decide whether it's a low cost or premium airline. If it keeps Jetstar, then Qantas needs to move more upmarket – and charge more for the privilege.
  7. With the money saved from leasing rather than buying planes, pay down its billions in debt. Don't even think about paying dividends until the company has no debt, apart from leases.
  8. Continue to lobby the government to abandon the Qantas Sale Act, which limits foreign investment in the airline.
  9. Cut the number of types of planes used. Qantas has plans to cut the current number from 11 to seven, but that may still be too high. Reducing that further should also lower maintenance costs.
  10. Sell off the airline and just keep the profitable Frequent Flyer program as one wag has suggested. Thanks Henry. I might even consider buying shares in it then. Note I said might.

Foolish takeaway

I don't envy Alan Joyce, or his counterpart at Virgin, John Borghetti. Running an airline is bad for your future job prospects. Since Mr Joyce took over Qantas, the share prices has plummeted from $3 a share to just over a dollar presently, despite all the battles he has fought to improve performance.

At the end of the day, the following quote from Warren Buffett pretty much sums it up.

"When a management team with a reputation for brilliance joins a business with poor fundamental economics, it is the reputation of the business that remains intact."

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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