Can Qantas be saved?

It’s the fifth least profitable airline in the world and the worst Australian company by profits. Is there any hope?

Qantas (ASX: QAN) is not only Australia’s largest airline but also the oldest continuously operated airline in the world. It is used by 65% of Australians to fly within the country.

What is the point of flying with the airplanes completely filled with passengers if some of them aren’t even paying you enough to recover your jet fuel costs?

This company sells over $16.1 billion each year. That is a lot of tickets. In fact, Qantas is currently one of the largest companies in the world by sales — only 12 Australian companies sell more than it does. That’s great, but the airline cannot keep flying people from one point to another if it cannot turn a profit.

Of the 2,000 leading companies of the world, 23 are airlines. This means it is possible to make money with an airline. In fact, 73% of those airlines turn a profit and three of them make more than a cool billion each year.

Let’s take a closer look at the worst airlines in the world:

Company Sales Profits Assets
Latam Airlines 9.7 -0.0 20.6
Qantas Airways 16.1 -0.3 21.7
United Continental Holdings 37.2 -0.7 37.6
International Airlines 23.9 -1.2 25.6
Air France-KLM 33.8 -1.6 34.7
AMR 24.9 -1.9 23.5

Source: Forbes (May 2013), numbers in billions of USD.

Here is the pattern. Latam Airlines does not belong in this list because it is not losing money. However, it’s not a winner either because it is not making any money, either. Still, if you take a closer look at these numbers you will find that Latam sells fewer tickets than Qantas and yet manages to break even.

On the other hand, the rest of the losers are caught in a downward spiral, competing with other big airlines with low prices until they sell too many tickets below cost and cannot make any money.

As you can see, it is not a coincidence that all these companies lose more money than Qantas. They all sell a lot of tickets, but that is not how you make money.

Note to the CEOs of these companies: Stop the madness. Increase prices to reduce sales.

I know a guy who was fired from his own phone company. I don’t mean that he used to be an employee of the phone company. What I mean is he was a customer and he got fired. He was told essentially, “We regret to inform you that we cannot sell you our products or services anymore and your line will be disconnected soon. Please go to another phone company for all your communication needs.”

Maybe this is what some customers of these airlines need to hear, too.

Foolish takeaway
Stay away from Qantas. At least until it unloads some of its old airplanes, closes some unprofitable routes and raises prices.

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Motley Fool contributor Alejandro Guillú Mendoza does not own shares in any of the companies mentioned in this article.

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