It seems the market is not at all enamoured about Qantas Airways’ (ASX: QAN) announcements today.
Shares in the airline are down 8% in late afternoon trade, and the slide accelerated as CEO Alan Joyce was making his live presentation.
Despite massive job cuts, plans to cut $2 billion off its costs over three years, the sale of some assets and a whole raft of other cost cutting initiatives, media reports suggest the pain for Qantas is far from over.
The market expects Qantas needs to do much more to pull the airline out of its terminal nose dive it seems.
One suggestion from a number of analysts is that Alan Joyce needs to quit.
And looking at the results he has achieved since taking the top job in November 2008, the board of any other company would probably have found someone to take his place by now.
- The share price has fallen from a high of $3.00 in 2009 to around $1.17 currently.
- While revenues have been rising, profits have not, and Qantas has reported a $245 million loss in 2012, a $5 million profit in 2013, and what could be a loss approaching $500 million for the full 2014 financial year.
- The company has not paid a dividend to shareholders since 2009, and looks unlikely to pay one for at least this financial year, if not for a number a years after that.
- Mr Joyce has been criticised for grounding the entire mainland fleet over an industrial dispute in 2011, which cost the company millions and left passengers in limbo.
- The performance of Jetstar Asia has been questioned by unions, which have suggested it was a failed exercise and is struggling to break even after almost a decade.
- Maintaining its 65% domestic market share strategy has come in for criticism, with competitors Virgin Australia (ASX: VAH) and even Regional Express (ASX: REX) suggesting Qantas has caused its own problems by standing by that strategy at all costs.
On the other hand, analysts say Qantas staff costs represent 24% of total revenues, which is very high compared to Singapore Airlines at just 11%. It seems Mr Joyce has had no choice but to cut staff expenses. That’s easier said than done with 14 different union groups and 54 different enterprise bargaining agreements.
And while that is something Qantas has some control over, much of its problems stem from issues outside of management’s control.
- Overcapacity both domestically and internationally is a major issue, and has increased rather than decreased since Mr Joyce took over the top job.
- Qantas’ main competitors are backed by sovereign states, allowing them to get access to cheaper debt, while Qantas does not.
- Mr Joyce says the airline is hamstrung by the Qantas Sale Act, while its competitors are pretty much free to do as they please.
- Competitors acting irrationally, through the practice of setting extremely low airfares to gain market share at the expense of profits.
Mr Joyce should be praised for his efforts to secure a partnership with Emirates in attempting to return the loss-making international operations back to profit. That hasn’t happened yet thanks to a 46% increase in capacity by competitors on routes out of Australia. But at least he had a plan to stop the rot getting worse.
All in all, I wouldn’t want Mr Joyce’s job for quids. While many have suggested replacing him would be the best thing Qantas could do, it won’t address the underlying issues Qantas faces under any CEO.
Perhaps Warren Buffett said it best,
“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.”
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