Throw out all your presentations and conceived ideas about QANTAS because they are all wrong since Virgin announced their capital raising using foreign capital.
What the Virgin capital means:
Virgin now has big friends with deep pockets that have access to cheap capital. These friends have all been backed by their respective governments, whether it be direct investment or through their government investment arms.
This equates to Etihad, Singapore Airlines and Air NZ being able to invest heavily into Virgin to cut QANTAS domestic profits which basically supports the rest of the QANTAS group. This in turn helps these foreign carriers kill off any international competition because QANTAS international is forced to withdraw further and also accelerate Jetstar losses abroad.
This also helps John Borghetti carry out his plan of destroying Alan Joyce and bringing Virgin stealing a larger slice of the business segment.
With that in mind, yields are down for QANTAS domestic and I think it will be a very small profit, but not only that Jetstar yields will also suffer.
Borghetti has found the hole in Alan Joyce's strategy and it is a gaping hole! This is where it will all unravel for him. Joyce thought that QANTAS domestic would fund all his jollies into Asia and buy new aircraft for Jetstar.
Jetstar now have over 100 aircraft, all bought since 2004, they operate QANTAS owned A330's and are about to take delivery of 14 787. Meanwhile QANTAS has ageing 737-400's, 767's and 747's and have invested in 12 A380's and some 737's. it has received nowhere near the investment that was required to stay competitive against foreign carriers or aggressive domestic rivals.
So there are two issues here. One is foreign investment that is being used to destroy QANTAS both Internationally and Domestically. Secondly, is the direct lack of investment in QANTAS, which was deliberate to help restructuring.
These two points show that Alan Joyce appears to have underestimated the competition and his strategy is on the brink of failing. If his strategy fails, I think this could be a house of cards and both QANTAS and Jetstar will crumble.
If,as some may suggest, they let QANTAS crumble and they sell Jetstar, will the administrators be able to show that the Jetstar business and its books stack up?
Will QANTAS survive to 100? As an Australian, I hope so, but as a realist I think it is in big trouble because of the strategy employed by its CEO. We will see the figures at the end of FY14.
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