Will QAN survive?, page-949

There's no doubt QAN will have (if it survives) a majority share of Australian domestic air travellers into the conceivable future.

Alan Joyce is good at arguing for government assistance and as discussed above, may already have done a deal with the Federal Government.

He also has a record of cutting costs where he can.

But QAN faces big problems that may exceed the positives.

The size of the domestic air travel market, by revenue, may shrink as even post-COVID-19, many businesses have discovered that video meetings can be a cost-saving substitute for air travel plus hotel plus 'expense account' meals plus rental cars. I'm not suggesting "all" business travel domestically will disappear, but if just 25 per cent does, that will badly affect QAN as compared to most leisure travellers, those on business pay high fares and occupy the limited number of business class seats.

Internationally, QAN and its subsidiary had pre-COVID a market share of fewer than 35 per cent of seats ex and to Oz. Joyce occasionally suggests 'fewer airlines will fly to Oz in the future'. What he doesn't say though is that airlines like Singapore may eventually increase the number of flights (assuming there's demand) with that company, for instance, having received at least S$10 billion in assistance from Singapore Government-owned Temasek Holdings.

Lower demand domestically and an uncertain date as to when local lockdowns will end, and when non-NZ international flights can resume en masse sees QAN daily incurring large losses. This will be magnified by having more idle domestic aircraft than its business plans would have forecast.

QAN's costs per seat kilometre must be above Asian carriers due to the disparity in salary and wage rates, and general high costs of operating in Australia.

All this means a continuing rise in net debt. How will it service this if interest rates rise?

The QAN domestic workhorse fleet of B737-800s is ageing yet the airline has yet to select a replacement aircraft, or for that matter pay for it. Of course, airlines don't generally pay 'list prices' to Boeing or Airbus (media suggests they usually receive about 40 per cent discount) but even so, this is large capital expenditure that QAN has put off.

If I recall, it also hasn't totally written off its 12 A380s that mostly sit in the desert in California. (Non-cash item in the accounts though).

You'd also be betting that oil prices don't rise much. What if that's untrue?

For me, QAN (like REX) is a company to avoid. But DYOR.