Oct 25, 2012

What does $8b worth of jets buy you? Worry for Qantas

Singapore Airlines laid down some $8 billion in new Airbus jet purchases overnight, giving Qantas headaches as it attempts to seal its deal with Emirates.

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Singapore Airlines launched a massive attack on Qantas and its approval-pending “Emiroo” partnership with Emirates overnight, ordering close to $8 billion worth of extra Airbus A380s and A350s in what is as much about the pressure it is under to keep Changi Airport a major facilitator of economic activity as it is about airline competition.

The concerns in Singapore’s business and government elites about the recent Qantas decision to drop Changi for the Emirates hub at Dubai for its flights to Europe and the UK elevated the disquiet that has been building in Singapore for years over the UAE city’s imitation of Singapore’s success in making itself a cross roads and focal point for shipping, manufacturing and financial services as well as what travellers see as one of the great connecting airports of the world.

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One thought on “What does $8b worth of jets buy you? Worry for Qantas

  1. Mark Skinner

    Yes, a large part of Qantas’ problems are due to its poor fleet management. For example, it still runs 747s where Emirates and Singapore Airlines have gotten rid of them because of their relatively high fuel burn, in lieu of the B777 and A380 combination(remembering that airlines introduced the fuel levy because fuel costs are so high in this industry). In addition, other competitor airlines like Malaysia, Thai and Air New Zealand have also moved toward the B777, often on routes in direct competition.

    They also failed to predict that the B787 would be delivered late. Just consider three red flags available at date of contract signature: New plane (red flag #1), New Technology (flag #2), new construction method (#3). That is, there were three(!) red flags clearly visible at the time of signing the contract to acquire the B787. You did not need to have worked at Boston Consulting to see that was going to end in tears. If risk management and its mitigation is not management responsibility, then what is? I am sure Qantas got a monetary compensation payment, but did that go to the international division as compensation, or to a central account and so the international division still wore the loss, hmmmm?

    What is alarming is that instead of facing the fact that they were wrong footed by almost every other airline on the question of acquisition of the B777, Qantas chose to use their fight with the unions as a cover for their losses. If I were an analyst with any of the big shareholding institutions, I would look really carefully at the costs claimed against industrial action, and see how much that was a problem compared to the relative fuel inefficiency of the present Qantas fleet. This question goes to the heart of the integrity and competence of Qantas’ management.

    For all the light shed upon the industrial issues (and fair enough, they should not be shied away from), the absence of any serious analysis of Qantas’ fleet management and management competence in dealing with it should be alarming to shareholders.

    Perhaps, in turbulent weather, Qantas should take a leaf from the book of its pilots: ‘Fly the plane!’ If it cannot afford planes that can compete head to head with other airlines, then it should get out of the business. Or better still, turn it over to management who can.

    Disclaimer: I have no financial interest whatever in Qantas, either by way of shares or employment, direct or indirect. Given the performance of the company and its management, I think it unlikely I ever will.

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