Forum Archive Index - May 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

This may interest those following the airline's discussion - in this mornings Sydney Morning Herald.

 

QAN future price at about is $5.00 is mentioned. However we need to bear in mind it's price was over $5.00 two years ago before the battle over the Australian skies started.

 

Looks like a lot of water to flow under the bridge yet before the Australian and now the New Zealand market settles down.

 

Maybe the player with the deepest pocket will be the big winner - and I think that call would have to go to Qantas.

 

When next profit announcements are made in June/June we'll see the real impact of all the recent activty - and i predict some pretty glum faces.

 

Good move (IMHO) Snoopy waiting for the dust to settle before considering re-weighting your portfolio.

 

Me - I'll sit on the sidelines

 

Cheers

 

Peter  

Qantas gets the call for boarding

Author:Mark Todd
Date: 03 May 2001
Publication: SMH

The demise of Impulse Airlines has led analysts to upgrade their net profit forecasts for Qantas next financial year by up to 16 per cent, or more than $40 million, in the first broadly positive shift in sentiment towards the airline in the past 18 months.

Shares in Qantas eased 26c to $3.14 yesterday but that followed a 26 per cent surge on Tuesday. Yesterday's decline was a correction and did not reflect the market's more optimistic view of the airline's Impulse deal.

"The likely net outcome for Qantas will be an enormous strengthening of its relative market position," Credit Suisse First Boston transport analyst Mr Greg Ward wrote in a research note.

CSFB upgraded its recommendation to a "buy" and raised its 12-month share price target to $4.97, although it is still reviewing a likely lift in forecast earnings. Analysts expect the deal to have a modest impact only on earnings in the year to June 30.

For 2001-02, Deutsche Bank raised its forecast for net profit by 16.5 per cent to $316.4 million, while Salomon Smith Barney raised its numbers by 14 per cent to $364 million. JB Were lifted it by 11 per cent to $341 million, marginally ahead of the market average of $335 million.

Essentially, the Impulse deal is expected to ease pricing pressure in the domestic aviation market in the short-term and to help improve the viability of certain regional routes for Qantas.

The carrier will also have increased market share, around 54 per cent, and the opportunity to launch new domestic and international discount airlines to lower further its costs as it battles Virgin Blue and a weakened Ansett.

Under the deal, subject to ACCC approval, Qantas will provide Impulse with a $50 million loan in the form of convertible debt to buy out institutional shareholders, repay debt and provide working capital.

Executive chairman Mr Gerry McGowan rejected rumours he would receive any payment in respect of his investment in the airline. "That's untrue," he said. "I don't receive anything."

The McGowan family will emerge with full control over Impulse, at least for the moment. It is believed Qantas can convert the debt into a 70 per cent equity interest in Impulse.

Although Mr McGowan will not take quite the same haircut as the institutions, he would have his 40 per cent stake, worth about $45 million, diluted to a 30 per cent interest valued at $21 million.

Impulse will become a contractor to Qantas, flying mostly to leisure and regional destinations after pulling out of the Sydney-Brisbane and Sydney-Melbourne routes from May 14. The Impulse brand will disappear.

Mr McGowan also ruled out an alliance with Ansett to save Impulse, saying the airline had signed an exclusive deal with Qantas. In any case the Ansett proposal was "ridiculous" on competition grounds.

"Ansett already has 70 per cent of the regional NSW market. How can they expect to take another 12 per cent and get it through the ACCC?" he asked.

Until now, Qantas has suffered a series of recommendation and earnings downgrades by analysts, beginning in November 1999, on concerns that increased competition in the domestic market and, more recently, spiralling fuel costs and a weak dollar would dramatically erode earnings.

Although analysts took a positive view of the Impulse deal, most were still cautious about the outlook for Qantas.

Both JB Were and UBS Warburg maintained their hold recommendations while Salomon Smith Barney and JP Morgan stuck to their "market perform" ratings.