May 24, 2007

Qantas is better than a bought one

QANTAS has provided plenty of reasons for its shareholders to rejoice over the collapse of the $11.1 billion Airline Partners Australia takeover bid.

Shares in the carrier outstripped the $5.45-a-share APA offer yesterday, after Qantas chief executive Geoff Dixon provided the most upbeat commentary of his seven years heading the airline.

Aside from talking up the prospect of Qantas undertaking its first capital return since its 1995 listing, Mr Dixon indicated the airline was considering a possible spin-off of its frequent flyer program that analysts believe is worth up to $1.5 billion.

The analysts briefing Mr Dixon delivered yesterday morning contained very little of the doom and gloom to which investors have become accustomed.

"It really is very favourable for the aviation industry in general," said Mr Dixon, who said he expected Qantas's current dream run could continue until early 2009. Qantas hit a record $5.54 before closing 1c up at $5.46.

"Overall we are getting a net benefit from the Australian dollar and our forward bookings are very positive indeed," he said.

"Qantas international has probably had its best year and we expect that to continue next year for some time," he said. While Mr Dixon cited oil prices and plans by Singapore Air-backed Tiger Airways to grow its Australian domestic fleet to 30 jets as a serious threat, for the first time he appeared more focused on the positive sides of the airline business. Despite his recent warnings on the threat posed by Middle Eastern carriers such as Emirates and Etihad, Mr Dixon even conceded Qantas had a "strong structural" position on the UK, Japan, Hong Kong, South African and highly protected US routes.

The Qantas chief suggested his airline would have a cost benefit over its main rivals once it took delivery of the fuel efficient Boeing 787s in August next year.

However, Mr Dixon rejected speculation Qantas was looking to spin off Jetstar. He said it would remain "100 per cent" Qantas owned. But he declined to elaborate on the "demerger" mentioned in presentation notes.

But the airline hinted it could partially sell its 4.9 million member frequent flyer program within the next year. It is believed the "review" of the scheme could result in Qantas following Air Canada's lead and partial sale in the scheme. Air Canada's 5 million Aeroplan scheme is worth $4.8 billion on the Toronto Stock Exchange.

Mr Dixon said Qantas was exploring its biggest expansion of its international routes and said it was considering boosting its order for 787s by 20 to 85.

After scaling back its services to mainland Europe over the past decade, the airline hinted at the possible reintroduction of Paris flights and expansion of Frankfurt flights. "We do feel we need to have a greater presence back into Europe," Mr Dixon said. Mr Dixon even flagged the possibility of Jetstar flying into Europe and the Middle East by late next year. It is believed Beirut, Athens, Rome, Milan and Manchester are being evaluated as potential Jetstar ports.

Qantas also said it planned to expand aggressively into the express freight business in Asia. And following its purchase of a 30 per cent stake in Vietnam's Pacific Airlines, Mr Dixon said Jetstar was exploring the Indonesian, Philippine and Thai domestic markets.

Despite being a strong supporter of the APA bid, Qantas chief finance officer Peter Gregg appeared equally upbeat. He said Qantas would retain its status as one of only three airlines in the world to have an investment grade credit rating.

By Scott Rochfort

Source: The Sydney Morning Herald

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