The Qantas sale: A “compelling” move – with major ramifications for the Asia Pacific region
Announcing the Qantas board’s recommendation to accept an AUD5.60 per share bid valuing the airline at around AUD11billion, Chairman, Margaret Jackson today described the equity group’s offer as “compelling”.
This was not just because the price exceeded by far recent share levels. It was also because the new ownership can go where the public company could not.
Ms Jackson also noted that it will be in many ways business-as-usual, assuming the offer is accepted by over 90% of shareholders, along with other relatively straightforward conditions. "The consortium has expressed its support for core Qantas strategies, including:
The Chairman of the specific purpose consortium, Airline Partners Australia (APA), Mr Bob Mansfield, committed to retaining the existing “growth strategy, a strategy that does not involve a break-up of the airline…”
Significantly too, he stressed APA’s commitment to supporting Qantas’ existing investment plans of AUD10 billion over the next five years, with the acquisition of over 70 new aircraft and a 40% increase in capacity. Qantas is going to grow under the new ownership.
And, he said, services are to be expanded, “particularly internationally”. It is likely that expansion will largely feature the growth of Jetstar International, while mainline Qantas focuses on a few core routes such as the UK and US, where it has well established positions. Meanwhile, Jetstar, with its lower cost base, will be able to expand into more competitive and new growth markets.
Towards a multinational airline?
Freed from the burdensome scrutiny of analysts at quarterly reporting, Mr Mansfield believes that the private ownership could take a more long-term strategic view, with its “patient capital”. This indeed should allow the new owners the freedom to turn Qantas into a multinational airline over the next few years.
Under the existing management, which is to remain in place, Qantas had been seeking to establish a foothold in Asia, where growth prospects are much higher than the mature – and slower growing – domestic Australian marketplace. Qantas has been constantly hobbled by its low share price, despite returning good profits (a feature which attracted the equity raiders in the first place). Now, with the ability to take a longer term view, and with access to a much wider capital base, Qantas will have the opportunity to expand much more aggressively.
The timing is good – and hardly coincidental. Regulation of access internationally has always been strictly limited. But recently the doors have started to open up. So a new internationalist strategy will have a much better chance of success than it would have had even a couple of years ago. And the arrival of active equity forces in the airline industry will add another strong voice to accelerating the removal of government restrictions.
As soon as the transaction is completed, it will not be surprising to see an acquisition-oriented Qantas Group begin moving into new Asian markets. It is already represented in Singapore with Jetstar Asia. This model, along with direct minority acquisitions in existing airlines, either by Qantas directly, or by its new owners, will allow it to develop a serious foothold in such markets as China, India, Indonesia and other parts of Southeast Asia. In this way, the Qantas/Jetstar brand will become ubiquitous in Asia.
The “Icon” and the National interest
Like many flag carriers, Qantas also carries heavy national iconic overtones. It is unlikely that Qantas will look any different above the waterline for these purposes. It will remain in majority national ownership, its directive minds will be in Australia. And importantly, its political lobbying power is unlikely to diminish after the sale.
That is not to say that new onslaughts for increased access by Singapore Airlines and Emirates will necessarily be unsuccessful. Things are changing across the board. But it would be unwise to look for quantum change, purely as a result of this new “privatisation”.
Is it a win-win move?
Quite possibly. An expanding airline, with new international relationships and a more deeply entrenched and sustainable operating model, is likely to emerge. Certainly this will involve some change, albeit not on the scale of many predictions.
But now that future looks more likely to be a long and healthy one. As a listed company in a small country at the end of the world, Qantas was not previously well-placed to survive, once global markets deregulated. While CEO Geoff Dixon may not still be there in 50 years time, as he laughingly suggested at the announcement, it is now a real possibility that Qantas will.
Link through to the Qantas announcement
Appendix - The Buyer Consortium
The APA consortium comprises, by way of voting rights:
Offshore investors in total will hold less than 40% with no single international investor holding more than 15%. Qantas is currently approximately 46% foreign owned.