Qantas tipped to sell up to 49% of frequent flyer scheme

Qantas tipped to sell up to 49% of frequent flyer scheme

Qantas is believed to be laying the groundwork to sell up to 49% of its frequent flyer scheme, which could yield between $1.3 billion and $1.6 billion for the beleaguered airline.

Macquarie and Citigroup are believed to be on the cards to manage the float of the lucrative loyalty program, which took a record $1.2 billion in billings across the 2013 financial year to contribute $260 million (before interest and tax) to Qantas.

A spokesman for Qantas was unable to comment on if this float would be restricted to the frequent flyer scheme or would encompass the program's parent Qantas Loyalty Group, which would then include the airline's new Aquire small business rewards program to be launched in March.

“The simple fact is that no decisions have been made" the spokesman told Australian Business Traveller, adding that "we know how important the Frequent Flyer program is to members and there are no plans to change any of its fundamental elements. We certainly wouldn’t mess with a winning formula."

Read: Could Qantas sell off its frequent flyer program?

Analyst: sell the domestic terminals

Should Qantas move on the sale and see a flood of cash pour into its coffers, the next question will be how the one-time windfall can be most effectively used.

Carolyn Holmes, analyst for US investment bank JPMorgan, estimates that the proceeds "could help lower interest payments by $98 million to $118 million a year," although she says that selling even this 49% minority stake in the Qantas Frequent Flyer program "is not our preferred option." 

"We view [QFF] as one of Qantas' jewels so any sell down should be a last resort" Holmes adds, and suggests that Qantas selling its domestic terminals would be the better move.

This would see the dedicated Qantas terminals at Sydney, Brisbane, Melbourne and Perth airports sold to each airport and then leased back.

"We estimate the terminals could be sold for between $800 million-$1 billion and would probably be earnings neutral" Holmes says, "whereas we estimate selling a 49% stake in its [frequent flyer scheme] could raise $1.3-1.6 billion but may reduce pre-tax profit in year 1 by between $10-30 million" due to losing almost half of the scheme's annual revenue.

Commonwealth Bank analyst Matt Crowe has raised an alternative approach to selling the frequent flyer scheme: selling off as many as 42 billion points to raise a quick $500 million.

Read: Analyst says Qantas should flood market with frequent flyer points

Joyce: "All options on the table"

Qantas CEO Alan Joyce has declared that "all options are on the table" as the airline works to address an expected loss of up to $300 million over the July-December 2013 period and the tougher times that are expected to follow, in response to what the airline described as "fundamentally changed market conditions".

A wide-reaching "structural review" will include an aggressive cost-cutting campaign to recoup $2 billion over three years, with the loss of "at least 1,000 positions within 12 months." Qantas will also run the ruler over spending with its top 100 suppliers.

The airline will provide an update on the review on February 27 when it reports financial results for the July-December 2013 period.

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David Flynn
David Flynn is the editor of Australian Business Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.
 

15 comments

  • Hugo

    Hugo

    22 Jan, 2014 10:56 am

    So you sell your terminals to pay back your debt. Now instead of paying interest on your debt, you're paying rent on your terminals. 

    I'm not seeing the business sense.

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  • hutch

    hutch

    22 Jan, 2014 02:20 pm

    I doubt that holding onto their terminals will provide them with greater a return than selling them off, paying down debt, removing some overheads and in turn paying some rent.

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  • Al Glidden

    AlG

    22 Jan, 2014 02:26 pm

    "So you sell your terminals to pay back your debt. Now instead of paying interest on your debt, you're paying rent on your terminals. I'm not seeing the business sense."

    Hugo: Ever tried renting a home rather than owning it? Same deal, it's just cheaper. Maybe not for the rest of your life but if things are a bit tight, and for Qantas things are very tight, this does make sense. I think the analysts know a buit more about this, and that is why they are recommending it.

    To extend the metaphor: you own a home, but need money to wipe out a loan or invest in your business to take it to the next level. So you sell your home for maybe $1m and arrange to rent a place for $500 a week. You're going to be ahead on that deal.

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  • Hugo

    Hugo

    22 Jan, 2014 04:14 pm

    You can't sell a house for a million bucks and rent the same house for $500 a week though, you'd have to move to a smaller/worse house. A million-dollar house rents for about $1000 a week. Your new landlord isn't going to buy the house unless they can get at least as much in rent as they'd get by another investment; like, say, lending money to big companies. So the rent is going to be comparable to the interest.

    Now let's suppose there is for some reason only *one* house in the entire city that fits your particular needs. Once your new landlord figures this out he's going to ratchet the rent up, and up, and up! If you think Sydney Airport Corporation rips *you* off, just think how much it must be able to extract from Qantas!

    This seems like short-term thinking, overcoming a very short term cashflow crisis by postponing the problem down the road 'til the future when Joyce is retired and someone else is CEO.

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  • dazzaredroo

    dazzaredroo

    24 Jan, 2014 08:58 pm

    If you own it you can't claim a business deduction for operating costs whereas if you rent it you can. The only difference is you dont have the capital value of the asset. 

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  • TheRealBabushka

    TheRealBabushka

    22 Jan, 2014 01:18 pm

    If a frequent flyer programme is sold, who owns the data (intellectual property) captured by the programme?

    Can the airline that sold the programme to a third party prevent the third party from selling the data to the airline's competitors?

    If there are severe restrictions on what the third party can do with the intellectual property of the programme, does it in fact make the programme an independent entity to the airline? If so, is it a genuine sale or some capital raising masquerade?

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  • watson374

    watson374

    22 Jan, 2014 05:04 pm

    49% should mean QF still holds final say?

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  • TheRealBabushka

    TheRealBabushka

    22 Jan, 2014 05:34 pm

    I was posing theoretical questions to query the perceived wisdom of selling frequent flyer programmes.

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  • eminere

    eminere

    22 Jan, 2014 07:11 pm

    We saw it coming...

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  • driley28

    driley28

    22 Jan, 2014 08:47 pm

    This would be a stupid move.  I would prefer to see the sell off of Jetstar to enable the business to concentrate on QANTAS.

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  • watson374

    watson374

    23 Jan, 2014 04:08 pm

    That just creates a new competitor, but then again one could argue that JQ already cannibalises QF market share. I personally think the only foreign Jetstar they should bother with is the SIN base; the rest are worthless.

    But then again I'm very SIN-biased.

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  • sjariel

    sjariel

    24 Jan, 2014 02:55 pm

    If there are any good reporters out there they would be banging down Geoff Dixon's door until they got an interview and ask him about the whole Qantas mess.  I am sure it would be better reading then all the speculation and guess work that goes on at the moment.  All they are is stories. $5.50 a share they were the days.  

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  • Dave Thomas

    deethom

    27 Jan, 2014 11:18 am

    All this mess actually started with Geoff Dixon and his partners during their time at the "top". Bad selection of airframes, bad selection of next CEO, and letting J.B. go to VA.

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  • dazzaredroo

    dazzaredroo

    24 Jan, 2014 09:02 pm

    Time to take a breath and stop hyperventilating this conjecture is not dissimilar to the scuttlebutt that started the depression. Step back and wait to see what happens rather than speculate on what may or may not transpire.

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  • bmk

    bmk

    3 Sep, 2014 04:13 pm

    Qantas still have many old dated aircraft giving them a re-fit interoir is not going to make them anymore efficient. Has been mismanaged for years, of the many Asian airline the majority do not have any 15-22 year old 747 let alone  767 passenger aircraft flying. Why didn't they buy the B777 10 years ago? Wasting more on yet another crew uniform early this year won't make the fleet anymore economical to operate. SIA haven't altered their uniform in 40 years plus they haven't any passenger B747 still operating. Qantas management just have their heads in the clouds for the last 20 odd years ....and management  need to change the medication they are on.....dreaming on ......

     

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20 Jun, 2019 03:25 am

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