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."
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.
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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