Qantas warns of $250m-300m loss, 1000 jobs to be cut

Qantas warns of $250m-300m loss, 1000 jobs to be cut

Qantas has flagged a loss as high as $300 million in the six months from July to December this year and will embark on an aggressive cost-cutting campaign to recoup $2 billion over three years, in response to what the airline described as "fundamentally changed market conditions".

The airline will axe "at least 1,000 positions within 12 months" while Qantas Group CEO Alan Joyce and the Qantas board will take an undefined pay cut. Airline executives will have their pay frozen at current levels and receive no bonus for the 2014 financial year.

Read: Qantas heading for $868m loss ahead in 2014 financial year

Qantas will also run the ruler over spending with its top 100 suppliers and launch "an immediate review to identify structural changes that could potentially unlock sources of capital and value for shareholders."

"No options will be excluded from the review" the airline said in a statement, signalling that everything is on the table.

A focus on "broad-ranging network optimisation and improved fleet utilisation" could also have impact for travellers with the winding back of some domestic and international flights.

The airline cites "a marked deterioration in November in particular" in the market, "with both passenger loads and yields below the already negative trends for the year to date."

And the next six months don't look much better, with Qantas predicting lower passenger loads (1.6 % below the first half of 2013) and higher fuel costs (an extra $88 million on top of the $2.27 billion from the first half of this year). The second half of the calendar year is typically stronger for airlines than the first.

Yields – the airline's actual return on each ticket sold – are also set for a group-wide slump of 3.5% against the same period last year.

Qantas reported a wafer-thin net profit after tax of $5 million for the 2012-13 financial year, following a loss of $245 million the year before, but today's announcement shows that the Qantas Group – which includes Qantas, QantasLink and Jetstar – will fly back into the red.

Joyce hits out at Virgin, overseas competitors

Qantas CEO Alan Joyce continued to single out competitors, especially Virgin Australia, for compounding "a fiercely difficult operating environment - including the strong Australian dollar and record jet fuel costs, which have exacerbated Qantas' high cost base."

Joyce cited "unprecedented distortion of the Australian domestic market with Virgin Australia's strategy to seek major ownership and massive financial backing from government-owned airlines."

"Our competitors in the  international market, almost all owned or generously supported by their governments, have increased capacity to pursue Australian dollar profits, changing the shape of the market permanently."

''We cannot and we will not stand still in these extraordinary circumstances" Joyce said, although he allowed that despite ongoing discussions with the Federal Government over various forms of support for the airline, "none of the measures being discussed with the government would alleviate the need for us to take the comprehensive actions we have announced today."

"Government action will, however, be key in enabling us to keep competing effectively on a level playing field."

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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.
 

35 comments

  • johnaboxall

    johnaboxall

    5 Dec, 2013 11:12 am

    Prediction for next few years - get the JQ company (lower cost base) to operate flights for QF as Sunstate and Cobham do now. Book the rest on EK and China x. Outsource everything else. Remove unnecessary staff. Fly back to Ireland. Done. 

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  • wilsoni

    wilsoni
    Banned

    5 Dec, 2013 12:29 pm

    You missed one thing tronixstuff.  Pay AJ an extra 10 squillion bucks before he goes. Otherwise, perfect.

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  • johnaboxall

    johnaboxall

    5 Dec, 2013 12:33 pm

    I'd do it for a million. 

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  • Joshb

    Joshb

    5 Dec, 2013 11:32 am

    I think that could be the nail in the coffin for QF international getting any 787-9's, hope I'm wrong

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  • StuParr

    StuParr

    5 Dec, 2013 12:08 pm

    I'm not an airline analyst however it really seems like QF management's strategy revolves around: Jetstar, complaints about competition to the government and crying poor, cutting staff and services. 

    Really I am not seeing any true forward vision. Compare the QF to VA staff attitudes and there is a huge gulf. A VA pilot I was talking to said he felt sorry for his friends at QF, as it appears that it is disfunctional. For any organisation to change itself, it needs the buy in of the staff. It is plain to see that the current management do not have that buy in. There is very little difference between product offered really, the biggest difference are the staff. If they are focused and motivated and happy then that is imparted onto those who are travelling. It is not rocket science really. 

    I'm sure that the current management are rather talented airline executives however it appears more and more that they are not the right people for the current competitive environment that it finds itself in.

    I'd be interested to hear more from those who travel with the airline more and understand its inner workings as my comments are really from an ex-customer's viewpoint. I think they do a great job, they are just undermined by below par management.

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  • MartinS

    MartinS

    5 Dec, 2013 01:09 pm

    AJ's bleating about Virgin is tiresome. Qantas expected that they could use its dominant position  to defend their domestic marketshare by capacity increases and price cuts, to the point were Virgin would back off, and Qantas could put prices back up having seen off another challenger. When it appears that Virgin might be able to out-survive Qantas in the marketshare race, Qantas complains its all so unfair!

    The issue of staff attitude is a difficult one for Qantas management. Staff that have high pay expectations carried over from an earlier uncompetitive era may feel dissatisfied with the current pay situation, notwithstanding that they earn more than the more cheerful staff at Virgin.

    Forget Qantas' bleating about level playing fields vis-a-vis government owned, or oil-rich, competitors, but remove the foreign ownership cap on the Qantas share registry to allow then to raise more capital, and to remove the protection from takeover by a competitor which has created mangement and staff complacency. Unfortunately, Hockey's decision on GrainCorp suggests that the Agarian Socialists are calling the shots and the foreign ownership cap is unlikely to be removed whilst the goverment panders to the likes of Bonkers Barnaby. 

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  • spinoza

    spinoza

    6 Dec, 2013 03:25 pm

    But it is true that Virgin can run at a loss in order to kill Qantas, because that seems to be the goal of Virgin's owners. It's easy as a consumer to complain about Qantas and love the current situation since Virgin is bringing better service and lower fares, but what they are doing is equivalent to dumping (selling below cost to kill competition). If Virgin didn't have the unfair advantage, they would have to retreat now to their 35% market share.

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  • Kieran

    Kieran

    5 Dec, 2013 01:45 pm

    "Our competitors in the  international market, almost all owned or generously supported by their governments, have increased capacity to pursue Australian dollar profits, changing the shape of the market permanently."

    I can't be the only one to see the irony here... "Damn you Emirates and your government money taking all our business... ah, hang on... we gifted that to you... bugger... "

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  • Skipp

    Skipp

    5 Dec, 2013 07:06 pm

    My question is, does Alan still prefer the "BMW" or the "bike"? 

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  • Serg

    Serg

    5 Dec, 2013 02:03 pm

    I hate deregulated aviation. JQ is doing OK while QF struggle. It is crystal clear that herd wanna save a dollar and does not care about service. It will be no surprise for me if JQ eventually became biggest part of group. I hate deregulated aviation.

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  • spinoza

    spinoza

    6 Dec, 2013 03:20 pm

    Yes, why can't we go back to the good old days when governments owned businesses and people could just pay high taxes to subsidise state owned enterprises and pay higher prices for everything. 

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  • Serg

    Serg

    6 Dec, 2013 04:15 pm

    It been debated few times already and if I recall correctly you was involved as well.

    1. I do not believe that we flying substantially cheaper if we include everything involved (like parking) and pick high demand time. And we definitely not flying better, I mean service. And IMHO we are not flying safer. I believe that this is direct result of aviation bedlam what going on in Australia after deregulation.
    2. The best airlines are government owned. No exception. BTW Qantas once upon time has been on the top. If you reckon that Qantas fall happens NOT because deregulation then you simply full yourself.
    3. I am always happy to pay bit extra if I know that my money feed aussie’s family. After deregulation I continuously reading about jobs cut and shifting them “offshore”. And you say that it is nothing to do to deregulation?
    4. I hate throat cut competition in aviation. They MUST cut costs and they do it everywhere including maintenance. I rather pay more and feel safer.

     You may have different opinion.

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  • spinoza

    spinoza

    6 Dec, 2013 05:07 pm

    To assume that the best airlines are government owned, and then conclude that Qantas would be better if government owned, could not be any more wrong.

    1. In most cases, such as the middle eastern airlines, the government owned airlines are doing well because the government has lots of oil money, and can subsidise it. In Australia and most western nations, government can't subsidise unless tax payers are willing to pay for it. Are Australian tax payers willing to pay several billion a year more in taxes so we can go back to the old days where flying was romantic and service was great, and flew to more destinations? No. Is it fair to ask all Australians to pay more in taxes so that we can have a national airline (or a domestic car manufacturing industry)? No. That path leads us to one place only, and its called Detroit.

    2. Most good airlines are not good because they are government owned, but because it has other advantages, such as a good geographical location and low cost of labour - such as CX and SQ. 

    3. Deregulation makes the situation difficult for Qantas because competition and globalisation (and no govt protection) unleashes competitive forces into the market places and shines a light to those who are uncompetitive. That's why Qantas is performing poorly financially. Of course Qantas would perform better if the government prevented all foreign airlines from operating in Australia. But then all Australians would pay MUCH higher in airfares. Any foreigners wanting to come into Australia would find it much harder.

    4. I am not saying that extreme capitalism is right, nor that capitalism is perfect, but I believe the collapse of the Soviet Union and the liberalisation and economic rise of China shows the primacy of the capitalistic system over the socialist one. You can still argue against capitalism from an emotional standpoint, but this is just impossible to back up with facts. 

    5. By way of example, to get everything you want, for Qantas to be govt owned, and have great service, and comfortable seats, etc etc etc, you'd be looking at billions in higher taxes, and international airfares double what they are today. If you are happy to pay that, why don't you just buy one class higher than you buy now, and you will get better service. Meanwhile people who can only afford economy are getting cheaper airfares (and if they find parking expensive or peak airfares expensive, you catch a train/bus and you fly off peak). That's just common sense, I'm not asking people to eat cake..

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  • Serg

    Serg

    6 Dec, 2013 05:24 pm

    What you saying make little sense to discussion. However I really agree with your first paragraph  - Qantas will not become better if state would buy all Qantas shares. However Qantas was far better before deregulation and I cannot understand how one can argue with this statement. Damage was done and it incredibly difficult to fix it now.

    FWIW I am buying “better” tickets. However it does not matter if you fly first or cattle when aircraft poorly maintained – you may have better service and better seats, but you cannot get aircraft that is better looked after, unless of course you buy your own.

    And no, I do not feel that I pay less for flights – I remember when I bought ticket 15 or so years ago to Europe and back for $1200 and even with inflation I do not know where to get such fare today. And one way full economy today to Brisbane cost as much as the same return in late 1900. Plus astronomical parking that was free then.

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  • kash

    kash

    6 Dec, 2013 07:37 pm

    curious about CX lower labor costs

    their unions would be up in arms if it were so

     

    maybe its because their management does not take fat paychecks like QF!!

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  • Serg

    Serg

    6 Dec, 2013 08:20 pm

    KASH, while I fully understand and support people anger about "modest" salaries of AJ and alike, you should understand that this is a drop in ocean of Qantas cashflow. If they will not pay a cent to AJ for full year it still will not make QF profitable. And besides AJ is not alone in this club - I bet that BHP CEO for example gets pretty much the same moneyy.

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  • smit0847

    smit0847

    5 Dec, 2013 02:24 pm

    I think there's a specific strategy to crying poor, I'm just not sure what it is.

    Qantas have an amazing ability to blame everyone else for their problems without ever admitting to getting anything wrong themselves. High dollar? Problem. Low dollar? Problem. Competition? Problem.

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  • Joshb

    Joshb

    5 Dec, 2013 02:37 pm

    Much in the same way that DJ's continued to blame everything & everyone as opposed to looking at themselves and their strategy which wasn't/isn't working.

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  • Robert Eden

    reno
    Banned

    5 Dec, 2013 03:45 pm

    To here the new rumblings at QF is all part of strategy,poor AJ.I mean really since day 1,QF has been the most subsidised goverment run airlines until the late 80,s.Protected routes,bi-lateral flights.Give us all a break.Under this individuals tenure it all about pumping money into J star operations and ther asian expancion,code sharing,with little or nothing done to reduce operations costs which are amonst the highest of any commercial airline.

       Add to that bad aircraft purchases,delayed re-configerations to ageing aircraft and inconsistant service booth in the air and on the ground.May he and his excutive team move on as  we all will with no QF as we no it.

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  • Skipp

    Skipp

    5 Dec, 2013 02:48 pm

    You are 100% correct smit0847.

    In analyzing human psychology as part of a University degree, we tend to blame everyone else or extrinsic factors when problems occur or events/situations don't go our way. However when successes occur, individuals tend to take personal responsibility for their successes.

    Alan clearly doesn't want to take responsibility for actions that he and his management have made in recent years.

    The irony is that when the dollar was high, fuel was cheaper, now that the AUD dollar is dropping, the fuel price will inevitably rise. In any case AJ has someone or something to blame.

    AJ needs to get on with the job of looking after the Qantas stakeholders (whilst there still are stakeholders) - the job he is paid $$$$ millions for. 

    I personally hope succession planning is in its final stages....

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  • Des

    Desdjd

    5 Dec, 2013 02:52 pm

    Sounds like a case of bad management from the top. Earlier claims that Virgin was the cause of QF's problem was nothing more than a cop out. Joyce has done nothing to enhance or inspire Qantas. QF got the bumb end of the deal with the EK tie up. QF has been reactive in chasing it's tail (red one at that) and has always been behind the 8 ball. New leadership, new vision. a proactive and innovative approach and new inspiration is what's needed, not a CEO who blames all insundry and does not accept responsibility for his poor mamanagement.

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  • reado

    reado

    5 Dec, 2013 03:40 pm

    I am confused..... at one point Mr Joyce inplies that Virgin are looking to run t a loss THEN he says "have increased capacity to pursue Australian dollar profits". Which one is it?

    QF dont seem to make too much effort to find out why things are going bad.  I am Lifetime Gold and was for about ten years in a row, Platinum. Suddenly (a couple of years back) I almost completely stopped using them. I never had even one enquiry from them about this.  Why didnt they send me a note asking "if perhaps they has disappointed me" or something similar?  Even though they  might not want to hear the responses, at least they might be instructive.

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  • PLATY

    PLATY

    5 Dec, 2013 06:25 pm

    I was amazed on reaching Lifetime Gold that all that came through was a three-line letter - what a missed opportunity.

    Unfortunately the lacklustre manager who wrote it seems to have moved to VA - bad hire VA.

    I went 3 months as a PlatinumOne without setting foot on QF and not any contact from them...

    ...they just can't get the basics right.

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  • Jamesv

    Jamesv

    5 Dec, 2013 04:12 pm

    Finally Qantas has had its day of reckoning. I used to be extremely supportive of Qantas and would only fly them or Oneworld carriers. But about 4 years ago, after being a loyal supporter for over a decade, and being Lifetime Gold status, we did not fly enough one year to maintain the Platinum status we had held for over 6 years.

    Despite a letter to Qantas requesting a reprieve for one year on downgrading me to Gold, which I already had on a lifetime basis from them, they downgraded me, and followed up with a response ot my rquest letter 4 months later explaining that although I had been very supportive of their airline over the years, I had not flown enough with them in the preceding year, and would be downgraded.

    Now I only fly Qantas when I have to. If I can fly another airline, particularly if I can get points on my Velocity account, then I will.

    Qantas lost me and many other very loyal customers over the years by not looking after us. Remember Qantas, it is your customers that generate your revenue.

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  • Rkwm

    Rkwm

    5 Dec, 2013 05:28 pm

    The QF CEO and his board are incapable of reversing the spiraling downward support of a non competitive product .I for one cut all ties with QF three years back . After several years of Platinum and copious dollars to QF coffers I ceased and transferred my business in total to CX and VA of which I am diamond and platinum respectively .I have never looked back as there is just no comparison with the product and value I now receive for my $ .Qantas is so self absorbed with its own arrogance it has forgotten that the public are intelligent enough to realize that the competition has highlighted just how poor the Qantas offering is with no real improvement just more hype with little or no substance .The service model upon which Qantas operates undermines its viability to not only secure new business but keep existing loyal supporters.Until the management realize the stale and uncompetitive model it continues to support requires a total reconstruction it's competition will continue to erode its customer base .

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  • PLATY

    PLATY

    5 Dec, 2013 06:22 pm

    Why does Joyce think we're so stupid?

    His great Asian mission has absolutely failed. Now they're talking abput selling off the JQ Asian operations!

    His staff almost unanimously detest him (actually there is one A380 captain I know who likes him).

    He tried flooding the market with capacity only to find that lowers your yield. Doh!

    It's time to use up me points before the cost cutting includes a massive devaluation...

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  • kiwiflyer

    kiwiflyer

    5 Dec, 2013 06:52 pm

    As a Kiwi living in Auckland, I find Alan's comments sad. Air NZ is not bank rolled by the NZ govt. Why can jetstar operate freely in our market and Singapore etc and yet he is unhappy about the same competition in OZ? It is similar to the ozzie cricket team. They will stand their ground and wait for the umpire to give them out, I do it, and I am a cheat. Air NZ has improved profits by better product, eg new premium and cuddle class seats, great safety videos, wing tips on 767 and changing 747 400 for 777 3000

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  • aklrunway

    aklrunway

    5 Dec, 2013 07:16 pm

    777-3000?? Wow I missed the media hype on that one!

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  • kiwiflyer

    kiwiflyer

    5 Dec, 2013 07:51 pm

    To add one final thought. Following the recapitalisation of Air NZ and 75 % govt ownership, Air NZ retained profits for several years. Today it has approx 1 billion in the bank. Maybe the problem facing Qantas and other listed airlines is the demand placed by shareholders for their dividend every 6 months. It would seem the market leaders are all govt controlled and the dividend gets reinvested back into the business. 

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  • Scott Wilson

    Libertyscott

    5 Dec, 2013 07:57 pm

    In short, the fun is over for three reasons:

    1. Qantas rode on the back of near monopoly profits for domestic corporate traffic since the demise of Ansett.  It fought good and hard with Jetstar at the cheap end, but could rely on getting most business travel including travel at the front end.  Virgin has taken part of that, but more importantly has seriously eroded the yields (and money has had to be poured in on frequencies and now cabins).   Qantas will have to do more cost cutting domestically, which means more Jetstar less Qantas.

    2. The North American route, which was once responsible for reportedly 40% of its international profits, is no longer the gouging operation when only United and Air NZ indirectly offered alternatives.  Delta and Virgin Australia have done this, but United also lifted its game in the front two cabins.

    3. The Australian economy has peaked and demand is not growing, particularly in the mining sector which is no longer quite as keen to pay extortionate prices for air travel.

    The argument over the currency is one about inbound tourism, but that isn't as important as is made out. It ought to allow for hedging on fuel and make capex more affordable.

    Qantas should be split, it should have an arm for domestic and international services to locations where foreign ownership doesn't affect bilateral access, and another for the latter.  The former should have no restrictions on foreign ownership.

    However, it is wrong to moan about foreign state owned carriers.  Two of the biggest competitors, Singapore and Air NZ operate without subsidies.  The Gulf carriers are more opaque and obviously get enormous capital on T&Cs unreachable by others.  However, Qantas has decided to get into bed with the biggest one!

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  • Ben84

    Ben84

    5 Dec, 2013 10:51 pm

    Qantas isn't going to regain customer support as it continues to divest itself of its Aussie workers, Yes, price had played a huge role in seeing the flying public ditch the flying kangaroo, but the aggressive de-Australianisation of the company has only encouraged many Australians to make the switch permanently. 

    How can an airline profess to be the national carrier when it's operations are increasingly placed into foreign care? If Qantas has no loyalty to this country, why should passengers remain rusted on to it's faux nationalism? 

    Why should customers stay loyal to a hypocritical company, one that also has an inferior product to its overseas competitors! 

    2-2-2 in business class? The good half of the competition has moved to 1-2-1. 

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  • MartinS

    MartinS

    6 Dec, 2013 08:24 am

    Part of the issue for Qantas is that people increasingly choose which airline to fly with based on rational criteria: schedule, price, comfort, and service, not nationalism. Qantas' banging of the Australian drum at every opportunity sends a signal to some customers that Qantas knows it can't compete on what really matters to those customers. Australian customers have, in the past, been more inclined to fly with an airline for nationalist reasons that is the case elsewhere. Americans also do this. It has made Qantas (and US airlines) complacent. If Qantas doesn't want to go the way off all those defunct US airlines, they need to cut costs to allow them to be more price competetive. They also need to address the service issue. Another area they have similarities with US airlines.

    I'd be quite content for Qantas to internationalise it crewing and maintenance if the reduced costs allowed them to offer better service and/or lower prices.

    I think very few customers have loyalty to a particular airline these days. But they may have loyalty to a particular frequent flyer program though.

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  • Alvin Tse

    074061

    5 Dec, 2013 11:07 pm

    Wow...wow...this is getting critical for Qantas. Will it enter a period of bankruptcy like Japan Airlines and American Airlines, only to be saved by the judge?

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  • eminere

    eminere

    5 Dec, 2013 11:54 pm

    Only in a company like Qantas could they let the CEO get away with a shocking performance like this scot-free. 

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  • highflyer7874

    highflyer7874

    9 Dec, 2013 05:54 am

    well this is just stupid Alan...

    your former CEO is now your competitor, he has information that any competing airline would kill for, and now youre angry that hes using that information against you? shouldve kept him in the company!

    keep in mind, if VA fails, the govt. wont bail them out, at most give QF a loan to buy their fleet and cover the empty slots

    whereas no matter what QF does, the govt. will bail them out over and over because theyre the supposed 'flag carrier'

    that flagpole looks a bit rusty

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