Qantas – a Grounded Investment?

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What a weekend! Qantas was grounded. Now it’s un-grounded. Airline union strike action is certainly putting workplace laws through their paces. And everyone had something to complain about!

We don’t have much to say about it except that it roughly fits with our theory that the world is contracting. When you take away cheap credit and cheap energy from the global system, you get contraction instead of expansion. Part of that contraction is quite literally, fewer physical links between countries.

Besides which, airlines like Qantas are tough businesses to run. You have high fixed capital costs (airplanes), volatile fuel costs, airport costs, maintenance costs, and then different employment contracts with unions. Second to extractive industries, it’s probably one of the worst businesses to try and run, much less invest in.

Maybe if Qantas and its airline unions can’t make a deal, they can just sell the whole airline to China for a bailout.

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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4 Comments on "Qantas – a Grounded Investment?"

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shortchanged
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Many years ago I was told to watch airlines for the general market direction.
When they start cutting services and routes then watch out. Suspending leasing or purchasing aircraft, moving maintenance and repairs to cheaper companies and countries, and even reducing cabin crew and pilot numbers means bad times ahead. The enormous cost of running an airline means they must have the best economists and crystal ball gazers. Other international airlines are cutting back (although some Asian airlines are doing well, for now.)Sign of the times?.

Joe
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Since everyone who comments on the Daily Reckoning including the actual paid/employed commentators, I would love for someone with a broader or deeper understanding of econimics explain to me why Qantas can charge the following:

London Heathrow to Melbourne Tullermarine $8,000.
Melbourne Tullermarine to London Heathrow $12,500.

Return flights, same dates, for a family of 4.

I am currently harranging the ACCC to hold an enquiry into this seemingly universal truth, namely: flights into Australia are cheaper than flights out of Australia for no practical reason.

Joe
Guest

Apologies for the poor grammar. The first sentence should have had the following inserted (I seem to have gotten ahead of myself as I was composing it) ‘have a greater economic standing than I do’.

Must proof read better.

Earl Mardle
Guest
Exactly Dan. When the price of oil was spiking in 2008 I told anyone who listened for a moment that when it passed $90 a barrel the airline business would start to unravel. I was wrong, I think the critical level is $80 but the principle applies and the fallout is events just like QANTAS’ recent debacle. The reality is that airlines are the modern equivalent of the Egyptian Pyramids; they are statements of prestige and power, not businesses. They have never made a net profit over the long run and they never will. As well as being subject to… Read more »
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