This morning QANTAS announced a $252 million loss for the six months to 31 December and said it would shed 5,000 jobs over the next few years as it tries to cut costs to regain profitability.
Alan Joyce has one of the toughest corporate gigs in Australia. Airlines, especially ones operating in Australia, are high cost…and capital intensive. You constantly need to invest in fleet capacity, and your competitors are often foreign owned entities with access to cheap fuel and a preference for gaining market share over profitability.
QANTAS hasn’t paid a dividend since 2009, yet it still struggles to generate positive cashflow after taking into account its investment needs. Its only option is to keep cutting costs. So another 5,000 jobs will soon evaporate from the Aussie economy. That should be good for Australian house prices…
Meanwhile, residential construction is not responding to higher house prices, as we’re sure the RBA thought it would. Data released yesterday by the Australian Bureau of statistics showed that the total value of construction work performed over the December quarter fell by 1% on a seasonally adjusted basis.
The value of residential construction was down 1.7% over the quarter and 1% over the year, indicating that the RBA’s significant rate cuts have done bugger-all to boost housing construction. Not that the RBA will admit to such helplessness. They probably think they just need to cut rates further.
It just goes to show there are deep structural flaws in the Australian housing market, both on the supply and the demand side. Gross supply side constraints and constant stimulation on the demand side have led to a market that no longer responds to simple economic signals.
Higher prices should lead to more supply. But not in Australia. They just lead to higher prices…which eventually leads to rising social tensions as cashed-up baby boomers leverage past property gains to add to their investment portfolios, outbidding youngsters in the process.
Oh well, just another result of easy money taken to extremes.
for The Daily Reckoning Australia