The failed takeover bid for Australia's Qantas Airways has become a catalyst for change, invigorating the airline's board and managers to consider actions that previously were unthinkable.
Qantas management moved quickly after the takeover failed in May to refocus and redefine the airline. Turmoil and uncertainty had marked the preceding six months while shareholders and government officials considered the private equity bid. Once it was clear that the bid had failed and no new bid was likely, directors and senior management closeted themselves in a marathon meeting to restore stability and put the airline's strategic planning back on track. Since then, senior officials have been briefing staff and investors on the airline's plans.
Some elements of these plans vary significantly from prior policy. In the past, Qantas has been quite fiscally conservative, with retained capital giving it one of the lowest debt-equity ratios in the industry. This itself made it an attractive takeover target, allowing bidders to finance more than a third of their A$11 billion ($9 billion) offer from the airline's equity base.
Qantas is now reviewing plans for a more aggressive use of its own capital. Senior managers have hinted and analysts predict it will distribute at least A$2 billion to shareholders over the next 12 months via either a share buy-back or a special dividend. It also plans more financing from capital rather than debt. Both moves will raise the Qantas group's debt-equity ratio, which could also act as something of a poison pill against another leveraged buyout.
In another break with past policy, Qantas is studying a spin-off of non-core assets. Borrowing a page from Air Canada, the likely candidates are the Qantas frequent flyer plan, its holiday booking arm and some freight operations. Chief executive Geoff Dixon says Qantas will retain some stake in its loyalty plan and stresses there is no plan to spin off low-cost subsidiary Jetstar, which remains an integral part of the group's growth strategy.
Other parts of the new strategy include boosting domestic capacity before the launch of Tiger Airways' new Australian low-cost operation later this year, accelerating a transfer of foreign routes to Jetstar, investing in more new aircraft, creating a freight and logistics venture in Asia, cutting costs and considering unspecified "consolidation opportunities".
Source: Airline Business
