|Bid||3.9800 x 0|
|Ask||3.2600 x 0|
|Day's range||3.5700 - 3.6800|
|52-week range||2.0300 - 7.4600|
|Beta (5Y monthly)||1.02|
|PE ratio (TTM)||6.53|
|Earnings date||20 Aug 2020|
|Forward dividend & yield||0.26 (7.20%)|
|Ex-dividend date||02 Mar 2020|
|1y target est||7.08|
(Bloomberg Opinion) -- What could possibly attract Bain Capital about an airline that hardly ever generates cash? Loyalty is almost certain to be the answer.Administrators for Virgin Australia Holdings Ltd. at Deloitte agreed to sell the second-ranked Australian airline to the private equity firm after it collapsed in April owing A$6.8 billion ($4.7 billion). In a sign of what a difficult path lies ahead of Bain, interest from 20 parties was ultimately whittled down to just two final bidders. Airlines, with their vast capital expenditures, weak competitive positions, and already-heavy debt loads, aren’t the most obvious places for private equity to invest. Most firms look for businesses that can consistently throw off cash before returning to market at an enhanced valuation a few years later.Virgin hardly fits that bill: The company has posted positive annual free cash flow just three times in two decades. It’s hard to see how a few years of business in the time of coronavirus is going to enhance its market value much. That’s particularly the case given that Qantas Airways Ltd., which spent much of the past decade demonstrating the power of its superior market share, has just strengthened its balance sheet through a capital raising.There is, however, one part of Virgin that’s perennially attractive to private equity — its Velocity frequent-flier program. It’s not unusual for airlines to be essentially loyalty programs with wings — Qantas’s is often the most profitable part of the business, and Air Canada’s spun-off program Aimia Inc. mostly traded at a higher multiple than its former parent until it was bought back a few years ago. Velocity has already been a winner for private equity. Affinity Equity Partners bought a 35% stake in the program in 2014 and sold it back last year at a A$2 billion valuation. That’s more than twice what it originally paid, and far more than the A$1.2 billion or so that the entire airline was worth before coronavirus struck, not to mention the zero value now put on Virgin Australia’s equity. The biggest challenge for Bain will be what to do with the main bit of the business — but that’s not an impossible task. While details haven’t been released of what a post-insolvency Virgin will look like, you’d expect the administration process to bring an end to many of the asset impairments and interest expenses that have weighed so heavily on earnings in recent years, giving an opportunity to spruce it up for selling back to the market. Australia’s stock investors are famous for buying dog-eared companies from private equity and repenting at their leisure.Bain has promised to “invest in and see closer integration” of the loyalty program and the core flying business, though it’s not clear that this amounts to a promise never to separate the two. Don’t be surprised if 18 months from now the next big IPO in Sydney is a seemingly-rejuvenated Virgin Australia, shorn of its lucrative loyalty program. Just don’t make the mistake of buying into it.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- You might not have thought it three months ago, when the spread of Covid-19 forced Qantas Airways Ltd. to halt international flights and drove its shares to their biggest percentage drop in eight years. But a global pandemic could wind up being good news for the company.Australia’s dominant airline is now something close to a monopoly player. Virgin Australia Holdings Ltd., its erstwhile local rival, went into administration in April. While limited flights are still operating, it’s unlikely to offer aggressive competition until a rescuer comes along, and possibly some time after that. That’s a fortunate position to be in. For carriers around the world, domestic operations tend to do better than international ones, since competition is usually weaker while shorter distances offer productivity benefits. This advantage is accentuated by the coronavirus, which has more or less shut down cross-border aviation on a global basis.Few carriers have as impressive a redoubt as Qantas can boast in Australia. Just a handful of domestic markets are larger in terms of passenger traffic. Of those, only India and Japan have an airline on a par with Qantas in terms of dominance, and most have suffered far worse from the virus.The company’s position is likely to be further solidified by a A$1.9 billion ($1.3 billion) capital raising announced Thursday. If you think this is some sort of desperate rescue move, have a look at the slim discount — just 3.3% or so to the previous day’s share price, once you account for dilution from issuing new stock.The advantage for airlines in the current crisis is that while the industry’s fixed costs are famously high, a lot of them aren’t nearly as fixed as the term would suggest. About 60% goes toward fuel, route and landing fees, as well as maintenance and depreciation, which is only incurred to the extent that flights are actually operating. The A$8.2 billion that Qantas expects to save over the coming 12 months amounts to about half of typical annual costs. Only A$600 million of the total will come from the difficult business of restructuring, with most of the savings resulting from simple expedients like burning less fuel.The international business that will be most severely hit accounts for less than 20% of profit in a good year, despite making up nearly half of Qantas’s seat capacity. Resisting the temptation of unprofitable overseas expansion is a strategy we’ve long urged on Chief Executive Officer Alan Joyce.Idling its gas-guzzling, hard-to-fill A380s — another measure announced Thursday — is also long overdue. Qantas shareholders have a habit of welcoming fleet writedowns, like the charge of up to A$1.4 billion that will result from that decision. In both areas, the coronavirus is providing the perfect opportunity to do what Qantas should have been doing anyway.Getting through the coming years isn’t going to be a cakewalk. Australia still needs international flights, but capacity on that front is expected to be half of typical levels in the year through June 2022. Even so, the country stands a good chance of returning to something resembling normal domestic aviation traffic sooner than any other major airline market, with the possible exceptions of China and Japan. Unlike Asian rivals that have been raising cash to make it through the pandemic, such as Cathay Pacific Airways Ltd., Korea Air Lines Co., and Singapore Airlines Ltd., Qantas has a substantial domestic market to fall back on while cross-border aviation is in hibernation. And unlike its U.S. rivals, such as American Airlines Group Inc., Southwest Airlines Co., and United Airlines Holdings Inc., it faces neither fierce competition nor a profound disease burden at home.No airline would wish the coronavirus crisis on itself, but Qantas is better placed than most to ride out this epidemic. “Qantas never crashed,” as Dustin Hoffman’s character once said in “Rain Man.” That looks to be as true now as it was then.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The final bids for Virgin Australia Holdings Ltd. will show how much appetite private investors really have for an airline industry that’s been battered by the coronavirus pandemic.Private equity firms Bain Capital LP and Cyrus Capital Partners LP made final and binding offers for the airline on Monday, administrator Deloitte said in a statement. The Australian carrier collapsed in April under A$6.8 billion ($4.7 billion) of debt after the government declined to step in.Deloitte, which aims to secure a deal by the end of June, didn’t disclose the value of either proposal. It received interest in the airline from more than 20 suitors before most of them fell away.The auction of the second-largest airline in Australia, a market dominated by Qantas Airways Ltd., is a key moment for an industry facing more than $84 billion of losses worldwide this year because of Covid-19 and related travel restrictions. Until now, carriers have been kept on life support largely with state-backed loans and bailouts of at least $123 billion.Whoever wins the bid, Virgin Australia’s prospects are uncertain and business travel likely will be curtailed for years, said Warren Staples, a senior lecturer in management at RMIT University in Melbourne.“There might be a gap between what they pitch and the reality of what happens,” Staples said.Deloitte said Cyrus and Bain envisaged operating a “smaller, single-branded domestic and short-haul international airline that also has growth potential.” Both bidders have received approval from Australia’s Foreign Investment Review Board, Deloitte said.Spokespeople for Cyrus and Bain declined to comment before Deloitte’s statement on Monday.Cyrus promised to keep the airline’s headquarters in Queensland, according to people familiar with the matter who declined to be identified because details of the bid haven’t been made public. That pledge followed lobbying by Australian states including New South Wales and Victoria for prospective buyers to relocate the business, which had about 10,000 workers before the pandemic struck.Virgin Australia lost money for seven consecutive years before it finally succumbed to a near-halt in revenue. New Managing Director Paul Scurrah’s plan to cut costs, simplify the fleet and lighten the debt burden was quickly overwhelmed by the outbreak. The government ultimately refused to give the airline even A$200 million to survive, so it joined U.K. carrier FlyBe as one of the corporate casualties of the virus.State AidIn Europe, Air France-KLM and Deutsche Lufthansa AG are among airlines that have accessed a mixture of loans and state aid, while major U.S. carriers have received billions of dollars in government assistance. In Hong Kong, Cathay Pacific Airways Ltd. this month announced a $5 billion rescue plan backed by the government.“It has potentially been a space in which state money has been more effective,” Staples said.A revival of domestic flights in the past month in key markets, including the U.S. and China, has encouraged investors. Qantas is reinstating some local services, and Australia and New Zealand -- which largely have suppressed their outbreaks -- are working on a trans-Tasman travel corridor.The early positive signs have propelled the Bloomberg World Airlines Index to a 28% increase from a May 15 low.Conditions are far from rosy, though. Australia’s tourism and trade minister, Simon Birmingham, said the country’s borders could remain closed to general tourism-related travel until 2021 as part of a strict containment strategy. Qantas has canceled most international flights until late October, and the pace of infections worldwide shows no sign of slowing.World Girds for Long, Hard Road Back After 450,000 Virus DeathsA buyout of Virgin Australia would represent a long-term bet on a sustainable recovery.Cyrus and Bain have courted Virgin Australia’s almost 10,000-strong workforce -- a key block of voting creditors -- through local media in recent days. Bain said its cuts to Virgin won’t be any deeper than Cyrus’, the Sydney Morning Herald reported. Some unions have backed Cyrus for its history of aviation investment beside Richard Branson’s Virgin Group, the newspaper said.Virgin Australia earlier attracted interest from Australian buyout firm BGH Capital Pty, Brookfield Asset Management Inc. of Canada and investors Indigo Partners LLC and Oaktree Capital Management LP.(Updates with two final bidders in the second paragraph, Cyrus plans for headquarters in the ninth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Airlines from America to Australia are ramping up flights in June and July, with U.S. carriers targeting the great outdoors. They're boosting hopes for a pickup in tourist traffic, even as global travel remains slow during the ongoing health crisis. Major airlines American and United each announced more flights to key U.S. destinations where national parks and other outdoor recreational spaces are reopening. United is adding more non-stop flights to places like Aspen, Colorado and Jackson Hole, Wyoming, where it said quote "social distancing is a natural feature" in the scenic landscapes. But even with the increased flights, analysts expect overall U.S. airline capacity will still be drastically lower this year. Without the bounceback of business travel, they say the amount of revenue airlines make will likely remain negative. Meanwhile, Emirates is restarting transit flights through hubs like Abu Dhabi and Dubai, and Australia's Qantas Airways outlined plans on Thursday (June 4) to boost domestic capacity. On Friday (June 5) Qantas also said that once it's back up to financial strength it'll restart plans to order plane to fly the world's longest nonstop commercial flight from Sydney to London.
(Bloomberg Opinion) -- What do you get for the airline magnate who has everything? If he knows what’s best for him, the answer isn’t “another airline.”Rahul Bhatia, the biggest shareholder in India’s biggest carrier, InterGlobe Aviation Ltd., is evaluating data and considering a bid for Virgin Australia Holdings Ltd., a person familiar with the matter told Anurag Kotoky and Angus Whitley of Bloomberg News. He would bid via the vehicle he uses to invest in IndiGo, as India’s biggest budget airline is known, the person said.It’s not hard to see the attractions. IndiGo’s home market is fiercely competitive, with half a dozen major carriers duking it out even after Jet Airways India Ltd. was forced into bankruptcy last year. Jet was squeezed between the loss-making full-service flights offered by state-owned Air India Ltd. and IndiGo’s own devastatingly cheap fares. Australia, on the other hand, is more or less a duopoly between Virgin Australia — which was itself put into a coronavirus-induced administration last month — and a dominant Qantas Airways Ltd. That should offer the opportunity for the two carriers to cozily carve up the market between themselves.Opportunities to break into the Australian airline game don’t come along often. The last time was when Ansett Australia Ltd. collapsed just days after the Sept. 11 attacks. A fledgling Virgin Australia, at the time a budget carrier named Virgin Blue, was perfectly placed to capitalize.Despite the vast disparity in population, Australia isn’t that much smaller than India as a market, thanks to greater wealth and a higher propensity to fly. Traffic last year came to about 71 billion revenue passenger kilometers, roughly the size of the fast-growing Indian aviation market five years ago. It also has close links to India, raising the prospect that an Australian network could feed passengers via international flights into IndiGo’s domestic web of destinations. Indian-Australians make up close to 2% of the population, and the number of non-resident Indians — the subset of the diaspora who are most likely to take regular flights back to the motherland — is the largest after the U.K., U.S., Singapore, Nepal, and the Persian Gulf countries.(1)For all that, Bhatia should pass up the chance to have a crack at Virgin Australia. In its ruthless efficiency in controlling its home turf, Qantas behaves a lot like IndiGo, one reason that Australia has for a decade been a graveyard for ambitious foreign airlines. His best opportunities lie closer to home.Both Qantas and IndiGo exploit a rare and priceless phenomenon known as the S-curve, by which dominant airlines end up with more connections and a greater share of traffic the more planes they add. That makes life extremely difficult for competitors.Singapore’s attempt to set up a bridgehead via an outpost of its budget carrier Tiger Airways Holdings Pte. ended up being sold to Virgin Australia back in 2014 at a valuation of A$2.50 ($1.62), after years of struggle. AirAsia Group Bhd. showed fitful interest in establishing a bigger presence Down Under, but ended up mostly steering clear.Virgin Australia itself spent years trying to break the Flying Kangaroo’s dominance with the backing of strategic overseas players. Ordinary shareholders hold less than 10% of the now-worthless stock, with the balance being held by a rotating cast of carriers including Etihad Airways PJSC, Singapore Airlines Ltd., Hainan Airlines Holding Co., Qingdao Airlines, Air New Zealand Ltd., and Richard Branson’s Virgin Group itself. Their indifference to profits enabled Virgin to compete against Qantas for longer than many would have thought possible, but it hasn’t been enough to win the battle.The distance between Australia and India is too great to make connecting the two markets an easy play, too. IndiGo’s aircraft of choice is the Airbus SE A320neo, which some budget carriers have been using to open up longer-range routes — but it would be operating at its limits even on flights between India and Perth, which is a long way from Australia’s more populous east coast. That would necessitate Bhatia either using an unfriendly hub airport in Southeast Asia, or investing in bigger, more expensive twin-aisle jets.IndiGo is so powerful in its home market that it’s natural its owners should be looking at overseas expansion — but as we’ve argued, the better place for that is in the Persian Gulf, where a far bigger Indian diaspora is closer to home and largely flown across the Arabian Sea on Gulf carriers such as Emirates.With a pandemic-induced passenger drought threatening most non-state-backed players in the global aviation market, this is no time for Bhatia to go planting seeds in Australia’s barren soil.(1) India also counts foreign citizens with Indian ancestry as "Persons of Indian Origin" but they're as a group probably less likely to travel to the subcontinent frequently.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Large institutions resist change, and nowhere more so than in the way they pay their bosses.Despite scandals and crises, executive compensation has remained too generous, too opaque and too loosely linked to long-term goals. The upheaval wrought by the Covid-19 pandemic provides the opportunity for a remake: Simpler, smaller packages with a more significant non-financial component would mark a welcome shift.The figures are stark. Inflation-adjusted pay for chief executives at the largest U.S. companies climbed 940% between 1978 and 2018, the Economic Policy Institute found, using the more conservative of two methodologies, in a report published last year. The S&P rose about 700% over the same period. Worker wages, meanwhile, increased by less than 12%.The size of pay packages is only the most eye-catching part of the problem: Far more important is how corporate leaders are remunerated, and whether that lines up with long-term goals, financial and otherwise. As a gauge, consider the increase in attention paid to environmental, social and governance, or ESG, targets. This has permeated incentive plans in only a minority of cases. A mere 9% of FTSE All World companies link executive pay to ESG criteria, mostly occupational health and safety concerns, according to Sustainalytics. Even for those, only a tiny proportion of total remuneration is affected.The good news is that the current cataclysm is prompting better behavior than we saw during the 2008 financial crisis, with at least some leaders moving swiftly to share the pain of employees. Qantas Airways Ltd. Chief Executive Officer Alan Joyce, whose airline has furloughed most of its workforce, won’t take any salary until the end of the financial year in June. Elsewhere in aviation, Ryanair Holdings Plc CEO Michael O’Leary has taken a steep pay cut, along with staff. General Electric Co.’s Larry Culp will forgo his full wage for the rest of 2020.Granted, they have better cushions than most employees and there is self-interest here, given the outsize importance to corporate valuations of intangible assets like reputation. Yet these are welcome gestures, not least when compared to those who have rushed to cut costs and take government help without trimming at the top. They aren’t markers of real change, though. It will be far more significant to see how boards manage short- and long-term incentive decisions for 2020. Shareholder advisers are already warning against excesses in variable pay. There is one bigger reason to anticipate substantial change: timing. The coronavirus has hit at a critical moment for shareholder capitalism. It’s been two years since BlackRock Inc. co-founder Larry Fink told CEOs to contribute to society. The Business Roundtable last year had executives pledge to build companies that serve “all Americans.” ESG demands are louder, as seen at last month’s annual general meeting of Australian oil and gas outfit Santos Ltd. It was happening already; now it’s happening faster.Xavier Baeten, professor in reward and sustainability at Vlerick Business School in Belgium, says companies are likely to see pressure from at least two quarters. First, shareholders may well balk at remuneration that rises when dividends dissipate. Second, governments could make aid dependent on firms not paying bonuses. Society may also find hefty bonuses more unpalatable after months of clapping to support underpaid nurses and carers.So what are the changes to aim for? Pay is inherently complex, and investors can make multiple and often competing demands of one board. It’s also true that despite plentiful research demonstrating that pay isn’t a significant motivating factor for chief executives, the quantum is unlikely to change dramatically. There is, though, plenty of scope to improve structure.Most obviously, a post-pandemic world could do with a stronger push from board members (and investors) for increased transparency and simplicity, with fewer, more individually tailored goals. Then, we need share allocations that encourage executives to think over longer time-frames, and don't just result in colossal pay awards in boom years. This could mean more restricted stock that has to be held for a period even once employment has ceased. It could mean extending ownership requirements. There are plenty of pitfalls: Proxy advisers will need convincing, and long holding periods can mean executives discount the perk. The advantages are significant, though.A third step could be to increase the non-financial portion of targets to as much as half of the total. Again, these aren’t popular with advisers who dismiss what they see as soft goals. Still, as compensation consultant Seymour Burchman of Semler Brossy argues, they reinforce strategy if tailored, specific and measurable. Dutch bank ING Groep NV, for example, uses retail customer growth as one measure. Others might use customer satisfaction, investment targets, total recordable injury frequency rate or, as Semler Brossy’s Kathryn Neel points out, corporate reputation, as gauged by a third party. ESG would be part of this, in a testable and appropriate form that measures opportunity as well as risk. For resources companies, that could be a multiplier that nullifies all bonus in the event of an accident. For a drinks company, it might be water management, or reducing plastic. Combined with the obligation to hold shares for longer, the incentives align.Shareholders’ meetings globally have been delayed or moved online because of the coronavirus, but there is plenty more disruption to come. Boards, the ultimate arbiters, will find decisions this year have lasting consequences. In a crisis, underestimate pay at your peril.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- These are the most consequential months in the Reserve Bank of Australia's 60-year life, but the economic downturn of historic proportions means nobody is celebrating this diamond jubilee. So deep is the damage inflicted by the Covid-19 pandemic that the central bank's greatly enhanced profile in the economy and markets will be with us for years. That's consistent with a tremendous expansion in the role of the state as leaders Down Under endeavor to simultaneously restore growth and contain infections. The combative relationship between the federal and powerful provincial governments has given way to national priorities, blurring distinctions between responsibilities. In effect, the modus operandi of what was once seen as an economic nirvana has undergone a revolution. Projections suggest much of this is warranted; that makes it no less momentous. Gross domestic product may shrink 10% before bouncing in the second half of the year, the central bank warned Friday in its quarterly outlook. The late growth spurt won't be enough to prevent an annual retreat of 6%. Australia’s GDP hasn't gone south by anywhere near that much since the RBA opened its doors in early 1960. Prior to the central bank’s inception, monetary policy was conducted by the government through what’s now the publicly traded Commonwealth Bank of Australia. The last recession produced a decline of 1.1% in 1991, which seemed severe living through it. The growth streak that followed has gone down in global economic folklore. Buoyed by closer trading ties with China and an unparalleled resources boom, Australia even skated through the Great Recession without two consecutive quarters of contraction. That’s over. The unemployment rate will climb to 10% over coming months and still exceed 7% at the end of next year, under the RBA’s main scenario. It was 5.1% at the end of 2019. The profound shock of the pandemic quickly pushed the bank to cut borrowing costs to almost zero and undertake quantitative easing to suppress the yield on government bonds. Governor Philip Lowe signaled that ultra-easy policy will remain until the country is well down the recovery road. The RBA is also purchasing bonds sold by state governments, saying Tuesday that it will further expand the range of securities eligible for its market operations to include investment-grade debt issued by non-bank companies. While the bank makes its monetary-policy decisions independently, this effectively leaves the six state and two territory administrations more dependent on national authorities and extends the reach of the public sector into corporate life. The former diminishes, at least temporarily, pretensions that local administrations have of separation from the center. The latter is a step toward reversing the intellectual and policy thrust of successive governments since the 1990s, when assets like Qantas Airways Ltd. and Telstra Corp. were unloaded.This rebellion against precedent extends to the political process. Prime Minister Scott Morrison has created a so-called national cabinet to deal with Covid-19. The team of rivals brings state premiers and chief ministers into the federal sanctum, meeting to co-ordinate on business and school closures and prospective re-openings, as well as hospital operations. During the emergency, this elite group has become the core Australian decision-making body. Several of the regional premiers are from the Australian Labor Party, which opposes Morrison’s conservative bloc in the federal parliament. To appreciate the radicalism, imagine Donald Trump bringing New York’s Andrew Cuomo and California’s Gavin Newsom, both Democrats, to the cabinet table in Washington. An effort at seamless decision making addresses the needs of the moment. The public rightly has little time for jurisdictional disputes, even through the constitution gives states a lot of authority. Critics contend that the new set-up is eroding democracy: The national cabinet makes decisions, yet is accountable to no single legislature. Such unity of purpose likely has a finite life. At some point, the electoral cycle will resume. Templates for new national political and economic structures now exist that would have unthinkable a year ago. Catastrophic bushfires over the Christmas-New Year holiday period midwifed a big federal intervention in firefighting, an area states have historically dominated, and led to the biggest military deployment since World War II. In the monetary arena, the ground has been laid for long-term policy activism and rock-bottom rates with potentially far-reaching consequences. Consumers, businesses and governments now know the RBA will backstop them in ways few contemplated not so long ago. And the longer Lowe and his successors keep rates low, the greater the risk of a backlash should they have to change course and begin withdrawing stimulus — an antipodean taper tantrum. Not the anniversary year the RBA anticipated. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Australia’s Prime Minister Scott Morrison wants the nation’s pension funds to take more action to cushion the blow from the coronavirus crisis.In an interview with the Australian Broadcasting Corporation’s 7:30 program Thursday night, Morrison said the nation’s A$2.95 trillion ($1.9 trillion) pension pot should be used to bail out companies as the government “is not the only economic actor in this event.”“I’d like to see the industry and broader superannuation funds playing a more active role in dealing with the economic issues that we’re dealing with at the moment,” he said.The plea comes as Australia begins pumping an unprecedented amount of stimulus into the economy in a bid to avert falling into a crippling long-term recession. It’s pledged more than A$320 billion in fiscal and monetary measures, including an A$130 billion jobs-rescue plan to subsidize wages and keep struggling businesses afloat.The government has also relaxed rules to allow people hit by the epidemic to dip into their retirement savings early. Pension funds expect up to A$50 billion will be given to those taking advantage of the scheme, causing liquidity fears at the worst affected funds.The most pressing issue is Virgin Australia Holdings Ltd. that’s suspended from trading amid discussions over a potential financial restructuring. It had asked the government for a A$1.4 billion loan to weather the crisis after stopping virtually all services as authorities restricted domestic and international travel to slow the virus’ spread.While the government wants two commercially viable airlines, which would include Virgin’s main Australian competitor, Qantas Airways Ltd., Morrison said it will only offer support on an industrywide basis and won’t “get in the way of a commercial solution.” Instead, pension funds including TWUSUPER, the scheme that looks after A$5.5 billion in retirement savings for transport and logistics workers, should recapitalize the airline, he said.“Its own workers have been paying in to industry funds and there are funds out there, in these super funds that could be investing in a number of companies,” Morrison said. “I appreciate that comes in a different risk premium, but this is their own contributors that are involved here.”TWUSUPER didn’t immediately reply to a request for comment outside normal business hours. Industry Super Australia, the body that represents 15 union-aligned not-for-profit pension funds, declined to comment.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Australia posted a surprise rise in jobs in March before the full impact of coronavirus restrictions was captured and was likely bolstered by hiring at supermarkets and associated supply chains to assist with a surge in spending ahead of the lockdown.Confounding the expectations of most economists, employers added 5,900 roles versus estimates for a 30,000 drop. The jobless rate edged up to 5.2% from 5.1% in February and the participation rate held at 66%.The statistics agency said the lack of impact from the virus was mainly due to surveys falling in the first half of March, when there was a relatively low number of confirmed COVID-19 cases and many of the trading restrictions had either not yet been announced or taken effect.“Impact from the major COVID-19 related actions will be evident in the April data,” said Bruce Hockman, chief economist at the Australian Bureau of Statistics.The Australian dollar initially trimmed some of its decline after the data, but within an hour was back where it started, down 0.5% at around 62.90 U.S. cents.Companies ranging from Australia’s two major airlines to casino operator Star Entertainment Group Ltd. to department store chain Myer Holdings Ltd. have furloughed or stood down tens of thousands of workers as demand collapsed amid forced shut downs.The government and central bank responded with a massive fiscal-monetary injection worth 16.4% of gross domestic product to support an economy spiraling toward its first recession in almost 30 years. The Treasury forecasts unemployment to climb to 10% this quarter and said it would probably have reached about 15% if not for the government spending measures.Among other details in the report:Under-employment climbed 0.1 percentage point to 8.8%Full-time jobs fell by 400 and part-time roles rose 6,400Monthly hours worked in all jobs increased by 8.6 million hours or 0.5%At a state level, the largest increases in employment were recorded in Victoria, up 13,300, and South Australia, up 3,500In Mid-March, Coles announced it was recruiting more than 5,000 casual team members to work in its supermarkets across Australia to allow outlets to replenish shelves faster amid a pre-lockdown buying frenzy.Qantas Airways Ltd. last month furloughed most of its 30,000-strong workforce and rival Virgin Australia Holdings Ltd. temporarily stood down 80% of its workforce. Star furloughed 90% of its 9,000 employees after the government ordered the closure of casinos.Australia’s tourism and hospitality industries were hit first by the bushfire crisis over summer, then the initial coronavirus outbreak in top trading partner China stopping travelers during the peak time of Lunar New Year, and now by lockdowns at home.The pandemic has already had a dramatic impact on consumer and business confidence. Reports this week showed household sentiment fell by the most in the 47-year history of the survey and the outlook for firms tumbled to the lowest reading ever.(Updates with details from report)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Much as Pan Am Corp. was an emblem of the first wave of global aviation, Emirates has dominated the world airline industry for a generation. Its announcement that almost all passenger flights will be suspended from Wednesday marks the death knell of that era.The Dubai-based carrier is the largest airline by international passenger traffic, with the capacity to move its customers 391 billion seat-kilometers last year. In terms of cross-border traffic, that’s twice the capacity of any U.S. airline and about a seventh more than the three European carriers that are its closest international competitors in terms of scale.The shutdown of that vast network is a hammer-blow not just for the industry but for people around the world. There’s a reason so many airlines are (like Emirates) state-owned, or have special rights and duties to their home countries written into their constitutions. They aren’t just a leisure service, they’re a piece of vital national and international infrastructure that can provide an airlift service in an emergency. Emirates’ initial announcement of a complete suspension of flights Sunday was subsequently updated to say that some destinations would remain open “having received requests from governments and customers to support the repatriation of travellers.”Businesses that thrive on bustling cross-border traffic are inevitably going to struggle in current conditions. Cathay Pacific Airways Ltd., another carrier that, like Emirates, has no domestic aviation market, last week announced it was cutting 96% of capacity in April and May, which is as close as you can get to shutting down. Qantas Airways Ltd. is also ending international flights and Emirates’ local rival Etihad Airways PJSC has made drastic cuts to its schedules.We’ve seen something like this before. Pan Am went bankrupt amid the collapse in air travel that accompanied the 1991 Gulf War; its competitor Trans World Airlines Inc. entered the first of many Chapter 11 processes around the same time. Another wave of bankruptcies and rescue takeovers followed after the Sept. 11 attacks, and again after the 2008 financial crisis. More than a decade on from that, we’re probably overdue for another shakeout.That certainly looks like what we’re going to get. “Most airlines in the world” will be bankrupt by the end of May at current rates of cash burn, according to consultants CAPA Centre for Aviation. The industry needs about $200 billion in bailout money if it’s to survive, according to the International Air Transport Association, the largest group representing airlines.Emirates has some serious weaknesses as it approaches this perfect storm. Dubai’s status as the preeminent hub in the global network of transfer passengers, and its fleet of capacious twin-aisle jets, are as much a product of the recent era of promiscuous globalization as Pan Am’s fleet of gas-guzzling early-model 747s were a product of the era before the 1973 oil crisis.On an immediate level, that means it lacks even the meager domestic aviation cashflows that rivals in the U.S., China and elsewhere can fall back on. In the longer term, there’s the risk that Covid-19 and the Trump-driven trade wars that preceded it raise drawbridges across the world, leaving behind a dark mentality of xenophobia as gates are closed to outsiders. In that grim future, Emirates’ Benetton catalog-tinged vision of a multicultural world shaking hands at Dubai airport looks as outdated as, well, shaking hands.Even if things return to a semblance of normalcy at some point, Emirates’ golden years are behind it – a fact that neatly coincides with the upcoming retirement of Tim Clark, who led the airline since its inception.Rivals with bigger domestic markets have already been looking to use longer-haul 787s and A350s to skip past hub airports like Dubai altogether. The A320neo and the 737 MAX, should it recover from its current woes, will also bite off pieces of medium-haul traffic with budget carrier-style prices, undermining key routes into Europe and South Asia.Emirates still has some advantages in facing the coming conflagration. Unlike Etihad and Qatar Airways, it has never reported a loss in financial reports dating back to 1989. That’s a fairly extraordinary result for an airline that’s been around for so long — although there’s still a week still to go on its current financial year.Most importantly, though, the only shareholders it answers to are Dubai’s ruling Al Maktoum family. For decades, they’ve regarded the carrier as a crucial element of their oil-poor emirate’s strategy for a long-term economic future. With crude prices currently south of $30 and Gulf monarchies edging alarmingly close to burning through their own petrocash piles, that bet looks as sound as it’s ever been.If aviation is about to be crippled by a virus-driven resurgence of nationalism, it’s the carriers most closely bound up with their governments that stand the best chance of survival.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Australia's top airline Qantas will halt all international flights due to the viral pandemic. They're on hold from late March until at least the end of May. The airline also said on Thursday (March 19) it would tell the majority of its 30,000 employees to take leave. This comes after Prime Minister Scott Morrison warned Australians to stop travelling overseas. (SOUNDBITE) (English) AUSTRALIAN PRIME MINISTER SCOTT MORRISON SAYING: "We are upgrading the travel ban on Australians to level 4 for the entire world. That is the first time that has ever happened in Australia's history. The travel advice to every Australian is "Do not travel abroad". Qantas says it will temporarily lay off about two thirds of its workforce with domestic services also affected, slashed by 60 percent. To preserve as many jobs as possible over the longer term, it is telling staff to use their paid leave. It's also offering options like leave at half pay and advance leave, though it said leave without pay was inevitable for some. Qantas joins other airlines around the world that are reeling from the virus as several countries have closed off their borders to try to halt the epidemic. The airline will delay the payment of its stock dividend, worth more than $100 million dollars - from April until September. And senior executives will go without pay until at least the end of the financial year. But it's better placed than others and said it could withstand six to 11 months of no flying before further cuts. Whereas a trade group representing major US airlines - including American and Delta- say government help to the tune of $50 billion dollars is needed to avoid collapse.
(Bloomberg Opinion) -- One of the biggest repercussions from the Covid-19 outbreak in Australia ought to be the end of its island mentality. A near three-decade expansion fed a myth of invincibility that now seems to be coming to an end. Luckily, central bank chief Philip Lowe never fully bought into this hype, and has rightly accelerated plans that he'd been considering for some time to restore the economy. Let’s hope he’s not too late.On Thursday, the Reserve Bank of Australia deployed its remaining conventional monetary ammunition to offset a slowdown, amid predictions that gross domestic product would shrink this quarter and next. The RBA cut its main rate to almost zero, announced it will try to hold the three-year government bond yield at about 0.25% and unveiled a raft of support for banks. The federal government — long averse to the idea of prolonged deficits, and convinced surpluses equate to economic awesomeness — has also pledged to do its part.In response to the pandemic, Australia has effectively closed its borders, banned most gatherings of 100 people or more and declared a human biosecurity emergency. The country has 565 confirmed cases of the virus and six deaths. Cruise ships are clogging Sydney Harbor, Qantas Airways Ltd. furloughed most of its 30,000 employees, the cricket season has been curtailed and the southern island state of Tasmania has all but shut itself off from the mainland.Even before the virus arrived, it was a tough start to the year. A horrific bushfire season killed at least 28 people, destroyed an area almost the size of England and left thousands with respiratory issues. Fire has long been part of life on the continent, but with a population concentrated in cities and towns along a sliver of the east coast, it rarely touched the lives of urban Australians. Many saw their childhood seaside vacation spots ravaged and cities blanketed with noxious haze, as I’ve written.It’s not that a three-decade expansion shouldn’t be lauded — it even captured the attention of big names at the Federal Reserve — but the hubris surrounding it ended up blinding some officials to the crumbling economic conditions around them. The idea that the ultra-easy monetary policy deployed in the world’s biggest economies during the Great Recession would one day be required in Australia was met with disdain. The country basked in the new model it represented: a developed-world economy, with Western institutions, at home in the Asia Pacific and buoyed by proximity to China and other fast growing Asian markets.The Kool-Aid wasn't just being guzzled in economic circles. Hollywood stars, feted novelists, chefs and the 2000 Sydney Olympics fueled this sense of a magical wonderland. Australia even had a world-beating cricket team from about 1989 until fairly recently, trouncing the old rival England consistently until 2005. The team won five World Cups between 1987 and 2015, more than any other nation. Indeed, the idea Australia is somehow set apart from the rest of civilization has been a recurrent theme since British settlement in 1788: Early Sydney was largely built by convict labor.The one person who never appeared to buy into the propaganda, however, is RBA Governor Philip Lowe, who began his stint in 2016. Lowe has made the point in speeches that, within those sacramental recession-free decades, there have been distinct periods when activity had slackened and sped up. He has said that immigration has played a big role in keeping GDP expanding.The decision-making time frame has collapsed upon Lowe, as it has with his counterparts abroad. He spent a lot of time worrying about the consequences of too-low inflation and began laying the groundwork for the possibility of zero rates last year, when many people thought rate hikes were surely the next step. Lowe also tried to steer the public toward the idea that something more might also be needed, be it QE, yield-curve control or negative rates.Thursday's actions were a vindication of Lowe's foresight. But the crucible arrived far sooner, because of a public-health emergency, than anyone could have anticipated.With the Reserve Bank of New Zealand also considering QE, zero rates and unconventional policy — mainstream in Europe, Japan and the U.S. — will now be taken out for a spin in countries that are light on manufacturing and without a long history of big deficits. Perhaps a new kind of antipodean exceptionalism is emerging.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Prime Minister Scott Morrison warned all Australian citizens not to travel abroad indefinitely and banned non-essential gatherings of 100 people or more, in a dramatic escalation of the government’s response to the coronavirus outbreak.The “Level 4” advice against any international travel is unprecedented, Morrison told reporters in Canberra Wednesday after meeting with the national cabinet and medical officials late yesterday.The government also declared a human biosecurity emergency to enable authorities to deal with the growing crisis that has infected more than 450 people in Australia and left five people dead. Schools and universities will remain open.“This is a once in a 100-year type of event,” Morrison said. “There is no two-week answer to what we are confronting,” he said. “We are looking at a situation of at least six months for how we deal with this.”Australia had already banned mass gatherings of 500 people or more, leading to a wave of sporting and cultural events being canceled. The government is also urging Australians overseas to return home before other nations enact travel bans.Morrison said public transport will remain open, but he emphasized the importance of social distancing to halt the spread of the virus. Public Anzac Day commemorations on April 25, which recognize war veterans in Australia and New Zealand, will be halted both home and abroad.The measures are another escalation of the response by the government, which has announced a A$17.6 billion ($10.6 billion) stimulus package to buttress the economy and ordered anyone arriving in the country to self-isolate for 14 days.Nations around the world are trying to shield citizens from the deadly virus, imposing curfews, lockdowns, travel bans and shutting shops, bars, schools, and restaurants.Australian stocks have joined other global indexes in collapsing into a bear market amid growing concern about the economic impact of the spreading virus. The nation’s benchmark index has fallen 26% from its Feb. 20 record high as of the close of trading Tuesday, and the Australian dollar has slipped below 60 U.S. cents.The government also unveiled a A$715 million relief package for Qantas Airways Ltd., Virgin Australia Holdings Ltd. and other regional airlines, including refunds and waivers of fuel excise, air services charges and regional security fares.Virgin Australia announced on Wednesday it will suspend all international flights until June 14 and will slash domestic capacity by 50%. That followed the move by Qantas to cut international flights by 90% and domestic trips by 60%Morrison said his government is working on further economic support designed to cushion the impact on small businesses and welfare recipients. He urged Australians to stop hoarding supplies amid scenes of chaos in supermarkets as people strip shelves of food.“Stop hoarding,” Morrison said. “I can’t be more blunt about it. Stop it. It is not sensible, it is not helpful and it has been one of the most disappointing things I have seen in Australian behavior in response to this crisis. That is not who we are as a people.”(Updates with details of measures in 6th paragraph and throughout)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- With their bookings collapsing, airlines are frantically trying to preserve cash by cancelling flights, deferring aircraft deliveries, sending employees home and drawing down credit lines with banks. Brussels plans to help by suspending European Union rules that require companies to keep flying to retain their takeoff slots. The Donald Trump administration has promised unspecified assistance.But for some weaker carriers these efforts may be in vain. Deutsche Lufthansa AG boss Carsten Spohr predicts “numerous insolvencies” in the industry. Qantas Airways Ltd.’s chief executive officer, Alan Joyce, says similar. Judged by the recent strains and failures in the travel sector, the timing and extent of those bankruptcies could be determined by a pocket-sized piece of plastic: your credit card.Co-branded credit cards linked to frequent flier programs are a lucrative source of revenue for airlines, particularly in the U.S. But problems can arise in relation to so-called “credit acquirers.” These entities are separate from the banks, which issue the credit cards to consumers. Rather, the credit acquirers act as intermediaries to authorize and process card payments. Importantly, they also issue refunds to customers if a company goes bust before they travel.When British regional airline Flybe collapsed earlier this month, it was reported that these credit-card processors were withholding about 50 million pounds ($64 million) of its customers’ cash as a reserve — for possible use as refunds. Card acquirers were also sitting on about 50 million pounds of Thomas Cook Group Plc’s customer receivables last year when the tour operator went bust, despite a last-ditch plea for the funds to be released.In both cases that cash was being held as cover for trips that customers had paid for but not yet taken. Credit card companies tend to increase how much of this money they hold onto if a particular airline gets into financial difficulty. They don’t want to end up carrying the can on reimbursing disappointed travelers. Unfortunately, as with suppliers that tighten their credit terms for financially distressed companies, a credit card processor that holds back more money risks pushing a cash-strapped airline over the edge. “Payments is only one part of an airline’s operations but it has the ability to bring down the whole business. It’s almost always the final nail in the coffin that stops you trading” says George Willis, head of business development at payments consultancy CMSPI. As well as airlines, cruise lines, tour operators and concert promoters also all depend on taking credit card payments from customers well in advance of delivering the service in order to fund their businesses.With the virus starting to decimate forward booking for overseas travel, it’s probable that the credit acquirers will be examining their exposure to the sector even more carefully now, just as they did a decade ago after the financial crisis. In 2008 Frontier Airlines Holdings Inc. blamed its bankruptcy on a credit card processor’s decision to hold more cash in reserve.The card acquirer sector is very profitable and is consolidating rapidly. Worldpay Inc. was acquired by Fidelity National Information Services Inc. in a $34 billion deal, Fiserv Inc. bought rival First Data Corp. for $22 billion and Global Payments Inc. bought Total System Services Inc. for $21.5 billion. JPMorgan Chase & Co. and Barclaycard are also big players. In contrast, the heavily indebted and unprofitable Norwegian Air Shuttle ASA, has for months been trying to secure more capacity from credit card acquirers because the current ones have been withholding more of its money. Norwegian’s receivables balance — the cash due from customers — ballooned by $460 million last year, which it attributed in part to money being held back by credit card acquirers. The airline, whose shares have collapsed, held only about $320 million of cash at the end of December. You can understand why the credit card companies do this because being caught out can prove costly. Thomas Cook’s card companies probably had to foot a bill of several hundred million pounds in customer refunds. When Monarch Airlines went bust in 2017, an Icelandic card acquirer suffered a large volume of reimbursements and was later recapitalized. “A card acquirer doesn’t ask for a bigger security deposit just for the fun of it — whatever they ask for will be less than their ultimate liability,” says Carl Churchill, managing director of Netpay Solutions Group Ltd., a fintech. “It’s not in their interest to topple an airline or tour operator but their job isn’t to provide security or capital.”Unsurprisingly, some airlines have been pushing other payment methods as a way to keep control of more of their own cash – Norwegian plans to accept cryptocurrencies such as Bitcoin. For now, the travel industry remains hugely reliant on the credit card acquirers. That dependency is about to be tested.To contact the author of this story: Chris Bryant at firstname.lastname@example.orgTo contact the editor responsible for this story: James Boxell at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
To the annoyance of some shareholders, Qantas Airways (ASX:QAN) shares are down a considerable 36% in the last month...
(Bloomberg) -- Apple Inc. will close its corporate offices, stores and contact centers in mainland China through February 9, a move the company says comes out of an “abundance of caution and based on the latest advice from leading health experts.”The move comes as global companies with heavy Chinese footprints weigh how to respond to the threat of the spreading coronavirus that has prompted worldwide concern but remains primarily concentrated in China, the country where it first surfaced.Australia’s largest airline Qantas Airways Ltd. and Cebu Air Inc., the Philippines’ largest budget carrier, announced today they’d halt flights to China. Automakers Honda Motor Co. and Nissan Motor Co. have evacuated workers from Wuhan, where the virus first surfaced, while Starbucks Corp. closed more than 2,000 locations in mainland China.Apple is restricting employee travel to China to business-critical situations and it issued a revenue forecast that was wider than usual due to uncertainty surrounding the virus. The company said it would also increase the cleaning of its stores and take the temperature of retail workers.The company said its online store in China will remain open even while its brick-and-mortar presence in China remains closed.(Adds details from Apple statement starting in first paragraph.)To contact Bloomberg News staff for this story: Mark Gurman in Los Angeles at firstname.lastname@example.org;Dandan Li in Beijing at email@example.comTo contact the editors responsible for this story: Shamim Adam at firstname.lastname@example.org, Siraj Datoo, Derek WallbankFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.