The flying kangaroo will continue to slash costs

A report in The Australian says that Geoff Dixon is maximum bullish as he steers Qantas on a rapid growth path, even declaring that the airline industry itself is not as cyclical as it once was.

That’s a big call, but Dixon figures the explosive growth of the Chinese, Indian and Russian economies will put a floor under global airlines.

A disarmingly honest Dixon also confirmed what many suspected the failed private equity takeover of Qantas was all about, by confiding yesterday that the main difference between private and public ownership was he’d be much richer under the former.  

In every other respect the plans outlined by Dixon at yesterday’s profit briefing were the same as those he had before the management buyout emerged, the only difference being that private equity would have split the airline sooner.

The segmentation of the airline, including creating separate divisions for freight, frequent flyer programs and the holding company for its aircraft, improves the ability to manage costs but also provides massive tax relief by better matching those divisions that can carry more leverage.

This is exactly what Paul Little and Mark Rowsthorn did with Toll by establishing Asciano, which houses the port and rail operations and is also dabbling too much in Brambles for the latter’s liking.

In past years, Dixon has seemed to work to an agenda, so when he embarked on a massive $3 billion cost-saving operation and was looking for the government to remove limits on foreign shareholding he spoke at length about the perils of aviation.

These are all too obvious in the wild swings in profitability faced more by airlines outside Australia that don’t enjoy its 67 per cent share of the domestic market.

Qantas also competes with government-owned airlines that don’t pay lot of tax and US airlines that can hide behind chapter 11 bankruptcy protection.

Dixon’s creation of JetStar was a master stroke, which has cut costs by some $250 million and, with the airline now accounting for more than 8 per cent of airline profits – four times last year’s percentage – it is set to expand rapidly.

Asian budget carriers are expected to boost capacity by a factor of four over the next seven years and double their market share to 25 per cent by 2012.

The first division to be separated will be freight, once talks with Australia Post are settled on their joint-venture assets to be included in the division.  It will stay within Qantas in the short term, but at the right time may be separated.

Dixon is also talking with Boeing and Airbus to ensure existing contracts with Qantas for new planes can be transferred to a separate holding company.

Canadian-based Aeroplan has already said it would back a separated frequent flyer division, but this won’t happen until the first quarter of next year.

The global airline industry is in a sweet spot with capacity shortages and Dixon has positioned the company superbly, as the forecast 30 per cent profit rise this year shows.

It also shows that Andrew Sisson at Balanced Equity was right when he argued the management buyout was an attempt to get the airline on the cheap.

Report by The Mole