re recent announcement, page-3

Matt,

Yeah, I see where ya coming from…but I really can’t share the disappointment with you at this time, and I seem to see the glass as half full not empty because I see the figures as quite predictable and in line with current targets. I agree that costs are a killer, but they are stated to be well under control. (BTW I am suitably jealous of having multiple French Champagnes to choose from. Your career path has obviously been stellar when compared to mine - LOL).

Anyways, I think what VAH was trying to say in the first paragraph was that the increased disparity between ASKs and RPK’s (up 16.2%) would ordinarily be quite a gap between full and empty seats (ie: a lot of empty or near empty aeroplanes flying around.) However as they stated, Feb 11 figures were skewed by the events of that month last year and hence the new figures look big. Again the fleet has enlarged from about 85 aircraft to 100 in that time, and new routes have been added, so they may take a while to prove. But JB has been quoted as saying that costs are well under control, and the new routes, in fact all routes are now profitable, and that yields are very much up. When questioned last week about the target of 20% business class revenues, he replied cheekily; “How do you know that we’re not there already.”

Interestingly enough he also stated that the 20% figure represents both 20% of VAH revenues and effectively 20% of the national business class market. Now, as that market is considered to be around $3.5 billion p.a. gross, then this represents around possibly $700million p.a. gross and the % is likely to rise for the next couple of years until VAH premium class % stabilises. Remember this is coming off a base of effectively bugger all a couple of years ago, because two years ago there was no Business Class and only premium economy and full flex fares, but premium revenues were negligible in real terms (perhaps 5 – 7%). The airline survived on leisure class fares, and after all they were a Budget Carrier since inception, and the Velocity Program was in nappies then.

A new CEO has now been appointed to specifically manage the newly hived off Velocity Program (in a prudent copy of Qantas’ system) and the performance of it will hence forth be reported and judged in the annual reports. This should drive its performance much higher I would think, and begin to contribute to the bottom line as Q’s does. Watch this space on that one.

I agree that RSKs/ASKs are the actual units sold or unsold in the period (ie: cost v’s revenue) but one can safely extrapolate the future ASKs from the current monthly figures as an good indicator of future capacity (or over capacity), particularly when aircraft fleet numbers are considered in this area. But remember that increases in fleet numbers should also increase overall paying pax numbers and this should come through in the full year reports and onwards. All these new routes and aircraft should add handsomely to revenues after a year or so, and I would assume that non-performing routes will be quickly disposed of. Thus lower load factors should not pose a problem in the short term anyway, particularly in a one month report.

Consider also the impact to the business as the new Code Shares begin to improve on the domestic numbers (Singapore Airlines have just started to feed through). It has been stated this week that VAH has the largest virtual airline in the world (if this is true then the fruits should be positive going forward) and this is probably why JB has ben shying away from joining a formal alliance network (One World etc ).

The international pax numbers are lower by 7%, but this is majorly due to the 777’s being offline for tune ups and repainting, even so, the international business is stated to be very profitable (better that than having 7% more pax’s but the division running at a loss as it was a year ago – consuming cash in lieu of making it! ).

The year to date overall pax numbers are up 2.6%, so no tragedy there. Anything can go wrong in a business of course, but VAH seems to me to be on a well planned footing, marching in a solid direction.

Finally Matt I believe the business is already profitable (on the reports) so ‘ultimately profitable’ is probably a bit unfair to JB’s business acumen…LOL…

Warmest Regards Steve…