Qantas are believed to have decided against a partial float of its $2.5 billion Frequent Flyer business, a move many have speculated in favour of for months as it remains to be one of the most profitable areas of its business.
SMH reports that management is expected to advise the board it has chosen against pursuing the partial float or trade sale of Qantas Loyalty ahead of the airline’s annual results release next Thursday.
Over the past 9 months, the paper states, Qantas had been exploring floating “30 to 40% of the airline’s 10 million-member frequent flyer program” which “analysts estimate to be worth between $2.5 billion and $3 billion”.
The float was part of an all-encompassing strategic review, in which the airline aims to cut $2 billion in costs over the next 3 years. Other options that have surfaced include splitting its domestic and international operations to attract foreign investment following amendments to the Qantas Sale Act earlier this month.
The paper cites analysts not supporting the float option, warning it would be a “quick-fix solution for the balance sheet in the short term but undermine the airline in the longer term”.
“We believe existing shareholders run the risk of divesting a business they already own to pay down debt and to pay for a cost out program that ultimately may not generate as good a return as the Qantas Frequent Flyer business,” Shaw Stockbroking analyst David Fraser told clients, SMH reported.
The paper stated that the float would have required Qantas Loyalty to strike a firm agreement with Qantas on the percentage of seats available for frequent flyer redemption bookings. “While members can earn points with 100 partners, flights still account for about 80 per cent of redemptions for Qantas Loyalty,” it reported.
The Qantas Frequent Flyer programme has doubled from 5 million members in 2008 to a whopping 10 million.