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SYDNEY : Takeover target Qantas is positioning itself for expansion in Asia, with the Australian flag carrier's regional low-cost brand Jetstar set to provide much of the growth, analysts say.
Qantas is in transition into a two-tier organization, with the mainline brand servicing premium-based routes and Jetstar increasing its penetration of other markets, Center for Asia Pacific Aviation (CAPA) executive chairman Peter Harbison said.
The changes come as Qantas shareholders are in the process of deciding whether to accept a recommended 11.1 billion dollar (8.8 billion US) takeover offer from the Airline Australia Partners (APA) consortium.
If APA succeeds, Qantas will be owned 27 percent by Australia's Allco Equity Partners while related Allco Finance Group Ltd will have eight percent. Leading Australian investment bank Macquarie will have less than 15 percent, US buyout firm Texas Pacific, 25 percent, Canada's Onex Corp 12.5 percent, other foreign investors 11.5 percent and Qantas management one percent.
The 5.45 dollar a share offer, after a 0.15 dollar special dividend being paid by Qantas, closes on April 3.
APA, which has so far gained a 12 percent stake in Qantas, had its bid cleared by the Australian government last week, leaving a 90 percent minimum shareholder acceptance as the key hurdle.
Credit Suisse, in a research note, said it expects the bid to succeed, particularly as hedge funds could hold 30-40 percent of Qantas stock and are expected to sell into the bid.
The private equity offer for Qantas coincides with the airline's strategic drive into Asia through Jetstar and the establishment of a low cost network based around the OrangeStar entity which holds Singapore-based Jetstar Asia and Valuair.
Qantas is in the process of integrating the 45 percent owned OrangeStar entity with the mainline group in an effort to reduce costs, strengthen the revenue base and make it more viable.
The move is consistent with the company's strategy to co-ordinate intra-Asia services with flights into and out of the Asian region through Qantas and Jetstar's new international arm.
CAPA said in its 2007 aviation outlook report, released last week, that Qantas has underscored its focus on Asia by entering into negotiations to acquire 29 percent of Vietnam's second largest airline, Pacific Airlines.
Pacific Airlines is rapidly developing as a low cost carrier in international and domestic markets and aims to lift its annual passenger carriage from about 750,000 to more than five million by 2011.
"The planned acquisition would provide Qantas with an important foothold in the Mekong, an another piece in its Asian network puzzle," CAPA said.
It said Qantas' growth prospects are significant in Asia, particularly as the Jetstar brand will allow it to more effectively access traffic flows within in the region north of Australia and incorporate this with its Australian inbound/outbound business.
"Its potential was reflected in the recent indication by Qantas that earnings could rise by as much as 40 percent for 2006-07 following a relatively flat net profit for the first half of the year," CAPA said.
Qantas made the forecast on February 8 when it reported a nearly flat result for the first half of the current year, with net profit at 358.7 million dollars, against 352.8 million in the previous first half.
Harbison said while Qantas' Australian base gives it a dominant position in the domestic market, growth in this market is low.
In contrast, he said, Asia provides significantly greater opportunities, particularly if Jetstar builds its brand.
Such airlines are not known in the market for their country of origin but as a brand which may be the same over a number of airlines operating out of a number of countries.
"We've got two big brands which are emerging now -- AirAsia which is a big brand already and Jetstar," Harbison said.
"Having branded airlines means that you can distinguish them by brand rather than country -- branding is going to come much more important as it allows networks of airlines to be established operating out of different countries under one brand and getting connectivity between hubs."
He said once Qantas completes the Pacific Airlines deal the model for the long-term has to be the Jetstar brand establishing throughout Asia, including untapped potential in North Asia.
"Jetstar's future has got to be establishing new low cost models in Asia," Harbison said.
- AFP
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