QANTAS investors could take a direct stake in the group’s lucrative Frequent Flyer arm under a proposal to spin the loyalty scheme into a separately listed company.
The group would be carved in two with its Australian investors given shares in the spin-off under a plan the airline is considering, aviation insiders say.
According to speculation sweeping the industry, the demerger is a serious option for Qantas as it grasps for any opportunity to garner market support ahead of a likely dire full-year result.
But they warn the move would heap immense pressure on the group’s ailing international business, which would be subject to even more scrutiny in a slimmed down aviation company.
The Frequent Flyer program, which has about 10 million members, has been broadly valued at $2.4 billion. That compares with a market value for Qantas only marginally higher at $2.8 billion.
While a partial sale of the loyalty program has previously been mooted, the proposal for Qantas investors to receive shares in the spin-off is new.
The market is awaiting the results of a broad strategic review that Qantas chief Alan Joyce is expected to release when the airline posts full-year results next month.
Qantas, which is widely forecast to post another deep loss, is in the process of sacking 5000 workers in a $2 billion cost-cutting program. Speculation is also rife the airline will take more painful writedowns.
“There is often speculation about Qantas, especially in the lead up to our results,’’ a spokesman said. He said the airline had “a long-held position of not commenting”.
One industry insider told BusinessDaily Qantas had little choice but to extract more value from the loyalty scheme.
The insider noted Air Canada now had a market capitalisation of $C2.76 billion ($2.8 billion — well below the value of its Aeroplan loyalty spin-off, at $C3.4 billion.
Aviation consultant Neil Hansford said splitting Qantas would also force the Federal Government to address ownership restrictions that had weighed on the group, particularly its international arm.
“The international business of Qantas is fundamentally a dog,’’ said Mr Hansford, head of Strategic Aviation Solutions.
While Virgin has turned to foreign stakeholders for cash injections, the Qantas Sale Act puts strict limits on offshore investment in the flag carrier.
Mr Hansford said Qantas should be broken into three businesses, floating the loyalty program, the international arm and the strong domestic business. “You would be giving shareholders a piece of gold for domestic, a piece of gold for Frequent Flyers and a piece of lead for international.’’
He agreed with speculation Qantas faced more writedowns. “I think the auditors are starting to realise the assets may well not have been as accurately valued as the balance sheet might be reflecting.’’