Qantas Shares

[Kanan]

Last Week:
On Monday, trading of Qantas shares was suspended for an hour after a collapsed takeover attempt by Airline Partners Australia (APA), rumored to be over $11 billion.

Qantas is Australia's largest airline company, and due to this, the Federal Government has imposed strict and legally enforceable conditions on its sale. These conditions include ensuring that the airline will be Australian owned, maintenance will still be conducted in Australia and frequent flyer commitments will remain the same.

On Tuesday, a LARGE quantity of shares were traded as the airline scrambled to reduce the number of stocks held by foreigners. This caused its share price to fall dramatically.

Fairfax Media estimates that Qantas is around 65% foreign owned. Under current law, foreigners cannot own more than 49% of Qantas.

Qantas share price has dropped by over 3% since the news last week, and is expected to continue falling for the next couple of days. Its share price is currently at $5.19.

I believe that Qantas is a reliable, efficient and fast growing company. The fact that it has monopolised the Australian airline industry means that the company will continue to grow at an astonishing rate within Australia, but may struggle to stay competitive with other airlines around the world.

From the above information, do u think that the share price for Qantas will increase, decrease, or stay around the same price? Please provide the reasons for your prediction.

If anyone else has anything further to add, please feel free to post a comment.



By: Kanan Zamanzadeh

 

[Michael Wong]

I am quite surprised at how the market has responded to the takeover falling through. Personally I thought that prices would have plummeted immediately, however it has pretty much been hovering around the $5.20 mark. You would think with the foreign ownership legislation, the market would have seen a large bulk of sales on the first business day after the failed takeover announcement. However it only fell approximately 20 cents, not what can be called dramatic. Many speculated that the price drop would be much larger, with the possibility that it would drop to the pre-takeover price. Unless Qantas enforce the foreign ownership rule soon, prices don’t seem like they will drop as initially forecast.

It is possible that Airline Partners Australia (APA) are coming back with a higher bid, which have kept prices in tact. Though they may have stated that legal reasons have meant that they could not raise their bid, this is obviously not the case.

Only time will tell what will happen to Qantas. Tiger Airways are due to integrate into the rest of the Australian market in the coming months (it already operates in Darwin) and speculation that China’s own airline Viva Macau to enter in July. This shows the fierce competition which Qantas will be facing, in addition to the rising oil prices.

As mentioned above, I don’t think prices will drop unless APA doesn’t come back with a bid. Look at Flight Centre. The takeover bid failed a couple of months ago, however Pacific Equity Partners have looked like they are coming back with a higher bid. Maybe the same will happen to Qantas? Everyone else seems to think so.

By Steven Tang