Upfront Investor | Qantas in a Tailspin….

Qantas, the once mighty national carrier, has suffered another blow, with its credit rating being downgraded to junk status by a second ratings agency inside a month. The ratings agency Moody’s pushed Qantas’ rating below investment grade citing a sharp deterioration in the airline’s core domestic business due to aggressive competition from rival Virgin Australia.

In other words, Qantas has been involved in a ‘race to the bottom’ with Virgin Australia for pricing of its services. Although the strategy may look appealing from outside company walls as consumers can jump on a flight for substantially less, but such a strategy generally only has one winner. So in the end does the consumer really win if competition means that the service providers are not viable or one goes out of business? So far it would appear that Virgin is coming out on top.

The key problem for airlines are the large fixed costs such as fuel and plane maintenance that are very difficult to offset when revenues are affected. The recent spate of layoffs and maintenance facility closures have done little to stem the bleeding of cash from Qantas operations, and investors have made the company pay dearly with the stock price dropping 50% in 2013 alone.

So what is the lesson here for consumers? Your money is your vote. For investors, always look to invest in companies that have strong, healthy fundamentals as these are the companies that are likely to outperform over the long term.

So what do we expect in the market?

Three weeks of gains on the market through the festive season is proof that the market doesn’t sleep while many Australians take a well-earned break. However, after having achieved a high of 5383 points last week the All Ordinaries Index is finally taking a breather this week as part of the ebbs and flows of the market – you will typically see moves up of between three to six weeks before the sellers take control for between one to four weeks.

Looking ahead, I believe the market is likely to move higher in the latter part of January in time for Chinese New Year on 31st January. The target for the All Ordinaries Index for the first half of 2014 remains between 5600 to 5800 points. As usual over the coming weeks investors need to listen out for the start of company reporting season as this quarter is likely to set the scene for the market as it heads into mid-year.

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To your profitable trading,

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’. Dale has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment adviceto traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.