Latest / What the Flux / Virgin hikes fares again | Japan’s beer giants under investigation | Domino’s leadership shake-up

Transcript

Virgin hikes fares again | Japan’s beer giants under investigation | Domino’s leadership shake-up · What the Flux

• 0:05
  Speaker 1: This is What The Flux. I'm Brett.
• 0:06
  Speaker 2: And I'm Larissa, and it's Wednesday the 14th of October.
• 0:09
  Speaker 1: Larissa, wages in Australia didn't grow as fast in September
• 0:12
  Speaker 1: as they did in August, according to ComBank's latest wage
• 0:15
  Speaker 1: and labour insights. And get this one, wages grew by
• 0:18
  Speaker 1: an annual rate of 3.3% last month. That's slower than
• 0:21
  Speaker 1: the 3.5% growth back in August. And higher wages tend
• 0:24
  Speaker 1: to add fuel to the inflation fire. So this should
• 0:27
  Speaker 1: be music to the RBA's ears.
• 0:29
  Speaker 2: Flux fam, we've got three juicy stories lined up today,
• 0:32
  Speaker 2: but before we get into them, I'd like to introduce myself.
• 0:35
  Speaker 2: You may have heard my voice on the pod before.
• 0:37
  Speaker 2: I'm Larissa, and I'll be joining Brett to bring you
• 0:39
  Speaker 2: your business news wrap on Wednesdays. And on Fridays, we'll
• 0:43
  Speaker 2: be going a bit deeper into the biggest story of
• 0:45
  Speaker 2: the week. Super excited to be in your ears. Let's
• 0:48
  Speaker 2: get into today's stories.
• 0:49
  Speaker 1: Juicy stories today, Larissa. For our first, Virgin Australia is
• 0:53
  Speaker 1: hiking airfares as fuel prices surge yet again.
• 0:56
  Speaker 2: I feel like we've flown this route before.
• 0:59
  Speaker 1: Tell me more. Okay, so we know Virgin Australia is
• 1:02
  Speaker 1: one of Australia's biggest airlines, second to Qantas.
• 1:05
  Speaker 2: Virgin Australia was founded in 2000 and employs around 8,000
• 1:09
  Speaker 2: people here in Australia.
• 1:10
  Speaker 1: And Virgin has had a bit of a turbulent year,
• 1:12
  Speaker 1: to say the least, dealing with big fuel price jumps
• 1:15
  Speaker 1: and the conflict in the Middle East.
• 1:17
  Speaker 2: Yep, Virgin hiked domestic airfares by 5% in March as
• 1:21
  Speaker 2: oil prices spiked and suspended some of its domestic flight
• 1:24
  Speaker 2: routes too.
• 1:25
  Speaker 1: But Virgin's EBIT still increased by 13.5% to 750 million
• 1:30
  Speaker 1: bucks in FY26.
• 1:31
  Speaker 2: Which meant they could pay out shareholders for the first
• 1:33
  Speaker 2: time since returning to the ASX.
• 1:35
  Speaker 1: Pretty surprising given all the ups and downs.
• 1:37
  Speaker 2: Yup, but late last week Virgin Australia told travel agents
• 1:40
  Speaker 2: that it's hiking fare prices because fuel prices have surged again.
• 1:44
  Speaker 1: And Virgin actually told its investors in August that fares
• 1:47
  Speaker 1: would go up again.
• 1:48
  Speaker 2: Why did they do this?
• 1:49
  Speaker 1: Well Larissa, Virgin wants to keep their FY27 earnings strong.
• 1:53
  Speaker 2: And they know they're about to foot a hefty fuel
• 1:55
  Speaker 2: bill between now and Christmas.
• 1:56
  Speaker 1: Because the safety net that was protecting Virgin's oil price
• 1:59
  Speaker 1: margins has worn thin.
• 2:01
  Speaker 2: So what's the key learning?
• 2:03
  Speaker 1: Virgin has been using something called fuel hedging to protect
• 2:06
  Speaker 1: them from spikes in oil prices.
• 2:08
  Speaker 2: It's basically a deal that locks in what Virgin pays
• 2:10
  Speaker 2: for fuel months in advance.
• 2:12
  Speaker 1: So even if oil prices take off, Virgin continues to
• 2:15
  Speaker 1: pay the old price.
• 2:16
  Speaker 2: Think of it like a gym membership. You lock in
• 2:18
  Speaker 2: the same monthly price for a fixed period.
• 2:20
  Speaker 1: Yep, and even if the gym puts its prices up,
• 2:22
  Speaker 1: you keep paying the old rate until your membership runs out.
• 2:25
  Speaker 2: For Virgin, the membership is its fuel price and it
• 2:28
  Speaker 2: just came up for renewal.
• 2:30
  Speaker 1: Get this one. Jet fuel prices increased by 40% between
• 2:33
  Speaker 1: Feb and June this year.
• 2:35
  Speaker 2: And the fuel hedging deals Virgin had to help shield
• 2:37
  Speaker 2: the airline from big price shocks has run out.
• 2:40
  Speaker 1: So it's passing costs onto customers to keep earnings nice
• 2:44
  Speaker 1: and steady.
• 2:44
  Speaker 2: And keep investors happy.
• 2:46
  Speaker 1: Because while hedging can buy an airline time, it doesn't
• 2:49
  Speaker 1: make it fully immune from supply chain turbulence.
• 2:51
  Speaker 2: And for our second story, four Japanese beer makers, Asahi, Suntory,
• 2:56
  Speaker 2: Kirin and Sapporo, are being investigated for allegedly taking part
• 2:59
  Speaker 2: in a price-fixing cartel.
• 3:01
  Speaker 1: Sounds like more than just beer might have been brewing
• 3:04
  Speaker 1: behind closed doors here, Larissa. Tell me more.
• 3:06
  Speaker 2: Well, Brett, Asahi, Suntory, Kirin and Sapporo make up around 90%
• 3:11
  Speaker 2: of Japan's beer market and are still pretty popular here
• 3:14
  Speaker 2: in Australia.
• 3:14
  Speaker 1: Yeah, how about this one? Asahi's super dry sales have
• 3:17
  Speaker 1: increased 40% in Australia since 2020.
• 3:20
  Speaker 2: And Asahi, Kirin Ichiban and Sapporo all have beer manufacturing
• 3:24
  Speaker 2: setups here, with Asahi employing around 4,000 Aussies across its
• 3:28
  Speaker 2: 17 Australian sites.
• 3:29
  Speaker 1: But over the past week, authorities have raided the beer makers'
• 3:33
  Speaker 1: sites in Japan.
• 3:34
  Speaker 2: And why is that?
• 3:35
  Speaker 1: Because of suspicious price increases in April last year and
• 3:39
  Speaker 1: in October 2022 for beer, low malt beer and other
• 3:42
  Speaker 1: beer-like beverages. And this week's raids were all over alleged
• 3:45
  Speaker 1: violations of Japan's Anti-Monopoly Act related to domestic alcohol trading.
• 3:49
  Speaker 2: That doesn't sound good. Nothing kills happy hour faster than
• 3:52
  Speaker 2: the Fair Trade Commission knocking at your door. So what
• 3:55
  Speaker 2: are they actually accusing manufacturers of?
• 3:57
  Speaker 1: Well, authorities reckon the beer giants agreed to hike prices
• 4:00
  Speaker 1: at the same time those price increases came when manufacturers
• 4:04
  Speaker 1: all said barley prices, packaging, energy and logistics costs were
• 4:08
  Speaker 1: all soaring.
• 4:09
  Speaker 2: So these investigations are basically to find out if the
• 4:12
  Speaker 2: price increases were genuine or the result of a dodgy
• 4:15
  Speaker 2: beer price fixing cartel.
• 4:17
  Speaker 1: So what's the key learning here?
• 4:18
  Speaker 2: A price-fixing cartel is when competing businesses get together and
• 4:22
  Speaker 2: agree on prices instead of competing for your money.
• 4:25
  Speaker 1: Imagine two Apple sellers, both open stalls at the farmer's market.
• 4:28
  Speaker 2: Seller A charges $ 10 a bag, so seller B charges
• 4:32
  Speaker 2: $ 9 a bag to try win more customers over.
• 4:34
  Speaker 1: That is how a healthy market would work.
• 4:36
  Speaker 2: Yeah, but if seller A and seller B meet up
• 4:38
  Speaker 2: for a beer and agree to increase prices to $ 11
• 4:41
  Speaker 2: a bag, it means shoppers have no option but to
• 4:44
  Speaker 2: pay the higher price.
• 4:45
  Speaker 1: Or leave the market with no apples.
• 4:47
  Speaker 2: While that's not terrible at a small market level, at
• 4:49
  Speaker 2: a national level, that's called price fixing and it's super illegal.
• 4:53
  Speaker 1: It happened here in Australia with Visi and Amcor in
• 4:55
  Speaker 1: the cardboard sector back in the early 2000s.
• 4:58
  Speaker 2: Yeah, the two cardboard box suppliers controlled 90% of the
• 5:01
  Speaker 2: cardboard box market and came together to fix prices.
• 5:05
  Speaker 1: Busy and Amcor ended up paying around $ 95 million in
• 5:08
  Speaker 1: a major legal settlement.
• 5:09
  Speaker 2: And Brett, regulators in Japan suspect Asahi, Curran, Sapporo and
• 5:13
  Speaker 2: Suntory of doing something similar with beer sales.
• 5:16
  Speaker 1: And Japan's laws mean companies face major penalties if they're
• 5:19
  Speaker 1: found guilty of price fixing.
• 5:20
  Speaker 2: All these brands saw their share price drop after the
• 5:23
  Speaker 2: news of the price fixing investigation broke.
• 5:25
  Speaker 1: Because nobody wants a beer stock that might end up
• 5:28
  Speaker 1: on the rocks.
• 5:29
  Speaker 2: For our third and final story, Domino's Enterprises has fired
• 5:33
  Speaker 2: its Australia New Zealand CEO after less than a year
• 5:37
  Speaker 2: in the top job.
• 5:37
  Speaker 1: The only thing faster than Domino's food is their leadership turnovers.
• 5:41
  Speaker 1: What is going on here?
• 5:42
  Speaker 2: Well, Britt, Domino's is Australia's largest pizza chain, known for
• 5:45
  Speaker 2: its $ 8 pizzas and cheesy stuffed crusts.
• 5:48
  Speaker 1: AKA every uni student's dream.
• 5:51
  Speaker 2: Yep. Domino's opened its first Australian store back in 1983
• 5:55
  Speaker 2: and now operates 872 stores across both Australia and New Zealand.
• 6:00
  Speaker 1: But Domino's has had a tough run recently. Same store
• 6:03
  Speaker 1: sales dropped by around 5% over the last financial year.
• 6:07
  Speaker 2: And the pizza chain closed 29 of its Australian stores
• 6:10
  Speaker 2: and ended the famous $ 5 pizza deals after revealing a
• 6:14
  Speaker 2: big loss in FY26.
• 6:15
  Speaker 1: Leaving a pretty bad taste in investors' mouths. Yep.
• 6:19
  Speaker 2: And this week, Domino's showed the door to the CEO
• 6:21
  Speaker 2: of its Australian New Zealand business, Meryl Pereira.
• 6:24
  Speaker 1: Get this, Pereira had only been in the top job
• 6:26
  Speaker 1: for about nine months before he and the company mutually
• 6:29
  Speaker 1: agreed for him to move on effective immediately.
• 6:32
  Speaker 2: Ah, the old conscious uncoupling of the boardroom.
• 6:35
  Speaker 1: And he's not the only leader to get the boot
• 6:37
  Speaker 1: in recent years either.
• 6:38
  Speaker 2: Domino's Group CEO Mark Van Dyke quit abruptly in July
• 6:41
  Speaker 2: 2025 after less than a year in the job.
• 6:44
  Speaker 1: That same year, the chief exec of Domino's UK left
• 6:47
  Speaker 1: by mutual agreement after just two years.
• 6:49
  Speaker 2: So why have so many leaders been pushed out?
• 6:51
  Speaker 1: Well, according to sources close to the leadership decision, Pereira
• 6:54
  Speaker 1: wasn't moving fast enough on plans to turn Domino's around.
• 6:58
  Speaker 2: So what's the key learning here?
• 7:00
  Speaker 1: Turnaround management is all about using company analysis and planning
• 7:03
  Speaker 1: to try and save a troubled company. When a business
• 7:06
  Speaker 1: stops performing, investors look at the top of the chain
• 7:08
  Speaker 1: for some answers.
• 7:09
  Speaker 2: And when you're as deep in the reader's dominoes, the
• 7:12
  Speaker 2: answer they want is profit, or at least less of
• 7:14
  Speaker 2: a loss.
• 7:15
  Speaker 1: In other words, turnaround management is when a struggling company
• 7:18
  Speaker 1: tries to flip itself back into the black.
• 7:20
  Speaker 2: And it's usually pretty unglamorous, closing doors, cutting costs, fixing prices.
• 7:25
  Speaker 1: Domino's has been doing exactly that, selling fewer pizzas but
• 7:28
  Speaker 1: making more on each individual pizza.
• 7:31
  Speaker 2: The catch? When you're bleeding as much as Domino's has been,
• 7:34
  Speaker 2: the turnaround has to happen fast.
• 7:36
  Speaker 1: And any boss who's not turning things around quickly enough
• 7:38
  Speaker 1: tends to get spun out the door.
• 7:40
  Speaker 2: FluxFam, thanks so much for listening. And as I mentioned
• 7:43
  Speaker 2: at the start of the podcast, we will be back
• 7:45
  Speaker 2: in your ears on Friday with a deeper dive into
• 7:47
  Speaker 2: this week's biggest business news story.
• 7:49
  Speaker 1: Thanks for listening and we'll see you on Friday.