Drastic Qantas cuts after losses

Australia's national airline has delivered a nightmare half-year result, including the axing of 5000 jobs, costing $500 million, as it targets $A2 billion ($NZ2.15 billion) in cost savings.

The loss of 5000 airline jobs comes hard on the heels of the collapse of Australia's heavily subsidised automotive industry, with thousands of job losses from the closure of Holden, Ford and Toyota manufacturing plants.

As with the automotive sector, there are murmurs of Australian government intervention.

Qantas shares plunged on the news, down almost 7% at $A1.18, with 31 million changing hands; valued at more than $A36.5 million.

Qantas yesterday booked a before-tax loss of $A252 million for the six months to December, compared with a $A220 million profit a year ago.

Revenue was down 4%, or $A339 million, from $A8.24 billion to $A7.9 billion, and expenses up from $7.93 billion to $A8 billion.

Qantas chief executive Alan Joyce said the trading was ''some of the toughest conditions Qantas has ever seen''.

''Australia has been hit by a giant wave of international airline capacity, with a 46% increase in competitor capacity since 2009 - more than double the global increase of 21% over the same period,'' he said in a statement yesterday.

While having cut some costs by almost 20% during the past four years, Mr Joyce said it was time for ''hard decisions'' to be taken to strengthen the business.

In the face of ''the deterioration in business performance and operating environment'', Mr Joyce outlined the ''acceleration'' of a restructuring programme, targeting $A2 billion in savings by 2016-17.

There would be a reduction of 5000 fulltime equivalent jobs, ''significant changes'' to fleet plans and network and a $A1 billion reduction in capital expenditure during the present and next financial years.

Fuel costs for the first half were a record high, up 3% to $A2.3 billion, with full-year fuel forecast at $A4.6 billion.

Craigs Investment Partners broker Peter McIntyre said with the massive restructuring under way, Qantas might need further capital raising ''as it struggles with costs and competition''.

''Qantas have struggled with the key inputs of airline success, passenger routes, jet fuel costs and competition, but restructuring is under way to improve their fiscal position.

''However, questions will no doubt be asked if they've moved too late on restructuring and whether they need to rapidly downsize to have the flexibility to cope with increased competition, from more nimble operators Air New Zealand, Singapore and Etihad Airways,'' he said.

Forsyth Barr broker Andrew Rooney said Qantas had been slow to adapt to the operating environment, market changes and competitive forces it faced.

''This is now forcing a major rethink of the business, with the need to drive $A2 billion of costs out of the business and reduce capital expenditure by $A1 billion over the next three years,'' he said.

Mr Joyce claimed Australian domestic routes had been ''distorted'' by present aviation policy, which allowed Virgin Australia to be majority-owned by three foreign-government-backed airlines; including an Air New Zealand stake of 24.5%, yet retain access to Australian bilateral flying rights.

Despite Virgin losing money, Mr Joyce said, the three airlines last year invested more than $A300 million in Virgin, which supported its continued domestic capacity growth.

''With structural economic changes being exacerbated by the uneven playing field in domestic aviation, we must now take actions that are unprecedented in scope and depth,'' Mr Joyce said

The Qantas half-year result said the proposed redundancies would cost about $A500 million across the next two financial years.

Management and non-operational areas would be reduced by 1500 jobs, there would be a group-wide wage freeze and a restructure of maintenance and catering operations. As previously announced, facilities for maintenance at Avalon and catering at Adelaide, would be closed.

Qantas would reduce its fleet type from 11 to seven, drop underperforming international routes, reduce domestic wide-body aircraft and retire its six oldest B747-400s.

It would defer defer the last three of 14 B787-8 orders, restructure its A320-200 order book and suspend new Jetstar growth in Asia.

Qantas is to sell its 31-year-old Brisbane airport lease back to the airport corporation, for $112 million, AAP reported yesterday.

Qantas said it had reached a deal with the Brisbane Airport Corporation to retain exclusive use and operational control over much of the northern end of the terminal until the end of 2018 while securing rights to key infrastructure beyond this period.

The airline is believed to be negotiating a similar deal at Melbourne Airport.

- simon.hartley@odt.co.nz

 

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