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Qantas will axe 5000 jobs in a bid to dramatically cut costs after posting a $252 million first half loss.
Over the next three years, Qantas will shed 1500 management and non-operational positions, with the remainder of the job cuts to come from changes to the fleet and network and the restructure of maintenance operations and catering facilities.
Meanwhile, wages for all employees will be frozen and the company's executives have already taken a pay cut.
The airline is attempting to save $2 billion by the 2016/17 financial year as it tries to return to profitability amid a bitter, profit-draining battle with rival Virgin.
Qantas shares fell 10 cents, or almost eight per cent, to $1.17 following the announcement.
The announcement comes as the federal government weighs up the possibility of supporting the airline through a debt guarantee or changes to the Qantas Sale Act.
Chief executive Alan Joyce said the $252 million underlying loss for the six months to December 31 was unacceptable and tough decisions needed to be made.
"There are many Australian companies that have failed because they were not prepared to make the hard decisions, Qantas is not one of them," Mr Joyce told reporters in Sydney.
"We will cut where we can in order to invest where we must... we will be a far leaner Qantas group."
"Our priorities are to protect our core businesses... that is how we will protect as many jobs as possible and return to profitability."
Mr Joyce said he would meet with unions on Friday to discuss the cuts.
He put much of the blame for the result on an "uneven playing field" with Virgin, which has the backing of three foreign airlines - Etihad, Singapore Airlines and Air New Zealand among its owners.
"The Australian domestic market has been distorted by current Australian aviation policy," he said.
"Late last year, these three foreign airline shareholders invested more than $300 million in Virgin Australia.... that capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses."
The amount of capital Qantas can access from foreign sources is restricted by the Qantas Sale Act.
As part of its bid to save costs, Qantas will cut capital expenditure by $1 billion over the next three years.
It will also hand back its Brisbane Airport lease for $112 million, though it will retain exclusive use of most of northern end of terminal until 2018.
Meanwhile, the airline says more than 50 aircraft will be deferred or sold, with older planes like 747s to be retired early and orders of A380s and B787-8s to be delayed.
It will also axe underperforming routes including its Perth to Singapore service, while timing and aircraft changes will be made to other routes.
Mr Joyce also announced Qantas would suspend the expansion of the Jetstar Asia business in Singapore, which continued to face tough conditions, though he indicated the airline remained committed to finding opportunities in Asia.
"Jetstar has been a pioneer Australian brand across Asia and we continue to see major opportunities for it in the world's fastest growing aviation region," he said.