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Qantas bombshell meets worst-case forecasts

February 28, 2014 Financial, Headline News 1 Comment Email Email

egtmedia59Qantas yesterday delivered the expected bombshell and massive half-year loss, living up to the worst expectations of analysts. Some are now saying that the real job losses could be between 5500 and 7000, including part-timers.

The official Qantas figure is 5000 by financial year 2017.

The carrier blamed “market conditions” and the “uneven playing field in Australian aviation policy”. The results were particularly galling as they fell on the same day Air New Zealand declared a record interim profit for the same period of time. TICBanner

Qantas posted a record AUD 252 million first-half loss, which chief executive Alan Joyce called “an unacceptable and unsustainable result”. Although Joyce remains optimistic that the airline’s new strategy will return it to profitability, calls are mounting for him to resign.

In short, the recovery strategy is:

• AUD 2 billion cost reduction, including 5000 jobs

• More than 50 aircraft to be deferred or sold

• AUD 1 billion capital expenditure reduction

• Core investment in customer service to continue

Joyce said Qantas would take action to permanently reduce costs in all parts of the Qantas Group through to the 2017 financial year, including fleet and network changes, productivity improvements, consolidation of business activities, new technology and procurement savings. More than 50 aircraft will be deferred or sold and the Group’s workforce will be reduced by 5000 full-time equivalent positions by financial year 2017.

Qantas has reached agreement on the return of its Brisbane Airport terminal lease, together with related assets, to the airport owner at a cash value of AUD 112 million. The broader structural review of the Qantas Group portfolio continues “and no final decisions have been made on other assets”.

Joyce said Qantas would do everything in its control to overcome “some of the toughest market conditions” it had ever faced.

“It’s clear that the market Qantas operates in has changed, with structural economic shifts exacerbated by an uneven playing field in Australian aviation policy,” he said.

“Qantas’ competitors have increased capacity to Australia by 46% since 2009, more than double the world average, at a time of record fuel costs and economic volatility,” he said.

“To reach AUD 2 billion in cost cuts over three years, we have to work our assets harder, become more productive, retire older aircraft, and make sure that our fleet and network are the right size. We must defer growth and cut back where we can, so that we can invest where we need to.

“We have already made tough decisions and nobody should doubt that there are more ahead.”

Meanwhile, the expansion of Jetstar in Asia has been halted. In Singapore, “growth has been suspended by the Jetstar Asia Board until such time as conditions improve,” a Qantas statement said.

Passengers to Singapore on full-service Qantas Internaitonal will fare no better – flights from Sydney and Brisbane to Singapore will be downgraded from B747s to Airbus A330s by September this year.

Qantas International will withdraw its Perth to Singapore route by this May, leaving that major Australian city with no regular international Qantas flights.

Jetstar International receive only 11 out of 14 Dreamliner 787-8s. The last three have been deferred. Jetstar Hong Kong remains in limbo. It has failed so far to get a Hong Kong operating certificate.

Deliveries of the last eight of Qantas’ A380s on order have been deferred.

Latest indications suggest that any Government help for Qantas, if it comes, may not come soon.

It suits the Government to have Qantas around when needed, however. In early 2011, when riots in Egypt threatened the safety of Australian tourists and business visitors there, the Government quickly chartered a Qantas aircraft to fly in and evacuate Aussies from Cairo.

Written by : Peter Needham

Currently there is "1 comment" on this Article:

  1. AgentGerko says:

    1. Too much competition
    Qantas has less competitors now than almost any time in its history. KLM, Air France, Northwest, Continental, All Nippon, Egyptian, Gulf Air and dozens of other carriers were forced out of the Australian market by QF. The only big competitor to hit Oz in the last decad is Emirates and thats the QF partner.
    2. Domestic competition
    For decades we had a two airline system – Qantas vs Ansett. What have we now? Qantas (who own Jetstar) vs Virgin (who own Tiger) so in reality we have a two airline system. Whats changed?
    3. Skyrocketing fuel
    Does United, JAL, Air NZ, etc not buy fuel? Did QF strike a deal so much worse than everyone else? No, fuel is a cost every airline bears and the majority pay the same as QF yet still maintain profitability.

    QF’s problem is two fold. They bought the wrong aircraft and they bought the wrong CEO. Who was the idiot who let Mr Borghetti go and thought ‘Hey, lets hire the boss of a bucket shop operation by offering him zillions of dollars? He can’t do any worse than people who already know the airline inside and out.’

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