Qantas (QAN) has gone the whole hog of job cuts, massive loss forecast, sale options, pay freezes (and a cut for CEO Alan Joyce).
It’s as though the airline is at the Last Chance Saloon and making a last desperate play to get out from under.
And, of course, it’s continuing to talk up the possibility of some sort of help from the Federal Government.
Like Oliver Twist, the begging bowl is out and Qantas management and board want it filled with something from taxpayers.
Of course with such a dramatic announcement yesterday, the shares headed south, bottoming out at a low of 99.55c, not quite the 96c all time low hit after an earnings warning in 2012.
But the loss of more than 16% was pretty substantial, as was the loss at the close of 11.2% with the shares ending on $1.07.
QAN Vs VAH YTD – Qantas gloom and doom startles the shares southwards
The sharp fall in Qantas helped knock the stuffing out of the wider market which had a miserable afternoon which saw many price falls accelerate.
In a lengthy statement to the ASX, Qantas said that "all options are on the table" as part of a wide-ranging structural review of its operations here and offshore.
While the airline would not name the most likely options, possible courses of action include selling down its investments in Asia such as Jetstar Asia in Singapore and Jetstar Japan.
Qantas said in a profit warning that the ”challenges we now face are immense”.
So 1,000 jobs will be cut in next year (including 300 job cuts announced last month when the Avalon maintenance base was closed), $2 billion in expenses and various other measures.
Qantas said it now expects to report an underlying loss before tax of between $250 million and $300 million for the six months to December 31.
The profit warning was triggered by a significant deterioration in yields and passenger loads on planes across its international and domestic networks in November.
So much for the mooted post election bounce. Damp squib more like it for many companies across the economy.
Besides interests in Jetstar in Asia, there’s also been talk that it could consider a part sale of its frequent flyer business which has become very profitable.
Mr Joyce said the circumstances demanded urgent action.
”The challenges we now face are immense – but we will overcome them and we will continue to build a stronger and better Qantas for Australia,” he said in a statement.
Mr Joyce also said there had been ”unprecedented distortion of the Australian domestic market with Virgin Australia’s strategy to seek major ownership and massive financial backing from government-owned airlines”.
”We cannot and we will not stand still in these extraordinary circumstances," he said.
Of course Mr Joyce ignores the fact that it has gotten into a joint venture on its London route with the most aggressive state owned operator of all – Emirates.
So according to Mr Joyce, the three state-owned airlines in Virgin – Singapore and Eithad and Air NZ – are bad for Australian aviation, but the Emirates joint venture is good!
Yesterday’s warning of a loss of $300 million contrasts to the previous lack of guidance from Qantas.
The takeaway for shareholders is that it’s time for radical surgery on the board, management and business and that needs to happen quickly.
CEO Joyce and his chairman, Leigh Clifford need to press the button on their ejector seats and depart ASAP.
The airline needs hundreds of millions in new capital – not bank loans.
Would a share issue to shareholders work ? Probably not.
Retail shares certainly wouldn’t support it seeing they’ve sat by with no dividends and watched the current management and board trash the price lower and lower in the past three years.
Asset sales or partial floats might work, but that will take time.
The frequent flyer and Jetstar businesses are the key to releasing capital for the domestic and international bits of Qantas to be rejigged – or selling a stake in the airline to Emirates.
Qantas Group Market Update
