Qantas (QAN) has confirmed that it will cut 5,000 jobs, sell leases on airport terminals and retire older passenger jets (something that should have been done well before now) in an attempt to regain profitability for the struggling airline.
It is the biggest cut to Qantas’ staff numbers since chief executive Alan Joyce took the reins in 2008. In that time the value of the company has fallen by more than 40% to around $2.8 billion at yesterday’s close of $1.27.
Before today’s round of retrenchments, Mr Joyce had announced nearly 4,200 job cuts during his tenure.
The previous cuts obviously have had no impact whatsoever on the airline’s problems, which must go deeper than just staffing costs and flexibility.
The defense of the airline’s 65% share of the domestic airline market in Australia is a major problem and is forcing the airline to cut prices to match Virgin (VAH). That is mindless competition and a sure way to further financial problems.
After these cuts, shareholders will be entitled to ask about the need for cuts at the top of the airline, including the boardroom, which hasn’t covered itself in glory in the past year or so, especially when you remembered it pushed through a $100 million share buyback in late 2012. You would have thought that was the last thing an airline that was struggling then, should be wasting its cash on.
The airline reported a $252 million underlying loss in the first half, thanks to the continuing grim battle to dominate the local airline market in the face of rising competition from Virgin Australia (which also now controls Tiger Airlines).
The airline’s statutory loss after tax was $235 million and came on a 4% fall in revenue to $7.9 billion for the six months, a cut on investment of $1 billion and the sale or deferment of purchase of 50 aircraft. The airline said it had liquidity of $3 billion.
QAN Vs VAH 2Y – Qantas and Virgin race to the bottom on domestic capacity
Qantas’ international business remains a major headache though and it is hard seeing much relief given the intense competition here as millions of Australians travel overseas every year (and in rising numbers as well). Qantas formed the controversial alliance with Emirates and switched from Singapore to Dubai to try and meet some of these challenges.
The airline said the cuts to the current 33,000 staff will include management positions (but will it also include those closer to the top and more responsible for the problem?)
Qantas said it will also cut its aircraft maintenance operations and catering and will stop flying between Perth and Singapore later this year and retire six Boeing 747 jumbos.
QAN Results Video
Today’s announcement followed Qantas’ warning in December that it would post a first half pre-tax loss of between $250 million and $300 million, a period during which Australian airlines (like retailers) typically make most of their earnings.
Mr Joyce has been under pressure from investors to reveal a credible way of $2 billion in costs from the airline over the next three years. Pressure on the CEO, who used to run Jetstar, has been building since the warning late last year.
The job cuts come at the same time the federal government prepares to provide Qantas with a debt guarantee, meaning taxpayers would foot the bill should the airline default. The govermment will try to amend the Qantas Sale Act to remove the requirement that limits foreign ownership to 49%.
One other cost saving from Qantas was confirmed this morning with the news it is going to sell its long-term lease on its terminal at Brisbane Airport for $112 million.
The lease was due to expire in 2018, and under the arrangements with the airport, Qantas will retain exclusive use and operational control over much its part of the Brisbane terminal until the end of 2018 while ”securing rights to key infrastructure beyond this period”.
In this morning’s statement, Mr Joyce said the airline "must take actions that are unprecedented in scope and depth to strengthen the core" of the business.
"We have already made tough decisions and nobody should doubt that there are more ahead," he said.
"To reach $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."
Of course there’s no dividend for shareholders and there looks like being none for years to come.
Qantas 2013/14 Half-Year Results – Investor Presentation
