Qantas Airways has finally joined rivals Virgin Blue, Air New Zealand in revealing a raft of cost-cutting measures including reducing capacity in response to rising fuel costs and the impact of natural disasters here and offshore.
Air NZ and Virgin Blue have both already indicated the surge in fuel costs, impact of the quakes in NZ and Japan, and the flooding in Brisbane and Queensland in January, will cause them to operate in the red for the second half of the 2011 financial year.
Qantas chief executive Alan Joyce said yesterday that the measures included reductions in domestic and international capacity, retirement of aircraft, reduction of management positions and ongoing fuel surcharges.
"The significant and sustained increases in the price of fuel is the most serious challenge Qantas has faced since the Global Financial Crisis," Mr Joyce said in a statement to the ASX yesterday.
He said the airline was responding to high oil and jet fuel prices and the impact of significant natural disasters in Japan, New Zealand and Australia.
After an initial jump of 6c to a day’s high of $2.21, the shares retreated to end up 4c at $2.19 as investors realised that the company’s actions, while well supported, were not before time and a sign of perhaps tougher action to come.
The airline has estimated that the natural disasters in Queensland, New Zealand and Japan will cost it $140 million in the second half.
In a statement to the ASX today, it said that it was still too early to estimate the impact of the disasters on the group’s full-year earnings for 2012.
The airline has already announced two fuel surcharges on international routes this year to try and offset the impact of the higher fuel costs.
Seeing Qantas earned a profit of $322 million in the December half (the airline claimed to have earned an "underlying profit of $417 million") which was up from just $90 million in the previous half, it’s looking for a sharp second half slowdown, no matter what happens.
The airline earned a net profit for the 2010 year of just $112 million, indicating that it earned around $22 million in the six months to last June.
In the February interim profit statement, the airline said "a number of significant weather events are impacting current trading conditions, including the Queensland floods (estimated to impact second half FY11 Underlying PBT by up to $55 million) and Cyclone Yasi in North Queensland (estimated to impact second half FY11 Underlying PBT by up to $15 million).
"The Qantas Group estimates the A380 disruptions will have an impact of $25 million in the second half of FY11, in addition to the $55 million in the first half of FY11" the airline said. That remains the estimate from this problem and is additional to the $140 million impact from various natural disasters.
Yesterday the airline said the $140 million figure was made up of: Queensland floods – $60 million, Cyclones (Yasi and Carlos) – $20 million, Christchurch earthquake – $15 million and the Japan earthquake and tsunami – $45 million.
Qantas said it would ‘‘reduce management headcount’’ but did not disclose the number of jobs to be axed. It would also act to reduce its workforce’s annual and long-service leave balances.
Qantas and Jetstar will cutback the group’s planned total growth in capacity in the domestic market in the second half from 14% to 8%, and international capacity from 10% to 7 %.
Jetstar will suspend up to four return flights a week between Australia and Japan due to the impact on demand of the tsunami and nuclear disaster. It will also cut services to earthquake-damaged Christchurch.
Qantas will downsize its aircraft flying to Tokyo from Boeing 747 aircraft to Airbus A330s, and suspend services between Perth and Tokyo from May 8. The airline will also retire two Boeing 767 aircraft earlier than it had anticipated.
As well, fleet changes will include the early retirement of two Boeing 767 aircraft.
Analysts say Jetstar will see the biggest impacts of the natural disasters because it flies to these centres more than Qantas’ main airline does.
The airline said the review of manpower costs will include initiatives to reduce management headcount and annual and long service leave balances.
“We want to limit redundancies wherever possible and will be using a range of initiatives to manage the reduction in capacity including annual and long service leave. At this stage only management positions will be made redundant,” Mr Joyce said.
Qantas has already increased domestic airfares and international fuel surcharges in February and March this year in response to rising fuel prices.
Jetstar also increased fares in selected domestic and international markets in February and increased ancillary revenue, including baggage charges.
In addition to Qantas and Jetstar cutting services to Japan, Cathay Pacific has joined struggling Japan Airlines in revealing revealed cuts in flights to and from Japan because of the impact of the March 11 quake, tsunami and especially the Fukushima nuclear crisis.
The cuts are temporary for Cathay, while the cuts for Japan Airlines will last until at least late April. Cathay management said they will constantly review the situatio
