Big shakeup to cut losses and drive turnaround
By RACHNA LAL
Sydney: Axing 5000 jobs, ditching unprofitable routes and retiring ageing gas-guzzling planes, are amidst Qantas’ plans for what’s believed to be the biggest shake-up of its operations.
This follows Qantas’ announcement of an underlying PBT loss of AU$252 million and a Statutory Loss After Tax of AU$235 million for the six months ended December 31, 2013.
Chief executive Alan Joyce described the result as unacceptable and said comprehensive action would be taken in response.
“We are facing some of the toughest conditions Qantas has ever seen,” Mr Joyce said.
Of course all this comes at a backdrop of when Fiji Airways, in which Qantas is the second biggest shareholder, is performing exceptionally well.
Not only has Fiji Airways had a turnaround in profits and revenue, but also it has received global recognition for its rebranding, has increased flight frequencies to major destinations and introduced three brand new Airbus A330s.
Unfairness claimed
Mr Joyce said Australia has been hit by a giant wave of international airline capacity.
He said this has been as a result of a 46 per cent increase in competitor capacity since 2009 – more than double the global increase of 21 per cent over the same period.
“The Australian domestic market has been distorted by current Australian aviation policy, which allows Virgin Australia to be majority-owned by three foreign government-backed airlines and yet retain access to Australian bilateral flying rights,” he said.
Mr Joyce said Qantas has been undertaking its biggest ever transformation over the past four years, cutting comparable unit costs by 19 per cent over four years.
But he said this was not enough for the circumstances they face now.
“With structural economic changes being exacerbated by the uneven playing field in domestic aviation, we must now take actions that are unprecedented in scope and depth,” he said.
“We will accelerate our Qantas Transformation programme to achieve AU$2 billion in cost reductions by financial year 2017.
“Hard decisions will be necessary to overcome the challenges we face and build a stronger business.”
Reduction programme
Details of Qantas’ AU$2 billion cost reduction programme and capital expenditure review was announced as well.
Actions by Qantas Group to reduce costs through to financial year 2017 would include fleet and network changes, productivity improvements, consolidation of business activities, new technology and procurement savings.
More than 50 aircraft would be deferred or sold and the Group’s workforce will be reduced by 5000 full-time equivalent positions by 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 AU$112 million.
The broader structural review of the Qantas Group portfolio continues and no final decisions have been made on other assets.
Mr Joyce said Qantas would do everything in its control to overcome some of the toughest market conditions it had ever faced.
Closer to home, Qantas closed down its only office in Fiji, in Suva the past year in a bid to cut down costs.
Long-term goals
Mr Joyce said their long-term goal remains the transformation of the Qantas Group for profitable, sustainable growth.
“Over the next three years, we aim to secure our strong Group domestic position and maximise Qantas International’s competitiveness,” he said.
“Qantas Loyalty will continue to access new markets and revenue streams, building on its success to date.
“The over-arching focus in Asia continues to be profitably bedding down existing businesses and partnerships.
“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.”
Mr Joyce stressed despite all these, important customer investments will continue.
He said: “This includes the upgrade of our Airbus A330 fleet and the opening of new lounges in Hong Kong and Los Angeles, and the service that Qantas passengers receive will not be compromised.”
Outlook
Qantas Group’s second half of financial year 2014’s operating environment remains very challenging and volatile.
It said soft underlying domestic demand is continuing in the seasonally weaker half, with domestic and international yields and loads expected to remain depressed.
Alan Joyce.