Qantas’ Half-Year Losses “Unsustainable” – CEO

The AD$252 million ($226 million) half-year losses incurred by Emirates partner Qantas in the six months to December are “unacceptable and unsustainable,” according to CEO Alan Joyce.

Qantas plans to slash 5,000 jobs, will sell its Brisbane Airport Terminal lease for $112 million to Brisbane Airport Corporation anddefer or sell 50 aircraft as part of a wide-ranging AD$2bn cost-cutting programme.

The group’s planned capital expenditure, net of operating lease liability, will be reduced to $800 million in the next two years, providing reductions of AD$1 billion.

The job cuts will include 1,500 management and non-operational roles, and closure of Avalon maintenance base and Adelaide catering facility. The wage free implemented in December will continue and extend to all group employees.

A raft of service changes will be introduced. Qantas will withdraw from Perth-Singapore – which will doubtless further strengthen Emirates’ hand in and out of western Australia. Despite intense speculation, the London services are to continue although the Melbourne-Dubai-London A380 will be retimed in November so the aircraft spends less time on the ground at Heathrow.

Brisbane-Singapore and Sydney-Singapore will be operated by A330s instead of B747s from the first quarter of 2015.

All six of Qantas’ non-reconfigured B747s will be retired ahead of schedule, by the second half of 2016, and all B767s will stop flying by the third quarter of 2015. It will keep operating its 12 A380s but the remaining eight orders will be deferred, along with the final three of the 14 Jetstar B787s on firm order.

Whether all these measures will still be enough to revive fortunes remains to be seen.

Joyce once again cited “the uneven playing field” domestically whereby Virgin Australia’s fortunes have soared on the back of investment from Etihad, Singapore Airlines and Air New Zealand while Qantasremains economically hamstrung by the Qantas Sales Act which restricts foreign airline ownership to a maximum 35 per cent and no individual carrier beyond 20 per cent.

Qantas International reported an underlying EBIT loss of AD$262 million (AD$91 million in the first half of 2013), while Qantas Domestic reported underlying EBIT1 of AD$57 million, down from AD$218 million in the same period.

“We are facing some of the toughest conditions Qantas has ever seen,” said Joyce.

“Australia has been hit by a giant wave of international airline capacity, with a 46 per cent increase in competitor capacity since 2009 – more than double the global increase of 21 per cent over the same period.

To date, the Australian Government has not announced any regulatory changes relating to the Qantas Sales Act and new investment channels haven’t been forthcoming. Emirates has publically ruled out investing in the airline.