Qantas Issues Profit Warning; To Cut 1,000 Jobs

The Qantas Group expects to report an underlying loss before tax in the range of $250 million to $300 million for the six months ending December 31.

The group blamed a “marked deterioration” in passenger loads and yields in November and doesn’t foresee any immediate respite – forecasting an $88 million increase in first-half fuel costs next year to around $2.27 billion, and describing second half 2014 forecasts as “volatile”.

Group yield, excluding the impact of foreign exchange movements, is expected to be approximately 3.5 per cent down in the first half of 2014 year-on-year, largely due to increased capacity in the domestic and international markets.

Around 1,000 jobs will be axed in the next year as part of “accelerated cost reductions” to achieve total cost savings of $2 billion over three years. Other across-the-board measures include a CEO and board pay cut, pay freezes and no full year bonuses, review of spending with top 100 suppliers, an analysis of network/fleet use and further overhead reductions.

Qantas CEO Alan Joyce said the “uneven playing field in Australian aviation is being tilted further” with Virgin Australia’s strategy to seek majority ownership and  financial backing from foreign airlines such as Etihad.

“This foreign government capital has been used to finance dramatic increases in domestic capacity, with profound implications for the future of Australia’s aviation industry,” he said.

Joyce said it was having discussions with the Australian government. “As we work through our cost reductions, capital expediture and structural review, no options will be off the table,” he said. “Political leaders recognise Qantas’ strategic importance, its critical role in providing essential air services, and the benefits to Australia of a strong and viable national carrier.”

The news is a major surprise as the largely positive sentiments surrounding its one-year-old global partnership with Emirates gave the impression that Qantas’ business was improving. In the four months between April and July this year, 850,000 Australians travelled to and via Dubai on Emirates and Qantas services.

While the two airlines are financially separate, such “immense” challenges, as Joyce calls them, may present new question marks over the five-year alliance’s strategy.