Qantas to cut 5,000 jobs; retiring and deferring aircraft; ceasing international services from Perth

28 February 2014 – Copyright David Eyre

Qantas CEO Alan Joyce yesterday announced a record loss of $235 million for the first half of the 2013/14 financial year.

On the same day, Air New Zealand, which faces similar issues to Qantas, announced a 40% increase in interim net profit to $NZ140 million ($A130 million).

Industry analysts, Qantas staff and unions hold Alan Joyce and the Qantas Board accountable for the loss, which they say was caused by years of poor management decisions. These decisions include a number of costly and ill-conceived attempts to establish a presence in Asia; failure to update the widebody fleet, withdrawing from many international routes, the Emirates partnership arrangement, and the costly October 2011 grounding of the airline by Alan Joyce. Qantas has not paid a dividend to shareholders since 2005 and the share price has dropped significantly. The airline’s credit rating has been downgraded, making it more costly for the airline to borrow money, and Qantas has lobbied Canberra for the Government to guarantee its loans.

The Federal Government has indicated that it is considering changes to the Qantas Sale Act, but is unlikely to provide loan guarantees, saying that it is not the Government’s role to bail out troubled companies.

Whilst acknowledging that the loss was ‘unacceptable’, Alan Joyce did not accept responsibility and intends to stay on. He blames the losses on domestic overcapacity, competition from international airlines, record fuel prices, and high labour costs. To address the problem, he announced the following actions, in an attempt to cut $2 billion in costs over the next three years:

Reduction from eleven aircraft types to seven by mid 2016, with an average fleet age of eight years.

• Airbus A320: Jetstar A320 orders have been ‘restructured’.
• Airbus A330: A330s will focus on services between Perth and the Eastern States, as well as peak services between Sydney, Melbourne and Brisbane. Some A330-200s will also be used to replace Boeing 747s on international services.
• Airbus A380: Eight remaining A380 orders (VH-OQM through VH-OQT) will be deferred, with delivery dates undergoing regular review to meet possible future requirements
• Boeing 737: Increased utilisation of 737-800s on domestic services to replace 767s and to free up A330s. The remaining two Boeing 737-400s (VH-TJS & VH-TJX) were retired this month.
• Boeing 747: Retire six Boeing 747-400s by mid-2016: VH-OEB, VH-OJA, VH-OJC, VH-OJI, VH-OJL, VH-OJM – these are the six which have not yet received a cabin upgrade. This will leave three 747-400s in service: VH-OJS, OJT & OJU, and all 747-400ERs will remain in service.
• Boeing 767: All 15 remaining 767s will be retired by March 2015. These had just completed a costly cabin upgrade.
• Boeing 787: The last three of 14 Boeing 787-8s on order for Jetstar will be deferred.
• Quit underperforming routes and better match capacity to demand. This includes ceasing the Perth-Singapore service, with the last services operating on 22nd July 2014 – this marks the end of Qantas International services from Perth for the first time since the Second World War. The WA Government last September signed a $7.65 million marketing deal with Qantas involving advertising in tourism markets such as Singapore, and was not informed of the service ending until the day of the announcement.
• Reduce employee numbers by the equivalent of 5,000 full-time equivalent staff, and a freeze on wages. Etihad Airways recognised this as an opportunity – less than 24 hours later they placed job advertisements in Australian newspapers looking to hire hundreds of experienced airline staff.
• Restructured line maintenance and catering operations