Qantas was optimistic it had turned a corner after signing a major partnership with Emirates Airline and reversing its annual loss last year.
Australia’s national carrier Qantas set to cut 1,000 jobs amid profit alarm
Australia’s national carrier Qantas said it would axe 1,000 jobs and faces “immense” challenges in a shock profits warning yesterday, flagging a half-year loss of up to A$300 million (Dh995.3m).
The chief executive Alan Joyce said conditions had seen a “marked” deterioration and the airline was battling “extraordinary circumstances” including record fuel costs, a strong Australian dollar and fierce competition from subsidised rivals.
The news sent Qantas shares into free fall, with the stock plunging as much as 17 per cent to 99.5 cents before regaining ground to close 10.79 per cent lower at A$1.075.
“The challenges we now face are immense,” Mr Joyce said in an update to the Australian stock exchange.
“Since the global financial crisis, Qantas has confronted a fiercely difficult operating environment – including the strong Australian dollar and record jet fuel costs, which have exacerbated Qantas’ high cost base,” he added.
“The Australian international market is the toughest anywhere in the world.”
The ratings agency Moody’s put the airline’s investment-grade Baa credit rating on review for a potential downgrade, saying the forecast conditions were “outside the rating expectation”.
“In the absence of countermeasures, the challenging operating conditions may therefore result in Qantas’ credit profile no longer being consistent with the current ratings,” said Moody’s vice president Arnon Musiker.
Qantas was optimistic it had turned a corner after signing a major partnership with Emirates Airline and reversing its annual loss last year – the first since privatisation – with a modest A$5 million full-year profit announced in August. But yesterday’s announcement shows it is still facing significant headwinds.
Mr Joyce said Qantas expected to report a loss before tax in the six months to December 31 of A$250 to A$300 million, with passenger loads slipping significantly last month as increased competition drove down the carrier’s market share. Fuel costs for the half-year were A$2.27 billion, some A$88 million higher than in the second half of last year.
“Urgent” action was needed to salvage the “Flying Kangaroo’s” profitability, Mr Joyce said, including the sacking of “at least 1,000” staff, a 38 per cent cut in his own pay and that of the Qantas board, a review of spending with top suppliers and a salary and bonus freeze.
“We have reduced the group’s unit costs, excluding fuel, by a total of 19 percent since FY09, including by five percent in FY13. But these actions are not enough to deal with the current situation,” he said.
The airline will undertake a structural review, to report back in February, prompting speculation a sell-off of its Jetstar assets in Asia could be on the cards.
“All options are on the table in terms of the structural review, we’re not ruling anything in or anything out,” Mr Joyce said when asked about potential divestments.
He added Qantas was “in dialogue with the government on a number of different options” as he continued lobbying for the easing of foreign investment restrictions or state intervention to shore up the carrier.
Under the Qantas Sale Act, dating from 1995 when the airline was privatised, foreign ownership in the national carrier is limited to 49 per cent. Mr Joyce wants that reconsidered in the face of what he described as “unprecedented distortion” by foreign backers of the Australian market.
“Our competitors in the international market, almost all owned or generously supported by their governments, have increased capacity to pursue Australian dollar profits, changing the shape of the market permanently,” he said, citing Virgin Australia, in which Etihad Airways has a stake, among others.
Mr Joyce has been locked in a bitter war of words with Virgin in recent weeks over what he has described as “predatory” behaviour by his rivals.
Virgin Australia is the nation’s second-largest domestic carrier.