world of aviation logo

D-day looms for Qantas

written by WOFA | February 26, 2014

Qantas is adding express boarding lanes. (Patrick Murray)
Will more staff soon be departing Qantas? (Patrick Murray)

The rumours and speculation are reaching fever pitch ahead of tomorrow’s Qantas half-yearly results announcement where the embattled airline group is planning to reveal how it will strip $2 billion in costs out of its business over the next three years and raise cash through asset sales.

Job cuts in the range of 3,000 to 5,000, early retirement of the 767 and older 747s, the sale and leaseback of terminals, withdrawing from London, outsourcing ground handling, the partial float of the frequent flyer scheme, even cuts at hitherto poster-child Jetstar – all have been flagged as possible options.

The need for action will be highlighted by the $250-300 million first half loss expected to be announced tomorrow, a dramatic swing into the red. By comparison, for the same six-month period last financial year Qantas posted a pre-tax operating profit (excluding $125 million in compensation payments from Boeing for late 787 deliveries) of about $100 million. And that’s after a $91 million operating loss from international operations.

International is evidently still hurting, and assuming Jetstar and Qantas Frequent Flyer are still performing well, that means most of the new losses are being felt in the domestic business. And that is largely thanks to the capacity battles of the last 18 months or so, as the Qantas Group has moved to reinforce its so-called 65 per cent domestic marketshare ‘line in the sand’.

Resurgent (but also loss-making) competitor Virgin Australia has been adding capacity to the domestic market as a function of adding the frequency it needs to be a serious player in the  profitable corporate market. Virgin has never publicly set its own domestic marketshare target, but it has been adding capacity to reach the frequency levels it feels it needs to serve its growing corporate customer base.

The end result of that is the Qantas Group (both Qantas mainline and Jetstar) has been adding 200 seats into the domestic market for every 100 seats that Virgin has added. Consequently there are more seats in the domestic market than there is demand, so tickets prices and hence yield – or profit margins – are down and aeroplanes are flying around with more empty seats.

The latest available traffic stats for show Qantas domestic’s revenue load factor (the percentage of seats filled by fare paying passengers) was 76.7 per cent in November 2013, down 3.2 points from November 2012. And what the figures don’t show is the yield on those 76.7 per cent of seats that are full. It’s the same story at Jetstar – domestic revenue seat factor down 2.2 points from 85.4 to 83.1 per cent.

Qantas mainline and Jetstar have both posted profitable results. (Seth Jaworski)
In the past Qantas’s and Jetstar’s domestic operations have been powerful profit generators. (Seth Jaworski)


Interestingly too, the Qantas Group’s capacity growth has increasingly come from Jetstar and QantasLink. The November figures show Jetstar has increased available seat kilometres – capacity – by 3.8 per cent for the July-November 2013 period (compared to the same months in 2012), and QantasLink capacity was up 6.9 per cent. Qantas mainline domestic capacity was in fact down for the period, by 1.5 per cent.

Across the fence at Virgin, for November 2013 its revenue load factor was 77.6 per cent, down from 78.6 per cent. And Virgin has continued to add capacity, up 4.4 per cent for the July-November period. (Tigerair, too, has added significant capacity, but off a much smaller base.)

The upshot of increased capacity and lower load factors is well summed up by financial writer and analyst Stephen Bartholomeusz, writing on businessspecator.com.au:

“It is an indication of how irrational the settings within the industry have become: with a domestic profit pool estimated at between $500 million and $1 billion a year depending on the state of the economy, the duopolists [the Qantas and Virgin groups] are likely to lose around $300 million between them in a six-month period.”

So both airline groups are bleeding in the all-important domestic market. Qantas knew it was hurting, but it knew that Virgin was hurting too. It seems Qantas management assumed it could out-last Virgin Australia, and so the Qantas Group could wear some short-term pain for the long-term gain of beating back the Virgin Australia challenge.

Instead, Virgin was able to call on its major backers – Etihad, Singapore Airlines and Air New Zealand – for a cash injection via last November’s equity raising.  That turned the tables on Qantas. Virgin was losing money, yes, but it had access to capital to sustain those losses, and suddenly Qantas’s own losses were unsustainable.

What followed, of course, was Qantas’s controversial public campaign to change the Qantas Sale Act (so it too could better access foreign capital), its calls for federal government assistance, and its December flagging of looming massive financial losses and the need to restructure – the results of which are due to be revealed tomorrow.

As Thursday has approached there has been frenzied speculation in the mainstream media about what those cuts will be – most sensationally the 5,000 job cuts figure.

Yesterday Qantas said in a statement it wouldn’t comment on that speculation. Instead, it noted: “We have said that we will be making some tough decisions in order to achieve $2 billion in cost savings over the next three years, which is a consequence of an unprecedented set of market conditions now facing Qantas.”

The 5,000 jobs figure likely means one of two things: an exaggerated rumour run wild, or Qantas is planning massive structural change.

Five thousand jobs is not far off 15 per cent of the entire Qantas Group’s workforce. The ABC is today quoting academic Peter Wells as forecasting 5,000 job cuts would result in savings of $600 million a year: “At an average staff cost of $115,000 per staff member, 5,000 staff, 5,000 times 115,000 is going to give you $600 million in terms of savings there alone,” he said.

But Qantas can’t lose 5,000 positions without either shutting down large sections of its operations, or outsourcing many functions. So is widescale further outsourcing, such as of maintenance, catering and ground handling, on the cards?

A file image of a Qantas 767. (Seth Jaworski)
A file image of a Qantas 767. (Seth Jaworski)

The earlier retirement of the 767s, meanwhile, suggests Qantas might be walking away from the 65 per cent capacity line-in-the-sand. The 767s are used almost exclusively on domestic flights. They were due to be phased out by mid-2015 anyway, as Jetstar rolled over A330s to Qantas as it takes delivery of more 787s. But an expedited retirement does suggest cutting domestic capacity.

Earlier retirement of 747-400s also suggests further international cuts. The rumour is that the last of the RR-powered 747-400s will be retired early, leaving just the six 747-400ERs (used for DFW and Santiago flights) in the fleet. That suggests further re-jigging of the international network – will, for example, Qantas drop its Sydney-Johannesburg services after last week walking away from its codesharing partnership with South African Airways, and instead channel Jo’burg passengers via Dubai with Emirates?

Speaking of Dubai, more speculation surrounds Qantas dropping its Dubai-London flights and leaving Emirates to carry all its European passengers beyond Dubai. That could fit with the early retirement of more 747-400s, as the freed up A380 capacity could be used on current 747 routes. But it seems remarkable that Qantas has found itself in a position where it would have to drop its flagship London services in favour of codesharing.

And it will be fascinating, and instructive, to see how Jetstar fares. Does early retirement of the 767s mean A330s will be transferred from Jetstar to Qantas faster than previously planned, suggesting weakness in Jetstar’s international operations. What of Jetstar’s Asian franchises? Jetstar Hong Kong has been a financial sink-hole without operating a single flight. The long-term potential gains of a pan-Asia Jetstar network of airlines, to date at least, is being offset by the short-term start-up financial pain. And with much Qantas Group domestic capacity growth coming from Jetstar, will we also see less Jetstar domestic Australian flying?

The rumours of the last week have raised plenty of questions.

But more questions have been largely unasked, and seem unlikely to be answered tomorrow. What of the impact on morale to Qantas staff, facing yet more uncertainty. And how does flagging morale affect customer service?

Hopefully tomorrow will bring at least some certainty for staff.

But what tomorrow won’t do is repair Qantas’s tarnished brand reputation of the last few months.

The message of doom and gloom, staff cuts, financial pain and a backfiring tug at Australians’ patriotic heartstrings have all left a cost that can’t be so easily counted.


  • Aido


    I think the author or an editor needs to go over this article. It’s fairly poorly written with basic grammatical mistakes. Sounds like a first year university student wrote it.

    • australianaviation.com.au


      The copy should be cleaner now.

  • Red Barron


    I agree tomorrow will be a big day for Qantas, However I feel it will not be a day anyone will look forward too as all I see is bad news no matter what happens cost cutting is coming. With that Service and the moral of the staff

  • sam


    I can’t see why the qf group would reduce jq domestic services. If the retirement of 767’s were to be expedited, qantas could maintain its 65% market share by replacing those services with jetstar a320 services, which would result in an INCREASE in jq capacity. This would make financial sense given jetstar’s operating costs are significantly less than those of qantas.

  • Nick


    I think Qantas is dying the death of a thousand wounds many of which are outlined in this article. $115 000 a year on average per worker, Virgin Australia, emerging Tiger perhaps? and the inability to deliver passengers anywhere but major hubs without code-sharing!!

  • Phantom


    I earned $42,000 last year working as a ground handler for (QGS) Qantas Ground Services last year. I’d love to know where my $73,000 went if I was the average worker on $115,000 a year. Get your bloody facts correct Avation Australia!!!

    • Anonymous


      Apologies for the confusion – the $115,000 figure needs clarifying and context. It is not the average wage, but the average staff cost. So that means not just the wage itself but items like providing facilities and infrastructure, uniforms, meals, IT equipment, insurances etc. We certainly appreciate that most QF staff earn less than $115k and didn’t mean to suggest otherwise.

  • John Harrison


    Its hard to get my head around all the troubles Qantas is facing. It looks like one almighty mess to say the lest. As one Union leader said, there should be only one staff loss, and this is the CEO Alan Joyce. He seems to be the main cause for concern, and his constant push for more Jetstar operations outside of Australia seems madness.
    I bet the average Qantas worker would love $115,000 a year, there must be a lot of overpaid high up personal.
    We will have to wait and see what tomorrow brings, but be certain it will not be a silver lining.

  • Keg


    Sam, it may appear to make sense but the question is will thos passengers who flew Qantas now transfer to the JQ flight that replaces it…… or will they simply walk to virgin to maintain their ‘premium’ service?

    Further, JQ and QF currently operate a number of routes in parallel. PER- BNE, PER- SYD, and many J curve flights have QF and JQ flights within 5-10 minutes of each other. I can say with certainty that you could replace both flights with a single A330 and even charging the passengers identical fares, you’d end up with a more profitable outcome than the current situation.

  • Rod millar


    Alan Joyce helped destroy Ansett now QANTAS shareholders should be held accountable as well because of there greed

  • NJP


    The good news you haven’t reported on is that Alan Joyce will step down by the end of the year

  • Boggles


    Hope I still have a job tomorrow,or this will be second airline I’ve worked for to go broke.i worked for qantas 7 years now as a baggage handler,but I never earned over $40.000.probably one of those suit wearers from Sydney that earn $115.000.maybe more foreign ownership might keep the company alive.

  • Dane


    The A380 was literally the biggest mistake Qantas made. The airline went for too much capacity on aircraft that is too expensive to operate when flown less then full. As much as I love 747,its time has come. The retiring of both these and the 767 would be in their best interests. Sell the A380 purchase 777-300 for international destinations and a combination of 787 and A330-300 for domestic routes augmented with the 737-800.

    Jetstar should’ve operated the 737-800 instead of the A320 for better fleet commonality.

  • Lucas


    To NJP…
    Stop teasing!!!!

  • Steve Bowman


    Agree Joyce will go – way out of his depth and no idea of brand value, staff and customer loyalty trashed.
    Tomorrow’s tears and pain is however a testiment to Dixon who took QF up the ladder to the top of the
    slippery slide – then jumped. That has left QF / Jetstar with the wrong fleet, a disasterous relationship with Unions
    and a generation of customers who have had no compunction about changing brands.

  • Peter


    The decisions made by Joyce, Clifford and the board have put Qantas in the position it is today, no one has asked about their decision for Jetstar Hong Kong, who in their right mind would order aircraft with out first getting regulatory approval to operate out of that city, the a320s sitting on the ground in Japan, Hong Kong and Toulouse, that I believe are attracting a $250,000 a month in parking fees, The only reason Qantas finds itself in trouble is that money has been taken from them and put into Jetstar to keep them afloat, all at the expense of our icon, Senator Nick X wants a look at the books, but they are very very unlikely to do that, Joyce wants the QSA repealled, as it stands that wont get thru the Senate, the grounding of the entire fleet months ago by that arrogant incompetent Joyce did irrepairable damage to Qantas, a survey in the US some time ago on ceos and chairman of companies revealed the majority are sociopaths and pshycopaths and have no understanding of the real world, interesting survey and does it apply in this case ? There is so much going on in the secrey of the boys club, we will never know. CLIFFORD JOYCE AND THE BOARD NEED TO GO AND GO NOW !


  • Tim


    @ Phantom: I’m guessing you don’t understand the meaning or the maths behind an Average. You may be on $40k but with some of the flight staff (i.e QF long-haul Captains) can be on over $500k per year. And everyone else in between them and you. If the average figure also includes board members in the millions well it doesn’t take much to get a $115k across board average wage. Your wage I imagine would be the MINIMUM wage, not the AVERAGE wage! So maybe you might bloody think about what your saying when your trying to tell someone their wrong!

Comments are closed.


Each day, our subscribers are more informed with the right information.

SIGN UP to the Australian Aviation magazine for high-quality news and features for just $99.95 per year