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‘Q day’ feels like groundhog day for Qantas

written by WOFA | February 27, 2014

Qantas is retiring 747s earlier than planned and deferring A380 orders. (Seth Jaworski)
Qantas is retiring 747s earlier than planned. (Seth Jaworski)

We will certainly get more into the detail in the next edition of the magazine, but it is worth making a few comments and observations about today’s Qantas results and restructuring announcement.

The three figures that stand out the most are the 5,000 job cuts, the 50 aircraft retirements and order deferrals, and the $260+ million loss from Qantas’s international operations.

Those all have a sense of deja vu about them. Today is not the first time Qantas has used bad financial results as the impetus to cut its staff, fleet and international network. But these cuts are bigger than before, especially the job losses.

Rumours of 5,000 job cuts proved to be on the money. That is around 12-13 per cent of the Qantas Group’s workforce. So far there is little detail about where those cuts will fall, and the affect that uncertainty has on staff morale, customer service and even safety because staff are concerned about their livelihoods is one of the unmeasurable costs of today’s half-year financial results announcement.

The headline figures for the fleet cuts of “more than” 50 aircraft sounds dramatic, if a little disingenuous. Qantas had already announced the retirement of all its 767-300s and the non A380-style interior upgraded 747-400s, so it looks like those retirements have been brought forward a few months at best. Further deferring the eight A380s on order seems no surprise too. Two were due for a 2016-17 delivery, but the other six weren’t due for delivery until 2018-19 at any rate.

Perhaps more of a surprise was deferring the last three 787-8s on order for Jetstar. As the A380 deferrals point to ongoing losses in the Qantas long-haul business, the 787 deferrals point to softness in Jetstar’s long haul business. As a result Jetstar will have replaced 13 A330-200s with 11 787s.

So 15 767 and six 747 retirements and the eight A380 and three 787 order deferrals totals 32 aircraft. The balance – 18+ aircraft – evidently comes from the A320 order book, which is being “substantially restructured”.

photo - Brian Wilkes
The A320 order book is to be “substantially restructured”. (Brian Wilkes)

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Back in October 2011 Qantas announced a mega-order for 110 A320 series aircraft, then, and still, the biggest single commercial aircraft order in Australian history. At the time 11 were allocated to the ill-fated Qantas premium airline that was to be based in Asia, which clearly are no longer needed. Others were penciled in for Jetstar’s expansion in Asia, which has hit turbulence – witness today’s announcement that Singapore-based Jetstar Asia is putting further expansion on hold, which comes on top of the on-going travails at the yet-to-get-airborne Jetstar Hong Kong.

Indeed, one of the most significant figures revealed today was the Jetstar Group’s $16 million loss – compared to a $128 million EBIT profit a year ago. Qantas says Jetstar’s domestic Australian operations remain profitable, so whatever the profit it makes in Australia is now being eaten-up by what Qantas is calling “associate losses”, ie losses at its Asian subsidiaries (it’s not clear if the NZ-based operation is loss making), and, as the 787 deferrals suggest, Jetstar long-haul international.

Clearly too, the capacity wars on the domestic market are having an affect. Qantas domestic still turned a profit – albeit down nearly 75 per cent, or $160 million.

But that dramatic slump in Qantas domestic profits pales compared to the red ink flowing at Qantas international. Its losses for the half ballooned from a $91 million loss a year ago to $262 million, despite Qantas saying that the new Emirates alliance is performing well.

Only that evergreen money machine, Qantas Frequent Flyer, posted increased profits, of $146 million.

But perhaps the most telling figure of all revealed today was the fall in revenue for the entire group – down four per cent. That means the biggest driver in this result is falling yield – profit margins on tickets sold – which means in the markets Qantas operates in, both domestic and international, there is too much capacity.

How much that of that excess capacity is Qantas’s own fault, and how much is thanks to overly-aggressive competitors, is one of the day’s biggest questions.

It’s a tough day. Five thousand staff will soon find out they no longer have a job. Qantas international is bleeding red ink, which surely calls into question its long-term sustainability, and now the much-vaunted pan-Asia Jetstar strategy is burning serious cash.

The question remains then, is Qantas’s familiar strategy of staff cuts, cost cutting and fleet retirements/cancellations, enough?

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