Qantas to slash 5,000 jobs; cut costs by $2 bn

Qantas, Australia's flagship carrier, today announced that it would cut 5,000 jobs, scrap unprofitable routes, and retire ageing aircraft as part of its plan to reduce costs by $2 billon over the next three years.

It said it would take action to permanently reduce costs in all parts of the Qantas Group through to FY17.

In recent years Qantas has been hit hard by competition, particularly Virgin Australia.

''The Australian domestic market has been distorted by current Australian aviation policy, which allows Virgin Australia to be majority-owned by three foreign government-backed airlines – yet retain access to Australian bilateral flying rights," said said, Alan Joyce, CEO of Qantas.

Joyce added, ''Late last year, these three foreign-airline shareholders invested more than $300 million in Virgin Australia at a time when, as Virgin Australia reported to the ASX on 6 February, it was losing money.  That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses.

''The Virgin Australia Group has increased capacity into the domestic market at more than twice the rate of the Qantas Group since July 2011.  As a result of these combined capacity increases, the total domestic profit pool has been shrunk from more than $700 million in FY12 to less than $100 million in 1H14."

Qantas said that after a detailed review of network and schedules, Qantas will re-assign aircraft to better match demand, defer orders or sell more than 50 aircrafts, increase fleet utilisation and exit under-performing routes.

It will also reduce planned capital expenditure by $1 billion, freeze pay or bonuses until the carrier returns to profitability again.

The 5,000 full-time job cuts from Qantas's 33,000-strong workforce would come from management and non-operational roles, operational positions affected by fleet and network changes and from the restructuring of maintenance and catering operations.

Qantas said the group would incur about $500 million in redundancy costs across the financial years 2013-14 and 2014-15.

''At the end of this transformation, Qantas will remain an employer of more than 27,000 people, the vast majority based in Australia – and we will be a better and more competitive company,'' said Joyce.

Joyce said that the company would do everything in its control to overcome some of the toughest market conditions it had ever faced.

''It's clear that the market Qantas operates in has changed, with structural economic shifts exacerbated by an uneven playing field in Australian aviation policy,'' Joyce said.

''This situation is reflected in the financial result Qantas announces today, an underlying PBT loss of $252 million for the half-year.  This is an unacceptable and unsustainable result.  Comprehensive action is needed in response,'' he added.

Qantas posted a loss of $235 million on revenues of $7.9 billion for the six months to December 2013, compared with a $109 million profit in the same period a year earlier.

Qantas' domestic operations reported a 74 per cent fall in pre-tax profit to $57 million, while its international operations posted a $262 million loss compared with a $91 million loss earlier.

Qantas will withdraw from the loss-making Perth-Singapore route and defer eight remaining A380 orders and the final three of 14 Jetstar B787-8s.

By FY16, Qantas passenger fleet will be simplified from 11 aircraft types to seven aircraft types, with an average age of eight years.