Wednesday, February 26, 2014

Global Impact: Qantas Airways to Cut 5,000 Jobs, Half-Year Losses Estimated at US$211 Million, Shares Decline by 7%

According to The Australian, Qantas Airways on Thursday (February 27) said it will cut 5,000 jobs and post a half-year loss of US$211 million amid tougher competition, causing its shares to drop by 7%. 
The Australian flag carrier said the 5,000 jobs would be cut as part of plans to reduce costs by AU$2 billion over three years. The job cuts amount to just under one sixth of Qantas' workforce of 32,000. The airline has struggled unsuccessfully on international routes and its dominance on Australian domestic routes has been eroded.
Qantas Airways Ltd. chief executive Alan Joyce said the Qantas fleet would be reduced from eleven to seven aircraft types, and wages would be frozen until the airline makes a profit. He would discuss the job cuts with unions on Friday.
Australia had been "hit by a giant wave of international airline capacity," with a 46% increase in passenger seats since 2009, more than double the global increase of 21% in the same period, Joyce said.
"We are facing the toughest conditions Qantas has ever seen," Joyce said. "This performance by our airlines is unacceptable and the current position is unsustainable," he said, referring to Qantas and its Jetstar Group subsidiary.Vw gallery
The Australian government is considering reducing foreign ownership restrictions legislated in 1992 before the state-owned airline was privatized, which would allow the airline to receive a cash infusion by bringing in a new investor or investors.
COMMENT: The government has also discussed with Qantas providing a standby debt facility backed by a government guarantee, for which Qantas would pay a fee.
Qantas argues that the 49% cap on foreign ownership, 35% limit on ownership by foreign airlines and 25% cap on ownership by any single foreign investor put it at a disadvantage against state-owned competitors in raising capital.
State-owned Air New Zealand, which has 24.5% stake in Qantas' major rival Virgin Australia, posted a record half-year profit of 140 million New Zealand dollars ($116 million) on Thursday (February 27).%V

Qantas warned in December 2o13 that its loss could be as high as AU$300 million and that 1,000 jobs might have to be eliminated. That warning led to Qantas' debt being downgraded from investment grade to junk.View galying