Qantas will cut about 500 jobs as a result of a review of its maintenance and catering businesses, early retirement of aircraft and the ditching of two international routes. The redundancies are part of cost cutting aimed at countering economic volatility.
Qantas’s chief executive, Alan Joyce, this morning said he anticipated that ‘‘500 positions [would be] affected by the immediate changes’’ because they ‘‘have become structurally redundant’’.
‘‘We will not be propping up the past at the expense of the future,’’ he said.
Qantas today reported an 83 per cent fall in net profit to $42 million for the six months to the end of December, blaming a $194 million cost from industrial action and the grounding of its fleet, and a $444 million increase in fuel prices.
However, a 52 per cent fall in underlying profit before tax for the half to $202 million was better than analysts had expected. Revenue rose 5 per cent to $8 billion. The underlying result - which doesn't include one-off costs such as for industrial action - also beat Qantas’s earlier guidance for between $140 million and $190 million in underlying pre-tax profits.
The company's shares initially fell more than 1 per cent, but quickly clawed back and were up 4.5 cents, or 2.9 per cent, at $1.605 in late morning trade.
Qantas announced steps today it said were aimed at making its engineering operations more competitive. These include changes to line-maintenance processes, ‘‘consolidation of a range of engineering functions’’, and a 60-day consultation process before its makes a decision on the size of its heavy maintenance operations.
The airline also said it will consolidate its catering operations, which will result in it not investing in a new catering centre for Adelaide when a lease expires in 2013.
It is also considering the sale of its Cairns catering centre, and a small facility in Sydney called Riverside.
Qantas will ditch services between Singapore and Mumbai, and between Auckland and Los Angeles from May 6. These are in addition to its previous announcement to withdraw from the Hong Kong-London and Bangkok-London routes from next month.
It will also reduce capacity on a range of routes including Sydney-Bangkok, Sydney-Perth and Melbourne-Perth by down gauging to smaller aircraft. Qantas will also put into early retirement to further Boeing 747 aircraft.
And the airline said it won’t pay a dividend for the half.
Qantas has an aircraft engineering base at Melbourne’s Tullamarine Airport, employing about 400 workers who conduct maintenance on its large Boeing 737 fleet. It also has a base at the Lindsay Fox-owned Avalon Airport near Geelong, providing heavy maintenance for the Boeing 747-400 jumbo fleet.
The Avalon base, employing more than 600 engineers and other workers, has been in operation since the late 1990s, while its other heavy maintenance operation is in Brisbane. The latter has about 400 workers.
Qantas is retiring most of its ageing 747 fleet over the next three years, but will keep nine which are undergoing a refit to bring their interiors up to a similar standard to the airline’s A380s.
Earlier this week the Workplace Minister, Bill Shorten, flagged that Qantas was expected to announce a review of its maintenance operations in Australia. He has called on the airline to focus on the longer term, warning that ‘‘if you cut too much you then lose skills that are never coming back’’.'
Qantas announced 1000 job cuts – mainly affecting pilots, cabin crew and engineers – in August when it unveiled its five-year strategy for turning around the international operations.
Before the results were released this morning, the long-haul pilots union issued a statement in which it called for Qantas to ‘‘start addressing the problems the airline faces with honesty and clarity’’.
The Australian and International Pilots Association demanded that Qantas drop any attempts to blame the fall in profit on its members’ industrial action last year, which involved wearing non-uniform red ties and alerting passengers to their cause on planes.
‘‘Investors should also be wary of the proposition that a low-yielding, cut-throat, low-cost model can replace a high-yielding, premium traffic model and provide a better return,’’ the union’s vice president, Richard Woodward, said in the statement.
Earlier this month, ratings agency Moody’s downgraded Qantas to just one notch above junk status due to high fuel prices and strong competition. The airline has faced strong competition on international routes to Australia, particularly from Middle Eastern and Chinese airlines. Qantas has jealously guarded its investment grade rating over the years.
Qantas tends to post stronger earnings in the first-half than the second because of the Christmas holidays. But the opposite is likely to be the case this financial year because of the cost of the industrial action and grounding of its entire domestic and international fleet in late October.