What you need to know about the Qantas job cuts drama

THE future of Qantas is up in the air with just about everyone jumping into the debate. Just what is going on with the iconic flying kangaroo?

SPECULATION about the future of Qantas and its employees is rife with the government, rivals and just about everyone else weighing in. So what is going on with the iconic flying kangaroo?

It used to be the darling of the aviation industry with its stellar on-time performance and its enviable safety record. It even scored a mention in 1988 Hollywood flick Rain Man for never having, up until that point, had an accident. But then it started to fall apart, sometimes literally.

Qantas’ woes have dominated headlines for years, from its damaging tussle with the unions in 2011 which led to an unprecedented grounding of its entire fleet to high-scale job losses. Its credit rating has even been downgraded to ‘junk’.

Qantas chief executive Alan Joyce has been lobbying the federal government for assistance. Picture: The Courier Mail.

Tomorrow, the airline is expected to report a first half-year loss of $300 million across its domestic, international, Frequent Flyer and Jetstar units and between 1000 and 5000 job cuts. It has neither confirmed nor denied the rumours of slashes at the higher end of the spectrum.

Qantas needs to find $2 billion in cost savings to remain viable with the sale of its terminal leases or its profitable loyalty division floated. In all, the company is having a tough, tough time.

Qantas ambassadors Miranda Kerr and John Travolta.

Where did it all go wrong?

Qantas is levelling a good chunk of the blame at the competitive landscape or, as it and the federal government argues, the anti-competitive landscape. Namely, how it is unable to compete with its chief rival Virgin Australia.

Virgin Australia is backed by foreign investors with Etihad, Singapore Airlines and Air New Zealand controlling 67 per cent of the airline.

But don’t be under the impression Virgin is just cruising through a turbulent-free ride. It’s battling many of the same factors — fuel costs and a high Australian dollar — challenging Qantas and it reported a loss of $98.1 million for the 2012/13 financial year. But where it differs is Virgin was able to complete $350 million in capital raising late last year from its foreign shareholders.

Virgin Australia chief executive John Borghetti organised $350 million in capital raising last year.

Qantas does not have the same access to more resources. It’s constrained by the Qantas Sale Act, put into place in the early 1990s when the airline was privatised. The Act prohibits Qantas from being more than 49 per cent foreign-owned, with further restrictions of foreign airline ownership at 35 per cent and one single foreign shareholder ownership at 25 per cent.

It also mandates the majority of its maintenance, catering, flight operations and training for its international arm must take place locally.

The company’s pleas for help from the federal government will likely be returned with amendments to the Act, which the Coalitions says will level the playing field or, as treasurer Joe Hockey puts it, get the “3000-pound gorilla” (Virgin) off its back.

Treasurer Joe Hockey wants to give Qantas a ‘level playing field’ by amending the Qantas Sales Act.

Legal eagles

Yesterday, deputy prime minister Warren Truss said the government has already started to draft amendments to the Act but with Labor and the Greens staunchly opposed to any changes to the Act, it’s unlikely to pass through the current Senate. Commentators have said the new Senate to take effect from July 1 probably won’t be amenable either.

Qantas’ lobbying of the government may well pay dividends in other ways. The response from the Abbott Government has been sympathetic. After all, as an iconic Australian brand, its survival and success is tied up with the intangible patriotism of our national identity, so it’s easy for the issue to be muddied beyond straight-up capitalist market economics.

Qantas has long enjoyed a reputation as Australia’s national airline, even after it was privatised in the 1990s.

The government has stressed over and over again that Qantas needs to be managed and run like any other listed corporation but it earlier signalled it’s willing to entertain a debt guarantee, which would allow Qantas to borrow at better rates.

As you might imagine, this raised the ire of Virgin chief executive John Borghetti who wants the same debt guarantee for his company, arguing favouritism towards Qantas could lead to a domestic monopoly. Mr Borghetti, and Virgin overlord Richard Branson, have slammed any potential government assistance. Mr Branson took out ads in weekend newspapers arguing the move would make foreign companies think twice about investing in Australia.

Virgin Group boss Richard Branson has slammed any potential government assistance to Qantas.

National pride

But no matter what Qantas announces tomorrow, the whole drama is already quite the quagmire as everyone strives to make sure it doesn’t go the way of Pan Am. Of course aviation globally has been on the ropes for decades with bankruptcies and mergers littering the landscape.

Airport economist Australian Business School’s Tim Harcourt said: “I think it’s quite an emotional issue in Australia and everyone wants it to remain Australian. It’s a national icon and there’s a lot of brand capital.”

Qantas was part of the tourism marketing effort to bring out the cast of Modern Family for an episode shot in Australia.

And there’s no doubt Qantas has invested in Australia the brand. It has spent hundreds of millions of dollars in partnerships with national and state tourism bodies, although it cut ties with Tourism Australia in late 2012 after a public scuffle between chief executive Alan Joyce and TA chairman and former Qantas boss Geoff Dixon. TA and Virgin quickly inked a deal.

For travellers, there is also the spectre of route cuts, also expected to be announced tomorrow, particularly in its loss-making international divison.

Mr Harcourt added: “Qantas employees are also incredibly loyal to the airline and it’s important the airline works with its employees.

“I’d argue Qantas is a public/private sector partnership with the Australian people and Australia has been a public/private partnership since 1788.”