Hard landing for Qantas workers

Qantas is on track to make a modest profit in 2020 as the airline embarks on a brutal cost reduction plan.

Qantas CEO Alan Joyce in February. Picture: Adam Yip

Qantas is on track to make a modest profit in 2020 as the airline embarks on a brutal cost reduction plan in response to the “biggest shock” the aviation industry has ever experienced.

As well as making 6000 job cuts from the Qantas and Jetstar workforce and leaving 15,000 people stood down for some time, Group CEO Alan Joyce will carve $15bn in costs out of the business over three years.

The extreme measures follow the COVID-19 crisis that saw demand for travel all but evaporate, sending rival Virgin Australia into voluntary administration with debts of $6.8bn.

Speculation is mounting that Virgin’s administrator Deloitte could bring forward an announcement of the successful bidder for the airline scheduled for next week, with Bain Capital firming as the favourite — as first flagged by The Weekend Australian — following extensive discussions between its Australian boss Mike Murphy and both the Transport Worker’s Union and the ACTU on Wednesday.

“The unions recognised that Bain has moved a lot over the past fortnight and there is a better understanding of its position. The unions appreciated the consultation,” said one source close to the Virgin sale process. Mr Murphy did not meet with unions on Thursday and was instead focused on concluding the extensive legal documentation for Bain’s bid.

On Thursday Bain’s rival, Cyrus Capital Partners, is also believed to have added a further $350m into its final proposal which was lodged with the administrator Vaughan Strawbridge on Monday to appease the airline’s bondholders, who lodged their own $1bn rescue plan for the stricken carrier this week.

It is understood the 11th hour bid by the bondholders has concerned the TWU.

Qantas also announced a $1.9bn equity raising on Thursday, conducted through a $1.36bn institutional placement and $500m share purchase plan, to boost liquidity to $4.6bn.

Mr Joyce said the airline had entered the COVID crisis in a better position than most airlines but needed to position itself for several years of much-reduced revenue.

Qantas was expected to record a loss of about $700m in the second half of the 2020, which would see the airline break even for the full year or make a slight gain.

The COVID recovery strategy was designed to get Qantas back to a “growth phase” by 2023, when the group hoped to again take delivery of new aircraft and return Project Sunrise flights between Australia’s east coast and cities like London and New York to the agenda.

Mr Joyce said he did not hesitate to accept when the board requested he stay on for three more years to see through the ambitious plan.

“The last thing I wanted to do is leave when we’re in the biggest crisis of our history,” Mr Joyce said.

“The board wanted management stability. It wanted a CEO that had gone through a number of crises in the past and I’ve been here for the GFC, I’ve been here when we had to ground the airline in 2011, I’ve been here in 2013 when we had to do the biggest transformation in our history.”

The COVID recovery will trump that, in terms of job cuts and cost reductions, much of which will come from the international business that is currently on ice.

Plans to resume any significant volume of overseas flights had been put back to the 2022 financial year, with trans-Tasman “bubble” services the only exception.

It meant all of the airline’s widebody fleet would remain grounded for up to 12-months, and in the case of Qantas’ 12 A380s for three years.

“Until we see those international volumes return, we’re writing down the value of them,” Mr Joyce said.

“They’ll be put into the Mojave Desert. The environment there protects the aircraft much more.”

Pilots and crew of the A380s would be among the last to return to work, following other international crews operating 787-9s and A330s.

Five remaining 747s in the Qantas fleet, due to be retired at the end of the year would be released immediately, accounting for many of the 220 job losses among pilots.

Other sectors of the workforce faced more sizeable job cuts, with at least 1500 ground operations staff to go, 1050 cabin crew, 630 engineers and 1450 corporate workers.

Qantas had set aside $600m for redundancy payments and was hopeful of minimising forced departures.

ACTU national president Michele O’Neil described the cuts as “deplorable and premature” and accused Mr Joyce of cutting off workers in order to preserve profits.

“Qantas brands itself as being the spirit of Australia but the truth is it has abandoned Australia and its workers at their time of greatest need,” Ms O’Neil said.

“Our thoughts are with all Qantas workers and their families today at this incredibly difficult time.”

Australian Licensed Aircraft Engineers Association secretary Steve Purvinas declined to comment citing ongoing legal action around the stood down workers.

Mr Joyce said he was in discussions with the Prime Minister and Treasurer about the continuation of the Jobkeeper allowance, or some other form of support.

Already $400m in Jobkeeper payments had gone to Qantas and Jetstar employees and Mr Joyce said they were keen to retain workers until such time as they were able to return.

The long-serving CEO also revealed he would go another month without taking any salary, despite directing his executives to accept payment of 85 per cent of their wages from July.

“For the last three months nobody’s taken a salary and I think that is appropriate,” he said.

“We’re probably the only company in the country that’s done that and we all felt we had to make a commitment and I haven’t seen the team work as hard as they have in those three months. It’s made me very proud.”

Qantas shares were placed in a trading halt on the ASX before Thursday’s announcement and will be watched closely when they go back into play on Friday.

Since the start of the COVID crisis, Qantas shares have plunged from $6.71 to as low as $2.14, recovering somewhat in recent weeks to $4.19.

Citi investment research analyst Jakob Cakarnis said the operating outlook remained highly uncertain for Qantas.

“While efforts to bolster liquidity and support the balance sheet will help, the path to recovery will be impacted by a multitude of factors beyond Qantas’ control,” said Mr Cakarnis.

“A return to domestic operations and reduced operating costs will be key for stabilising the business. We see near-term risks from a delayed start to domestic operations, impacts from lower yields and airfares to stimulate demand and a more gradual return to travel for the lucrative business and SME segments.”