Qantas shares tumble after cuts, capital raising revealed

Qantas shares have borne the brunt of investor anxiety a day after the airline unveiled its brutal COVID-19 recovery plan.

Qantas aircraft parked at Avalon Airport, where they are likely to remain for the next year. Picture: Stuart McEvoy

Qantas shares have borne the brunt of investor anxiety a day after the airline unveiled its brutal COVID-19 recovery plan, suffering their biggest daily fall in weeks.

After opening at $4.19 when a trading halt was lifted on Friday, Qantas shares closed down 9 per cent at $3.81, their lowest level in a month. It followed Thursday’s ­announcement by group CEO Alan Joyce of 6000 job cuts and a $1.9bn equity raising to assist with the airline’s recovery.

Adding to the pressure facing Qantas was the news rival Virgin Australia was to be sold to US private equity firm Bain Capital. “Everybody is probably looking at things through the Virgin lens, but we’re running our own game,” Mr Joyce said on Friday.

“We have a massive business with a lot of employees that has been significantly affected by COVID-19. We do what we need to do to protect those jobs and get our business back and operating.”

Mr Joyce said he always ­believed there was going to be a second airline in Australia, even after Virgin went into administration with debts of $7.1bn.

“The market’s too big, the market is too important for that not to be the case,” he said.

“We knew that Virgin would have somebody bidding for it to come out of administration.

“We’re happy for competition. It’s made Qantas better. We will compete with whatever comes out of administration.”

Mr Joyce was more keen to focus on the success of the first part of Qantas’s equity raising, with strong demand for an institutional placement.

Under the placement, 372.7 million shares were offered at a price of $3.65, with all snapped up quickly to deliver the desired $1.36bn.

A further $500m will be raised through a share purchase plan and Mr Joyce said the proceeds of both initiatives would be used to accelerate the airline’s recovery from the COVID-19 crisis that had devastated the aviation industry worldwide.

“The fact there was significant demand for this offer shows clear support for our recovery plan and confidence in the fundamentals of this business,” Mr Joyce said.

“The plan involves some difficult decisions but we are extremely well positioned to get through this crisis and start growing again on the other side.”

As well as making cost savings of $15bn over three years, the recovery plan will see the Qantas workforce contract from 29,000 to about 23,000 people.

The group, including low fares carrier Jetstar, is currently operating with 8000 workers, but hopes to have 15,000 in active employment by the end of the year.

With no significant number of international flights expected before July next year, Qantas and Jetstar will focus on domestic services, which are forecast to return to 70 per cent of pre-COVID ­capacity within a year.

Citi market analyst Jakob Cakarnis said the domestic market was the key to earnings recovery with an underlying profit before tax of $5m in the 2020 financial year, lifting to $520m in the following year.

“We note this remains highly uncertain,” Mr Cakarnis said.

UBS analyst Matt Ryan said the equity raising and plan to cut $1bn in costs from Qantas operations would set the airline up well to compete with a second carrier.