Qantas slashes Asia flights as coronavirus threatens $150m full-year profit hit

Around 700 jobs at Qantas will be affected as the airline slashes flights in response the coronavirus threat threatening to punch a $150m hole in its bottom line.

Qantas CEO Alan Joyce Picture: AAP

The struggle to contain the coronavirus outbreak through travel bans and quarantine has the air industry at tipping point with only the most disciplined operators expected to survive.

Outlining the Qantas Group’s response to the crisis, chief executive Alan Joyce predicted weaker airlines in the region would either “be consolidated or go out of business” unable to withstand flight reductions and significant financial losses.

“Cathay (Pacific) has asked 27,000 people to take unpaid leave, they’ve cut 40 per cent of their schedule,” he said.

“Singapore Airlines has just made massive cuts to their schedule (and) other airlines may go bust.”

Mr Joyce outlined plans to cut 15 per cent of flights to Asia, along with 6 per cent of trans-Tasman services and 2.3 percent of domestic flights.

The expected full year financial impact of the coronavirus to Qantas was between $100m and $150m with a $122m saving on fuel costs tipped to soften the blow. However the losses would be deeper if the cutbacks extend beyond the end of May. Prime Minister Scott Morrison late Thursday extended the travel ban for foreign nationals arriving in Australia from China for another week,saying that conditions in mainland China meant the restrictions needed to stay in place.

The move came as Qantas reported a $648m pre-tax for the first half of the 2020 financial year, down $87m or 6.3 per cent on the previous corresponding period. The fall was largely due to weaker demand and industrial action dogging Jetstar, which saw earnings sink 16 per cent to $180m.

As a result of the reduced services, the equivalent of 18 aircraft would be grounded affecting 700 full-time roles through to the end of May. To avoid job losses, Mr Joyce said staff would be asked to take paid leave owed to them and any new recruitment would be frozen.

But Mr Joyce said there was enough leave available across the group’s 30,000-strong workforce, to manage the 700-role surplus for some considerable time.

“We could double (the flight cuts) we have published today before we would need to consider that (laying people off),” said Mr Joyce

“We’ve got leave balances that would enable us to go six months.”

“The great thing about the group is it does have the financial strength to take the equivalent of 18 aircraft out of operation,to have 700 people on paid leave and still be able to manage that operation,” Mr Joyce said.

“That shows the good work that’s been made in the last few years and it comes back to our focus on 3 per cent pay increases.”

At Virgin Australia, the outlook was less rosy for staff following 750 job losses on the back of cost cutting by CEO Paul Scurrah, in an effort to return the airline to profit.

The Flight Attendants Association of Australia confirmed talks were underway with management over the future of cabin crew sidelined by the end of Melbourne-Hong Kong services, and the soon-to-be axed Sydney-Hong Kong flights – a victim of the coronavirus.

Although some crew members had volunteered to be deployed on domestic flights others were weighing up options of part-time work and leave without pay.

A Virgin Australia spokesman said pilots who operated those services were also being consulted in accordance with their enterprise agreements.

“This is still being worked through and has not been finalised,” he said.

He declined to comment on another potential crisis for the airline, after reports financially troubled major shareholder HNA Group was to be taken over by China, and its airline assets sold off.

The situation was being monitored he said, with more information expected at Virgin Australia’s half year results next Wednesday.

Qantas’ Mr Joyce described the overall performance in the first half as “very positive” and said it showed Qantas was in a strong position going forward.

“In the domestic market we dealt with some travel demand weakness and a structural change in our overheads from the sale of domestic terminals. Fundamentally Qantas and Jetstar both did well,” Mr Joyce said.

“Internationally the growth in passenger revenue outweighed the impact of disruption in Hong Kong and a freight market affected by trade wars.”

Qantas International improved its earnings before interest and tax by $4m to $162m, and the domestic operations of Qantas and Jetstar achieved a combined $645m, down $47m due to higher airport costs, and weaker demand.

Mr Joyce was holding firm in the face of ongoing industrial action at Jetstar, noting the 3 per cent annualised wage increase was above inflation and above what most companies are offering.

“Our position on wages is crystal clear,” Mr Joyce said.

“No amount of industrial action will change our stance, because we can’t afford to lose our

discipline on costs. That would ultimately have a very negative impact on jobs, and the challenges facing all airlines right now underscores why,” he said.

Qantas Loyalty was again the star performer for the group, increasing earnings 12 per cent to $196m, attributed to an overhaul of the frequent flyer program.

Domestic operations managed a 2.7 per cent improvement in earnings to $465m, while a 2 per cent decrease in competitor capacity helped the international business make $162m for the group.

The market responded favourably to the result with Qantas shares closing up 5.9 per cent at $6.67, their highest level in almost a month.

A fully franked dividend of 13.5 cents a share would be paid to shareholders, along with an off-market share buy back of up to $150m.

Ian Chitterer of ratings agency Moody’s said Qantas delivered a “solid result given the headwinds in the first half, including weaker domestic demand, the sale of the domestic terminals, the unrest in Hong Kong, and the trade wars that affected freight”.

He said the cost reduction actions announced by Qantas including reducing capacity suggests the airline “is well positioned to manage through the Coronavirus outbreak,” Mr Chitterer said.

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