Qantas will axe 1000 jobs, freeze executive salaries and review supplier arrangements.
In a Group Market Update the airline said it expects to post an underlying half-year pre-tax loss of between $250 million and $300 million for the six months to December 31.
Qantas said the loss has caused it to accelerate cost reductions and a capital expenditure and structural review, in response to fundamentally changed market conditions.
The statement said the outlook for the second half of FY14 “remains volatile and, given the uncertainty in global economic conditions, fuel prices and foreign exchange rates, it is not possible to provide further guidance at this time”.
Qantas CEO Alan Joyce said the circumstances demanded urgent action.
“We will do whatever we need to do to secure the Qantas Group’s future,” Joyce said.
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“The challenges we now face are immense – but we will overcome them and we will continue to build a stronger and better Qantas for Australia.
“Since the Global Financial Crisis, Qantas has confronted a fiercely difficult operating environment – including the strong Australian dollar and record jet fuel costs, which have exacerbated Qantas’ high cost base.
“The Australian international market is the toughest anywhere in the world.
“Our competitors in the international market, almost all owned or generously supported by their governments, have increased capacity to pursue Australian dollar profits, changing the shape of the market permanently.”
Joyce said the local market had shifted.
“Since early 2012, there has also been an unprecedented distortion of the Australian domestic market, with Virgin Australia’s strategy to seek majority ownership and massive financial backing from foreign government owned airlines.
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“This foreign government capital has been used to finance dramatic increases in domestic capacity, with profound implications for the future of Australia’s aviation industry. In November, Virgin signalled its intention to continue its strategy, which is designed to weaken Qantas in the domestic market, with a $300 million-plus injection from its foreign owners.
“The uneven playing field in Australian aviation is being tilted further.
“We cannot and we will not stand still in these extraordinary circumstances.
“As we take these urgent actions, we will continue to take the fight to the competition and strengthen our leading position in the domestic market, and we will continue the turnaround of Qantas International.”
The planned accelerated cost reductions will be felt across the Qantas Group and its suppliers.
The airline said it expected to achieve total cost savings of $2 billion over three years.
Savings measures include:
- Head count reduction of at least 1,000 positions within 12 months, with an ongoing review
- CEO and Board pay cut
- Pay freeze and no FY14 bonus for executives
- Review of spending with top 100 suppliers
- Network optimisation and improved fleet utilisation
Given the deterioration in earnings, the Group said it no longer expects to generate positive net free cash flow in the current financial year.
“The Group will conduct a review of all planned capital expenditure to achieve further substantial reductions to ensure that the business generates positive net free cash flow from FY15.
“The Group will also launch an immediate review to identify structural changes that could potentially unlock sources of capital and value for shareholders. No options will be excluded from the review.”
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