Struggling Australian carrier Qantas Thursday said it will axe 5,000 jobs, defer aircraft deliveries and freeze growth at Asian offshoot Jetstar in a major shake-up after deep first-half losses, warning of more pain to come.
The airline, battling record fuel costs and fierce competition from subsidised rivals, posted an interim net loss of Aus$235 million (US$210 million) in the six months to December 31 as it faces some of its toughest conditions ever.
Underlying loss before tax — the airline’s preferred measure of financial performance — came in at Aus$252 million, a figure chief executive Alan Joyce called “unacceptable and unsustainable”.
“Hard decisions will be necessary to overcome the challenges we face and build a stronger business,” said Joyce, who will take a 36 percent wage cut as the company works to slash costs by Aus$2 billion over three years.
Qantas shares closed nine percent lower at Aus$1.15.5.
Part of the restructure will see 5,000 full-time positions lost from the carrier’s 32,000-strong workforce by 2017 with a wage freeze across the network until it returns to profit.
“I regret the need for these wide-ranging job losses, but we will do everything we can to make the process easier for employees who leave the business,” said Irish-born Joyce.
“At the end of this transformation, Qantas will remain an employer of more than 27,000 people, the vast majority based in Australia — and we will be a better and more competitive company.”
Unions said workers were being punished for poor management.
“Qantas management has today outlined a demolition job, but failed to follow through with a strategy for how it will grow the business and serve the national interest,” said Nathan Safe, president of the influential Australian and International Pilots Association.
The carrier flagged “significant changes” to its fleet and network and a reduction in capital expenditure of Aus$1 billion across the next two financial years.
This will see the sale or deferred delivery of 50 aircraft, including the eight remaining Airbus A380s it has on order.
– ‘Tough decisions’ ahead –
Qantas will also axe its Perth-to-Singapore route and suspend new growth plans for Jetstar.
“When it comes to Jetstar in Asia, we need to take the right decisions in accord with current market circumstances and our balance sheet,” said Joyce.
“In Singapore, growth has been suspended by the Jetstar Asia board until such time as conditions improve.”
Following an interim profit warning in December, Moody’s and S&P both downgraded Qantas’ credit rating to “junk” status, increasing its financing costs and restricting access for investors who do not put their money in lower-rated companies.
Qantas has since been working to convince the government it deserves a debt guarantee, while lobbying Canberra to relax the Qantas Sale Act, which limits foreign ownership in the airline to 49 percent.
Joyce argues that the cap, which restricts access to capital, is hurting Qantas’ ability to compete, particularly against domestic rival Virgin Australia — majority-owned by state-backed Singapore Airlines, Air New Zealand and Etihad.
Australia’s conservative government said this week it was drafting laws to allow Qantas to be majority foreign-controlled and for a single foreign shareholder to own more than 25 percent.
But the legislation is unlikely to pass through the upper house Senate with Labor and the Greens opposing majority overseas ownership, while remaining open to an assistance package.
Prime Minister Tony Abbott called it “a very troubling day” for Qantas but suggested a debt guarantee could pose problems.
“The difficulty is this — what we do for one business, in fairness, we have to make available to all businesses,” he told parliament when asked about the issue.
Joyce warned of more difficult decisions ahead.
“We must defer growth and cut back where we can, so that we can invest where we need to. We have already made tough decisions and nobody should doubt that there are more ahead,” he said.