Thursday July 31, 2014

‘Q day’ feels like groundhog day for Qantas

Qantas is retiring 747s earlier than planned and deferring A380 orders. (Seth Jaworski)

Qantas is retiring 747s earlier than planned. (Seth Jaworski)

We will certainly get more into the detail in the next edition of the magazine, but it is worth making a few comments and observations about today’s Qantas results and restructuring announcement.

The three figures that stand out the most are the 5,000 job cuts, the 50 aircraft retirements and order deferrals, and the $260+ million loss from Qantas’s international operations.

Those all have a sense of deja vu about them. Today is not the first time Qantas has used bad financial results as the impetus to cut its staff, fleet and international network. But these cuts are bigger than before, especially the job losses.

Rumours of 5,000 job cuts proved to be on the money. That is around 12-13 per cent of the Qantas Group’s workforce. So far there is little detail about where those cuts will fall, and the affect that uncertainty has on staff morale, customer service and even safety because staff are concerned about their livelihoods is one of the unmeasurable costs of today’s half-year financial results announcement.

The headline figures for the fleet cuts of “more than” 50 aircraft sounds dramatic, if a little disingenuous. Qantas had already announced the retirement of all its 767-300s and the non A380-style interior upgraded 747-400s, so it looks like those retirements have been brought forward a few months at best. Further deferring the eight A380s on order seems no surprise too. Two were due for a 2016-17 delivery, but the other six weren’t due for delivery until 2018-19 at any rate.

Perhaps more of a surprise was deferring the last three 787-8s on order for Jetstar. As the A380 deferrals point to ongoing losses in the Qantas long-haul business, the 787 deferrals point to softness in Jetstar’s long haul business. As a result Jetstar will have replaced 13 A330-200s with 11 787s.

So 15 767 and six 747 retirements and the eight A380 and three 787 order deferrals totals 32 aircraft. The balance – 18+ aircraft – evidently comes from the A320 order book, which is being “substantially restructured”.

photo - Brian Wilkes

The A320 order book is to be “substantially restructured”. (Brian Wilkes)

Back in October 2011 Qantas announced a mega-order for 110 A320 series aircraft, then, and still, the biggest single commercial aircraft order in Australian history. At the time 11 were allocated to the ill-fated Qantas premium airline that was to be based in Asia, which clearly are no longer needed. Others were penciled in for Jetstar’s expansion in Asia, which has hit turbulence – witness today’s announcement that Singapore-based Jetstar Asia is putting further expansion on hold, which comes on top of the on-going travails at the yet-to-get-airborne Jetstar Hong Kong.

Indeed, one of the most significant figures revealed today was the Jetstar Group’s $16 million loss – compared to a $128 million EBIT profit a year ago. Qantas says Jetstar’s domestic Australian operations remain profitable, so whatever the profit it makes in Australia is now being eaten-up by what Qantas is calling “associate losses”, ie losses at its Asian subsidiaries (it’s not clear if the NZ-based operation is loss making), and, as the 787 deferrals suggest, Jetstar long-haul international.

Clearly too, the capacity wars on the domestic market are having an affect. Qantas domestic still turned a profit – albeit down nearly 75 per cent, or $160 million.

But that dramatic slump in Qantas domestic profits pales compared to the red ink flowing at Qantas international. Its losses for the half ballooned from a $91 million loss a year ago to $262 million, despite Qantas saying that the new Emirates alliance is performing well.

Only that evergreen money machine, Qantas Frequent Flyer, posted increased profits, of $146 million.

But perhaps the most telling figure of all revealed today was the fall in revenue for the entire group – down four per cent. That means the biggest driver in this result is falling yield – profit margins on tickets sold – which means in the markets Qantas operates in, both domestic and international, there is too much capacity.

How much that of that excess capacity is Qantas’s own fault, and how much is thanks to overly-aggressive competitors, is one of the day’s biggest questions.

It’s a tough day. Five thousand staff will soon find out they no longer have a job. Qantas international is bleeding red ink, which surely calls into question its long-term sustainability, and now the much-vaunted pan-Asia Jetstar strategy is burning serious cash.

The question remains then, is Qantas’s familiar strategy of staff cuts, cost cutting and fleet retirements/cancellations, enough?

Comments

25 Responses to “‘Q day’ feels like groundhog day for Qantas”
  1. Darwinite says:

    Does anyone know what affects this all could be having on Darwin?, looking hoping to see the a330 replacing the daily Darwin-Brisbane route currently operated by the B767.

  2. GORDON SOLING says:

    Hopefully the government will take over and sack that clown Alan Joyce

    I am so disgusted that one person can do so much damage and still get paid

    GRRRRRR

  3. John Harrison says:

    So well put Groundhog day indeed. Why oh why does Mr Alan Joyce insist on trying to get the likes of Jetstar HKG up and running. Concentrate on the core business, domestic and overseas key routes IE. East Coast to USA and East Coast to London. Its also beyond me why Mr Joyce is still in charge, having lead Qantas into this
    mess. There must be some great people out in the airline industry who could do Mr Joyce’s job better and for
    far less money. I hope somehow Qantas can climb out of this mess. Give the staff more say would go along way to helping I would think. Just a thought.

  4. NJP says:

    Looks like Hobart ground staff are already being affected by the bad news – someone’s just crashed their baggage truck into the side of a Jetstar A320 bound for Sydney – not sure how bad it is but I have rellies waiting for that flight

  5. random says:

    Problem for Qantas now is that they (the management of the past 20 yrs) have burnt so much good will with the public. As much as they need genuine economic reform they desperately need genuine & concerted image reform, back to being the true “Spirit of Australia”. Given public perception, the current management is wholly unlikely to win over the travelling public. Any contemporary management needs to reinforce to shareholders that true image management will actually make them money, & then set about doing the little things that slowly rebuild that good will.

  6. Ian Mackintosh says:

    Let’s get back to basics – if I can fly from A to B at a significantly lower fare with an overseas carrier I do so, and have been doing so.
    Qantas are my airline of choice but their fares are not competive on the routes I fly.
    I’m a former silver frequent flyer and have been up-graded on numerous occasions but I’m not paying for the possibility that I MAY be upgraded!

  7. Chris says:

    Having been an AA reader for many years I have found the articles on the cost structure a Qantas very interesting. While in the present situation we might like to blame management and especially Mr Joyce which they may well deserve there are some facts that cannot be ignored.

    1. I read an article in AA on how much Qantas pilots were paid considerably more for the hours that they flew when compared with other pilots in other airlines.

    2. In a recent addition of AA it was reported that the average salary at Qantas was 92k and at Emirates 47k and Singapore was even less.

    3. Virgin Australia has established itself with a much lower cost structure than Qantas.

    This means that Qantas is behind in both the domestic and international market when it comes to costs and when costs a higher than you competitors you are in trouble no matter what business you are in. Sure there may have been some poor decisions made in relation to aircraft purchases but when you look across the Qantas fleet I think the 747 is the only real poor performer when it comes to fuel burn and as many readers/commentators have expressed they should have been replaced by the 777. Even if replaced by the 777 while there would be a fuel savings there are other costs that Qantas would still have that other airlines flying the 777 do not such as Emirates and Singapore.

  8. Paule says:

    Oh please Alan, stop blaming everybody else. Yep, there is no “level playing field”. But accept that. There have been many bad decisions made in the last few years – someone has to be responsible for that! When you keep chopping back the limbs of a tree, it dies. If you keep cutting back routes, QANTAS will die. The proof of little regard for QANTAS is that the 787 went to Jetstar not the core business. Joyce MUST go. I’m a shareholder and he certainly doesn’t have my support.

  9. Paul Marshall says:

    I am an ex-Gold FF who was shafted after the Iceland volcano incident, BECAUSE I booked tickets using points. The Loyalty program is fast becoming the biggest profit centre in the business. It has lost the link to “rewarding” loyal customers.
    Dixon said “no one in the world is making money on the 777″…..Well apart from all the other long haul airlines in the world of course. Now they have A380s going to London half full.
    Joyce strands people at airports around the world with no notice, but says he is customer focused.
    Most travel agents hate Qantas. They are at war with their staff.
    Now another round of cutbacks and cost savings. The buck has to stop with Joyce. To think they picked him over Borghetti……Now I fly anyone but Qantas. That’s their real problem.

  10. What a joke says:

    I am so over the short sighted aussie minds! Hello, anybody remember Ansett? This Qantas saga is a repeat of ageing aircraft, overpaid staff, bad management, low staff morale and a HUGE slump in public confidence. I honestly believe it potentially could be too late for Qantas.

  11. marc says:

    All fingers point to Joyce. He is useless.

  12. Red Barron says:

    Anyone got Rob Fyfe (ex Air NZ ) phone number? I want to take it to the next share holders meeting….

  13. john says:

    “What a joke”,

    Ageing Aircraft??

    The current Qantas fleet average age is the lowest since privatisation.

    In comparsion Delta which is making huge profits, recently retired its last DC9!, so ageing aircraft doesnt mean an Airline cant be profitable!

    Re over paid staff, suggest you compare the salaries of Qantas Management with those of other Airlines in the Asia Pacific Region, eg the CEO of All Nippon Airlines is on around 600,000USD!!

    So the high salaries at Qantas start at the very top!

    The domestic operation has recored a profit ever since Australian and Qantas were merged. and did so this period despite the additional competition from Virgin Australia!

    It is the International side of Qantas in particular which is still losing serious money, despite cutting Frankfurt and starting the alliance with Emirates?

    Qantas needs a new vision, not more of the same, and a management that is prepared to publically accept some of the blame for the Airlines current situation.

    The old end of the line excuse doesnt wash, look at Air New Zealand, reporting good profits!

    The comparison of Qantas V Air New Zealand is simple:

    Air New Zealand in Rob Fyfe had great managment, motivated their staff, made the right fleet decisions, 777 and 787/9, and continued to innovate, eg sky couch!!

  14. Tom says:

    With all respect to the people here blaming Joyce….the simple fact that you blame Joyce for Qantas’ issues just shows us all that you really don’t understand the underlying issues. It is far bigger than just one man.

  15. Daviesh says:

    Hey Darwinite, it doesn’t look great for us on the Darwin-Brisbane leg. The slide for investors detailing the 767 -> A330 switch said that domestically the A330s will be used for long haul east-west (ie ex-Perth) and the Melbourne-Sydney-Brisbane triangle during peak periods only. This will free up the wide bodies to take soon of the international work that the faster wind down of the 747s may leave.

  16. random says:

    Fyfe’s strength at Air NZ hasn’t just been economic – he has rebuilt the spirit of the brand. Unfortunately all the economists talking about Qantas seem to miss the importance of good will that comes with engendering the heart & spirit of an airline. The drive to satisfy shareholders in often misplaced. Look after the customer and the shareholder typically reaps the benefit anyway.

    Unfortunately for Australia and NZ we live in what amounts to an air route cul-de-sac. We can never over-come the geographic advantage of through traffic afforded to Asia and the Middle East, and our western cost of living will never allow significant wage depreciation.

    With those baseline factors the only advantage an airline like Qantas can exploit are great service (which they haven’t managed well in quite some time), an excellent safety record (which unfortunately has at least slipped in perception), and parochialism (which can only get you so far).

  17. TXCOMT says:

    So should I even bother with booking a trip to Oz on QFA 8 (DFW-BNE) or look to another carrier just to be safe? Seems from these and other comments I might be better off with some other airline…

  18. dawso says:

    Considering Australia has some of the highest labour rates globally, no one should be surprised Qantas struggles. Living in Shanghai I love to see the flying kangaroo on the apron at pudong when flying home…but the product and service is tired compared to the competitors I also regularly fly (not to put premium economy onto the a330 should be questioned)…..but there is global economic reality….that is where I think Qantas Management is correct….all the successful competitors are government backed or owned….Air New Zealand took Ansett down in early 2000 and then needed government bailing out to survive, but the media now holds them up as an innovative darling…..short sightless and romance is what aviation is all about….which airline has ever been sustainable over a 50 year period?

  19. Mark says:

    Joyce states Virgin continues with it’s “loss making strategy” whilst again affirming he is sticking to his “65% line in the sand market share” after announcing a half yearly loss of $250 million. He doesn’t see that as a loss making strategy?

    Why oh why is he still in charge at QF

    A coup d’état is required it seems

  20. Peter says:

    Not so long ago Qantas has 55% of inbound / outbound international seats into Australia, now it’s 19%. Don’t blame more players, as many previous brands ( Lufthansa, Alitalia, Olympic etc ) have stopped flying here, the newer brands are just taking up those places. Don’t blame fuel prices as they are a common denominator to all players. As others have said on this site, and as per the Air New Zealand recent half yearly release, customer service at all levels should be the No 1 focus ( not just cabin service ). I had recently booked Brisb – Canberra with Qantas on points, and Canberra – Brisb on Virgin using points, then had to cancel both flights due to a medical condition. Calling each airline to cancel the flights was like chalk and cheese. The call to Virgin took 3-4 minutes, and my points were promptly returned – a stress free and professional process. The call to Qantas went for 25 minutes, and I was treated completely like I was a pain and had inconvenienced them for using my “loyalty” points, then cancelling my flight. At Qantas I spoke to 3 different staff who were all rude, arrogant and seemed “put out” for having to actually deal with a client. Silly me for having a heart attack without checking with Qantas first to see how it would effect them.

  21. PeterL says:

    Alan Joyce is dealing with the legacy of the old management regime, the A380 and no 777s. I am going to point out the obvious as it seems very few are seeing it! Qantas has large institutional investors who would have got rid of Alan Joyce ages ago if they thought he was not doing a good job!!!

    These institutional investors have been backing Joyce for a few years now while he takes a dinosaur of an airline and transforms it into a modern airline that can compete on the world stage. Qantas could go down the AirNZ route and go broke, then reform with competitive worker agreements etc to reduce the cost base.

    Alan Joyce is trying to avoid the AirNZ route to restructure but it needs to be given time as it will not happen overnight, and remember the institutional investors are backing Joyce in this strategy. These institutional investors know way more about this than we do and they are backing this up by putting their money where their mouth is so to speak, are you?

    Just to show what Qantas is up against, Virgin sends its E190s to Portugal for heavy maintenance, that is how bad the costs are here in Australia. Why shouldn’t Qantas be able to do the same if it makes them competitive?

    The Qantas sale act is crippling them and it needs to go now!

  22. Darwinite says:

    Look that way doesn’t it daveish, at least Qantas is adding domestic capacity, to pick up from jetstar, although it would be great to see a mainline Cairns-Darwin-Singapore route.

  23. Mac Carter says:

    It appears to me that senior Management at Qantas have forgotten the most important thing involved in a service business, THE CUSTOMER.
    Customers expect to be treated respectfully and their business with the airline appreciated.
    When senior management disengages with the Companies employees, decides to treat them as just another cost input to the business, employees at all levels whether they be customer service officers, cabin crew, baggage handlers, flight crew or whatever, will not perform their duties in a workmanlike, productive, cheerful, caring manner that customers demand.
    Customers travelling with the airline will sense the dissatisfaction of those to whom their lives are entrusted, and most or all will take their business elsewhere.
    I believe that this is the major reason for the current dilemma facing Qantas at this time.

    I do not believe that price of an airfare is the be all and end all of the equation for all travellers. Most travellers will pay a bit extra for good service, and for those who demand a cut price, there is the option of cattle class in the low cost carriers.

    Perhaps a change at senior management level to reengage with employees, and hopefully restore morale within the company employee ranks, is overdue.
    This Company can not be allowed to fail.

  24. richard says:

    Rob Fyfe (ex CEO Air NZ) was quoted as saying……..” I look after the staff, the staff looks after the passengers, and the passengers look after the shareholders!” Simple. Another quote, this time from former CEO of Qantas, Geoff Dixon, when stepping down when Alan Joyce took over…..”I think I just handed Alan a shit sandwich”……. his words.

  25. What a joke says:

    Mmmm, John I can see your point, but please appreciate where I am coming from:
    767-300 – Very old, average age 20 years
    737-400 – Ancient, but now retiring these
    747-400 – Most of this fleet 15 – 18+ years old
    Over half of the 737-800 fleet are now over 10 years old and the cabins look tired and with the old qantas livery painted on the outside- time is soldiering on!
    Crew on older qantas contracts and flight deck I know for a fact are over paid, senior management and too many unnecessary roles in the business draining money! This is evident as they are now being slashed
    Too many staff benefits, every time you fly in business class, most of the punters are qantas staff on staff travel!
    Too many cabin crew and flight deck whinging and moaning that they cant get a job with Virgin Australia – this is only one legitimate example of the record low staff morale in the business, how embarrassing!
    This is very concerning…..
    In regards to competition, your right. VA now has a better product than qantas, lets face it, asian and middle eastern carriers will aggressively expand choking the market, with the likes of United capturing the pacific market, the only half way good loads of qantas with their 787′s which are now flying from australia. Air New Zealand, now the best airline in the world, watch this space, they will hone in capturing the market they deserve while qantas is on it’s last legs with no light at the end of the tunnel.
    I feel for the staff who are genuinely passionate about qantas and enjoy providing great customer service, hence are there for the right reasons! Unfortunately, alot of Qantas staff are not their for the right reasons…..