Qantas targeting $400 million in annual savings over next three years

The Qantas Boeing 787-9 will support the airline's cost reduction efforts. (Qantas)
The Boeing 787-9 will support Qantas’s cost reduction efforts. (Qantas)

Qantas is aiming for cost savings of $400 million a year for the three years to 2019/20 as the Boeing 787-9 replaces older 747-400s and the use of new technology and innovation supports a more efficient operation both on the ground and in the air.

The airline group spelled out the target at its investor day presentation to the financial community on Friday.

The $400 million in “gross annual benefits” would “more than offset expected annual inflation of $250 million” in the three financial years to June 30 2020, Qantas said.

“This is driven around a lot of new technology, a lot of existing changes to our businesses and how we operate them,” Qantas chief executive Alan Joyce said during the company’s investor day held at its Mascot headquarters.

“There are revenue benefits to this as well as costs.

“I think this plan is supported by our people.”

The company reaches the end of its three-and-a-half-year transformation program on June 30 2017 that it says has reduced costs by $2.1 billion and improved operating efficiencies in the business through higher aircraft utilisation, a 5,067 reduction in staff, withdrawal of older aircraft such as the Boeing 767 and other measures.

The next phase of the cost cutting effort will continue to focus on the use of technology, supplier costs, aircraft utilisation, continuous improvement and indirect costs, according to the slide presentation from the investor day.

“For transformation, it is all about sustainability,” Qantas group executive for strategy, transformation and IT Rob Marcolina said during his investor day presentation.

“While this particular program is nearing completion, we recognise the need for transformation is not over and we’ve been planning for transformation beyond FY17 for some time.

“Like transformation, innovation is equally important to the future success of Qantas. We believe that we are in good shape.”

Estimates for 2017/18 in the slide presentation indicated $98 million of savings had already been pencilled in through initiatives that have already been implemented previously such as revenue management, fleet changes in Western Australia, engineering optimisation and commercial sourcing.

Further, a further $127 million in savings are being implemented in areas such as digital strategy, schedule recovery and consolidation of ground services equipment.

Marcolina said the focus for 2017/18 and beyond centred on three main points.

“First, transformation will continue to be a major contributor of our margin advantage going forward,” he said.

“Second, that we do have a robust and evolving list of opportunities categorised not only in our transformation pipeline but we also have an ideas funnel which enables all ideas to be captured and worked through.

“And third, we do have the right processes forums and tools to ensure that we drive these initiatives to benefits.

“Our people don’t want to go back to 2014, they are really energised about the future and many of the plans that you will hear about today. But they also recognise the need for ongoing change.

“We believe with this focus on transformation that we are going to continue to position Qantas competitively going forward.”

Qantas domestic chief executive Andrew David noted during the investor presentation the airline’s cost per available seat kilometre (CASK) was now just three per cent higher than its domestic rival Virgin Australia, compared with 18 per cent higher three years ago. It was understood Virgin has a different assessment on its domestic CASK relative Qantas.

The arrival of the 787-9 from October 2017 will also herald a significant change in operating costs, given the next generation aircraft had a 20 per cent saving in fuel consumption compared with the four-engined 747 and a 15 per cent saving in direct operating cost.

Qantas international chief executive Gareth Evans said the 787-9 would also support “significant revenue optimisation capability”, given it had about two-thirds of the seats compared with the 747.

“A smaller aircraft is much more flexible. It can enter smaller markets because you’ve got less seats to fill. It can add additional frequencies to existing markets because you have less seats to fill,” Evans said.

Qantas plans to replace its five oldest 747-400s with the eight 787-9s currently on firm order (leaving it with six 747-400ERs), resulting in a small overall increase in capacity.

Comments

  1. Paul Brisbane says

    Well read it all now, between evolving lists,transformation’s and forums Marcolina has it covered. Hope he includes more cleaners,as a very frequent flyer this is an area that has really gone down hill. On a 330 to Perth this week I was met with rubbish on the floor and customary filthy window and tray table.
    I am willing to pay extra for the high standard of pilots and hopefully maintenance so maybe I have to except less in 2017/2018 while cleaning and food costs are cut, captured, funnelled and worked through……

  2. Carl B. says

    Well they should not save on food or drinks anymore. Just been on QF1/2 SYD – LHR – SYD and noticed that things are going down the hill rapidly. Cardboard boxed hot snacks, coffee in paper cups, cordial out of a 2 ltr. jug replacing the gin and tonics and bloody mary’s etc. you used to get. I will be looking for an other carrier for my next trip.

  3. BANKS says

    I hope Qantas recognises how hard Australian suppliers are working through the same innovation methodology to ensure work is staying in Australia and to provide a viable Australian based option, rather than Qantas achieving these savings by going overseas.

  4. David says

    Carl, did you write to Alan Joyce to advise of your concern? I find your experience to be appalling.

  5. Mike says

    Carl B’s comment seems to be an example of selective disclosure.
    Yes, mid-flight a boxed hot refreshment would have been offered. Prior to that however a full meal would have been served, offering a choice of two hot meals or a cold option.
    Paper cups which have been in use now for a number of years, are larger than the former economy plastic cups have ever been and offer more coffee or other hot beverage.
    The cordial mentioned is a “welcome drink” offered straight after takeoff along with a bottle of water to each passenger.
    On the reverse side of the menu Carl would have noticed a wide offering of beverages including sparkling and still wines, six different spirits, beers; and yes, even the humble Bloody Mary and gin & tonic are specifically listed. Tea and coffee and non alcoholic beverages are also available.
    I hope this clarifies what is actually offered on QF international flights.

  6. David says

    Thank you Mike for that clarification. If this what is offered on QF 1 and 2, Carl’s comments are misleading at the very least. I look forward to continue to fly on QF 1 and 2′ and via Perth when they commence next year.

  7. Chris says

    I love the way a Qantas article brings on all the complaints.
    My parents worked for QF for 30 years.
    Quite senior positions.
    But they never mentioned it to strangers at the dinner table for this very reason above.
    9/10 people would see it as their God given cue to proceed with their Qantas horror stories.
    Yawn.

  8. Paddy says

    Carl, how about giving us the full story.Did you sleep thru the meal services?

  9. Charles says

    Just fly Emirates

    Just flew BNE-Dubai- Manchester, A380 all the way, 24 hours and 5 minutes,

    In Economy, simply brilliant.

  10. Raymond says

    Thank you Mike, for your calm, reasoned, factual response that spells out the ‘other’ side of the story and places Carl’s comment into perspective.

    It is frustrating how often people cherry-pick their case when complaining – selective disclosure as you said – in order to mislead or maliciously denigrate someone or something.

    I know what it is like to work in customer service and it is appalling just how many people see the world through their sense of entitlement and their rights, while disregarding their responsibilities.

  11. Paul says

    Pauls comments are spot on, management waffle at its best!!!

    Mike I agree with your overall assement of Qantas service on say QF1, but the one point that Carl makes that i agree with, regards the pre meal drink service.

    Previously on a long haul flight like QF1 or 93 ex Aust, you would be offered a choice of a pre meal drink, from the drinks cart.
    Now you are only offered the cordial, as Carl stated!

    Other drinks, as listed on the back of the menu, are available on request only.

    While the Bickfords welcome drink maybe appropriate to speed up the service, on say an overnight flight leaving from Asia or Japan, its a bit poor if you have boarded QF1 mid afternoon, 14hr flight ahead, with plenty of time, not to be offered the previous full drinks service, before the meal!

    Overall, while Qantas service may not match the ME3, few carriers do, generally when compared to carriers from other regions, Qantas provides very good service I reckon!
    Also domestically Qantas is better than most others in the world!