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Qantas CEO Alan Joyce says he will unveil restructuring plans for the longer term future of Qantas’s international operations on August 24 after revealing today that the airline’s international division will make a $200 million loss for the current financial year.
“In FY11, Qantas International is forecast to generate a loss before interest and tax of approximately $200 million, on invested capital of over $5 billion, with a weaker result expected next year,” Joyce said in a statement issued this morning.
“Qantas International is the Group’s weakest business – it has achieved required returns only three times in the past 15 years. Clearly the situation is not sustainable. However, we are developing a long term strategy aimed at restoring competitiveness and profitability.”
In a lunchtime speech to the National Press Club in Canberra, Joyce flagged an increasing reliance on alliance relationships, new operations in Asia, and cuts to “non-performing and unsustainable parts of the international business” as key planks in the new strategy for Qantas International.
“We will make the tough decisions,” Joyce warned.
Without elaborating, Joyce said Qantas would “be establishing a platform for future success” in Asia, perhaps eluding to rumoured plans of setting up a new long haul full service airline in Singapore.
As for alliance relationships, including Qantas’s oneworld membership, “We will be taking these relationships to the next level, including the joint venture level”, Joyce said, highlighting Qantas’s alliance partnership with British Airways as a model for future alliance arrangements.
Echoing Rod Eddington’s famous observation of Ansett more than a decade ago, Joyce said that “Qantas International is a great airline, but currently it is a poor business.”
He said the Qantas International of the future would, “instead of being restricted to an Australian-based international airline, … will be participating in major regional opportunities, and in the world beyond.”
Said Joyce, “We will be taking Qantas know-how on the global road, leveraging our excellence in brand management, aviation safety, finance, marketing, product and service, and our culture of innovation, to find new sources of revenue and profit.”
In the nearer term, Qantas says for the current financial year about to end on June 30 that it will record an underlying profit before tax in the range of $500-550 million, up more than a third on the 2009-10 financial year’s result.
That result will come despite significant natural disasters impacting the bottom line, and after a $93 million settlement with Rolls-Royce over the QF32 engine explosion incident last November, which was finalised today.
Joyce said the impact from the Chile volcano disruptions through to June 20 was estimated at $21 million, with the Japanese earthquake and tsunami having a $72 million impact, a $95 million impact from the Queensland floods and cyclones, and an $11 million impact from the Christchurch earthquake.
Joyce said the repairs to the A380 involved in the QF32 incident, VH-OQA Nancy-Bird Walton, would cost around $135 million and be covered by insurance, with the aircraft not expected to return to service until February 2012.
In comparison to Qantas International, “Our Qantas Domestic airline is performing very strongly, with a profit which covers its cost of capital,” Joyce said, while “Jetstar is making a strong profit. It is a high growth business. And it has massive potential across all of its markets.”
Carl
says:Qantas international may be struggling in difficult times but it would be far healthier if it were not burdened by the operating costs of Mr Joyces “golden child” Jetstar.
There have been numerous cases cited whereJetstar has not been charged properly or at all for services provided by departments inQantas mainline. Whilst this may be perfectly legal, it is misleading and is perhaps done to further an agenda that is sadly now becoming quite apparent.
Couple this with the amount of money wasted in paying fines for the cargo fiasco (over $50 million) and the healthy bonus paid to the departing CEO ($11 million) it is no wonder the airline struggles. How many advertisments do you see for Qantas on the TV?? Not many versus the multitude for Jetstar. If you are trying to sell something don’t you need to advertise it?
Its a sad day for Qantas and for aviation in Australia. Qantas will still call Australia home but only for marketing purposes as it off shores more and more of the business as it has done with engineering, cabin crew and soon pilots.
Jimmy
says:All well and good Carl, though bottom line is if Joyce and Co do nothing to reform the workforce, which is what it seems the unions want then there will be no Qantas or Jetstar. Also some facts about your allegations of book fiddling wouldn’t go astray.
Abagnale
says:Qantas Revenue grew year-on-year until 2008. Alan Joyce took over in 2008.
The CEO goes on about Cost of Capital. Other full service airlines (eg. Lufthansa, Air France) have higher Costs of Capital. They also have higher revenues and higher profits. They also have leadership and innovation.
Alan Joyce was brought in to oversee Jetstar, he somehow landed the Qantas CEO job ahead of more experienced and better qualified candidates. The experiment has failed.
The Board is asleep. The CEO is out of his depth. Customers are voting with their feet. Competitors are slowly and methodically picking up the pieces of this debacle.
Will it take another Ansett before the Board and the Politicians realize 33,000+ jobs are at stake here?!
pez
says:It’s not just the board at fault here. The unions are playing stupid games, trying to score points with their members, all the while, watching Rome burn and simply pouring more fuel on the fire. The unions and a inept labor government too afraid of reigning them in will result in Qantas ditching its international arm and re-creating it overseas, where the union thugs can’t destroy another great Aussie icon
Ian
says:Qantas is one of the “Great Shrinking Airlines” of the world, and it’s sad to watch its decline. Over the years it has stopped flying to many destinations and I wonder if it will end up flying only to London, Frankfurt, Jo’burg, Singapore, Hong Kong, Los Angeles, Dallas and perhaps New York, while shifting the others to Jetstar or abandoning them altogether.
Robert
says:Everyone can quite clearly see Qantas is on a downhill slide. The CEO has no idea….the aircraft are old, nobody I know flys Qantas…..going to LA would you rather fly in a new 777 or a clapped out old 747 for 2/3 the price?
john citizen
says:you wouldnt want to know what i am thinking :)! but we are gagged 🙂 jc