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.