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Qantas Group embarks on radical transformation in response to COVID-19
June 26th 2020
Qantas's centenary year has gone from an occasion to celebrate to an annus horribilis. The Flying Kangaroo announced this week 6,000 jobs would be culled from the company and 100 aircraft would stay grounded for up to 12 months as it rides out the devastating impact of the coronavirus pandemic. Read More »
Group CEO, Alan Joyce, acknowledged these were painful decisions to make in the middle of the biggest crisis aviation has faced.
"Airline revenues have collapsed. Entire fleets are grounded. And the world’s biggest carriers are taking extreme actions just to survive," Joyce told reporters in Sydney yesterday. "This crisis has still hit us very hard. And the impact will be felt for a long time, particularly, I’m very sorry to say, the impact on our people."
To offer some perspective on the scale of yesterday's announcement, it was worth considering Qantas's actions in 2014, when the airline group booked a statutory after tax loss of A$2.8 billion that included a A$2.6 billion non-cash write down on the carrying value of the fleet.
As part of efforts to turn around the company, in the following three years Qantas made 5,000 staff redundant and took some A$2 billion in costs out of the business in the "biggest transformation in our history" Joyce said at the time.
Fast forward to this week and Qantas's three-year plan to 2023 calls for 6,000 jobs to be cut – representing about 20% of its 29,000 strong workforce.
About another 15,000 workers categorised as temporarily surplus to requirements would remain stood down, on annual leave or on leave without pay.
There also will be an eye-watering A$15 billion reduction in costs to 2023 to accelerate the group's recovery from the COVID-19 crisis, create a stronger platform for future profitability and long-term shareholder value as well as preserve as many jobs as possible. Beyond 2023, Qantas was targeting A$1 billion in ongoing cost savings per annum.
"This is something that weighs heavily on all of us," Joyce said. "We have to position ourselves for several years where revenues will be much lower. And that means becoming a smaller airline in the short term."
In line with reduced flying activity as international borders remain largely closed, Qantas said it planned to ground about 100 aircraft for up to 12 months. Aircraft not coming back into service included its six remaining 747s, which have been immediately retired.
Qantas said there was significant uncertainty as to when flying levels would support the 12 A380s in the fleet with the aircraft to remain idle for the "foreseeable future". The aircraft will be flown to a storage facility in the U.S. "They are too big," Joyce said.
Qantas and Jetstar's Australian-based fleet stood at 298 aircraft at December 31, 2019, figures from Qantas's 2019-2020 interim results showed.
The airline group has deferred deliveries of new A320neo family aircraft (for Jetstar's Australian/New Zealand operations) and new 787-9s from Boeing (for Qantas).
Joyce said when international flying resumed it would be with the 787-9, which at 236 seats in three classes represented the ideal cabin configuration.
"We start with the smaller aircraft, the newest aircraft, the most capable aircraft and establish our network as fast as possible," he said.
"We will operate them with frequency to Los Angeles, to Europe, to Chicago, to London and to the markets in Asia when they open. We can establish a very extensive network really fast."
Qantas expects to post either a small underlying profit before tax or a breakeven result for the 2019-2020 year. The statutory result is likely to be in the red, given an estimated A$2.8 billion in significant items to be booked this financial year. The one-off costs are an A$1.25 billion - A$1.4 billion impairment charge on the carrying value of the fleet, hedging losses estimated at A$550million - A$600 million, restructuring and redundancy costs of A$600 million - A$700 million and transformation costs of A$200 million.
To shore up its balance sheet, the company said it had completed a A$1.36 billion capital raising in the form of a fully underwritten share placement to institutional investors at A$3.65 per share, a 12.9% discount to the closing price of A$4.19 on Wednesday.
Qantas said today 94% of placement shares went to existing institutional investors, with demand exceeding what it had hoped to raise. A separate offer for eligible shareholders to buy new shares aimed to generate another A$500 million.
Joyce has agreed to the board's request to remain as group CEO at least until the end of the 2023 financial year to work through the recovery plan. He has been Qantas group CEO since November 2008.
"I am very passionate about the Qantas brand and its people," Joyce said when asked if it was difficult for the board to convince him to stay on. "The last thing I wanted to do is leave when we are in the biggest crisis in our history."
He also drew strength from Qantas's 100-year history, which showed that "no matter how tough it is in the moment, we’ve always come back from a crisis stronger than before".
"So our centenary year is, perhaps, a new beginning. The start of our ‘next century’," Joyce said.
"We know flying will return. Our people will be back in the skies. No aircraft will sit idle. And new ones will be arriving, including for more ultra long-haul flights."
Written by Jordan Chong
