tip off

Qantas ditches share dividend again — and 500 jobs

Qantas CEO Alan Joyce this morning delivered what he conceded was a poor half-year-to-December 31 performance by the company, while leaving considerable uncertainty hanging over jobs, services and the future of an Asian premium carrier plan.

It was a subdued performance, which leaves shareholders will no dividends for a third straight year, after a six-month period in which the statutory profit after tax collapsed from $241 million in the previous corresponding half to $58 million (and lower at $42 million if controlled entities are included).

The underlying profit-before-tax metric that Qantas prefers dropped from $417 million to $202 million, a result that included the effects of a  $194 million cost from industrial action and the grounding of the carrier that followed.

The confirmed job losses at the airline will be 500 positions in areas including airworthiness engineers and pilots, with Joyce saying he expected a further impact on employment from a consultative review process that will, by the end of March, see the consolidation of two heavy-maintenance centres in Victoria and one in Brisbane into only one or two.

He did not discourage speculation that either the Avalon or Melbourne Airport heavy-maintenance centres would be closed, which would cost at least another 400-500 jobs, and an Adelaide catering centre would be closed and not replaced at the end of the year because of the rebuilding of that airport.

Joyce said that none of the job losses that would result from reducing capital expenditure by $700 million a year would go offshore. They would instead disappear.

He also vowed that the greater part of heavy aircraft maintenance of Qantas jets would remain in Australia, while noting that when the much-delayed Boeing 787 Dreamliners begin to arrive, they will not require any heavy maintenance for 12 years.

It is separately understood that all the 50 Dreamliners on order will be based offshore, unless the carrier chooses to change course and use them as urgent replacements for domestic 767s, which have become a major headache for the Qantas in terms of reliability and the costs of aged airframe maintenance.

Qantas will cancel flights between Auckland and Los Angeles, and Singapore and Mumbai, but will upgrade the tag flight between Los Angeles and New York City to a Boeing 747-400 following the cancellation in coming months of the A330 rotations to LAX from Auckland and on to JFK.

However, overall the 747-400 fleet will now lose six rather than the previously announced four jets this year, and Qantas is also slowing the introduction  of new Boeing 737-800s into the domestic fleet to help meet its capital expenditure reduction target, which is the difference between current cash flows of $1.7 billion a year, and the previously scheduled expenditure of $2.5 billion a year on fleet renewal.

This is a painful choice for the airline. It needs urgent fleet renewal to slash its fuel costs by investing in new technology jets that use much less fuel, but this would have pushed it into borrowing an additional $700 million a year to close the gap that had opened up between cash flows and cap ex requirements.

The somewhat over-the-top rhetoric that Joyce has previously used to describe his plans for an Asia-based, minority-owned, narrow-body premium carrier, for which Red Q was said to be a possible name, was missing this morning.

As previously leaked, he said Qantas was now talking to an existing partner in Malaysia (Malaysia Airlines) and a potential partner (Air Asia, the main Jetstar rival) about a capital light joint venture for the new airline, and said, several times: “We want to spend as little money on fleet for this as possible.” He indicated it could now be some months before such a deal is reached.

What does all this mean for Qantas customers? Fuller domestic jets, and even fewer international options than now in terms of flying in Qantas jets rather mid-trip changes to other foreign carriers.

What does it mean for Qantas employees? Continued fears of substantial job losses.

What does it mean for Qantas shareholders? No sign of dividends, and every sign of a continued depressed share price.

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  • 1
    Brix-Nielsen Leslie
    Posted Thursday, 16 February 2012 at 2:07 pm | Permalink

    The only airline - of similar size - to post an 83% profit drop !!! … Alan Joyce is obviously one of the all-time corporate incompetents ! … . Shutting down the London route just before the Olympics start in London !!! Unbelievable !! …Is he working for John Singleton and Jeff Dixon - or is working for some other airline in order to destroy QANTAS from the inside … and the three of them buying the wreck ??? … . . ADD: The Gillard government, a major shareholder - is asleep at the stick !!

  • 2
    David Lilley
    Posted Thursday, 16 February 2012 at 2:15 pm | Permalink

    Qantas are making an ‘economic’ decision, albeit a short-term one, which is essentially the right decision. It has to compete on a global scale and to global economic conditions. But what if we take this thinking to its logical conclusion and export all our jobs overseas because it’s ‘cheaper’. There’d be no one to buy the products and services these companies want to sell. There has to be a balance.

    We can’t keep putting short-term economic gain ahead of long term economic (and social) prosperity and wellbeing. The issue is therefore much bigger than Qantas or the banks or any other industry. It’s a problem of all our making and one which will take a solution of all our making. The only problem with this is that this should be lead by the government, however they (and the opposition) are so consumed with themselves and the other side and so focused on the here and now, we don’t have a chance to have these ‘bigger’ conversations.

  • 3
    Posted Thursday, 16 February 2012 at 2:48 pm | Permalink

    I think - hope - that the Qantas board and management are changing the airline’s strategy for a medium and long term gain. The current pain is surely due as much to the previous board and management’s poor decisions as to recent mistakes.

  • 4
    tinman_au
    Posted Thursday, 16 February 2012 at 3:09 pm | Permalink

    So let me get this straight, Qantas was sold to private enterprise because government isn’t any good at running businesses (or so “they” say), yeah?

    Did Qantas ever do this bad under government ownership? How are the state run airlines doing?

  • 5
    Mark from Melbourne
    Posted Thursday, 16 February 2012 at 3:34 pm | Permalink

    When are people going to wake up to the clear evidence that QANTAS has been a very poorly managed business for many years and the current management inherited this near basket case and are doing their best to finish the job?

    How you ask? Well the actions over the last few months seems purpose built to alienate its main customer base - Australians.

    And you have to ask - what is the point of QANTAS as a company if it is just another low cost Asian airline? Is it really going to make shareholders any money? It’s hardly what you would call a growth industry or without competitive disadvantage.

    And those peopel saying it’s the governments fault - how about a reality check.

  • 6
    Owen Gary
    Posted Thursday, 16 February 2012 at 4:10 pm | Permalink

    Apprently the new A380s dont need much maintenance”, even though they have been fraught with problems before even entering their designated hangars.

    I will remember Allan Joyces comments when he has to inform the dead passengers relatives of what went wrong.

    We will definitely see planes falling out of the sky in pusuit of corporate profits Vs aero maintenance!!

    Everybody already knows that Qantas was very profitable before they starting funnelling profits through to “Jetstar” to make them look like the coporate pin-up.

    What a crooked & crazy world we live in, madness begets even more madness!!!

  • 7
    Bohemian
    Posted Thursday, 16 February 2012 at 4:18 pm | Permalink

    When are shareholders going to pressure boards to select executives who have an emotional commitment to the country their company purports to represent? Or is that the point of the current hiring pattern; select someone who isn’t going to be emotionally manacled and puts money before people without fear that their mother will be ringing them up and abusing them!

  • 8
    redpath
    Posted Thursday, 16 February 2012 at 5:30 pm | Permalink

    Am I missing something here: “underlying profit-before-tax dropped from $417 million to $202 million, a result that included the effects of a $194 million cost from industrial action and the grounding of the carrier”. So if Mr Joyce had not grounded the fleet the profit before tax would be $396 million - a couple of percent down on last year but not bad for an era of high fuel costs, reduced tourism and subsidising Jetstar.

    Doesn’t this suggest the problem is Alan Joyce, not the high costs of a quality service?

  • 9
    Steven Warren
    Posted Thursday, 16 February 2012 at 6:51 pm | Permalink

    What a crock.

    It’s already been well established that Qantas pays for Jetstars fuel, check-in staff and baggage claim, storage and is also subject to all sorts of other highly dubious money transfers like Qantas paying a premium giving them cargo-space on Jetstar flights which they pay whether they actually use the space or not.

    Them paying out that terrible return was a direct result of them hiding their profits from their shareholders.

    Someone take Joyce out the back and shoot him.

  • 10
    AR
    Posted Thursday, 16 February 2012 at 7:42 pm | Permalink

    Joyce is as perfect an example as could be imagined of a corporate creature with no sense of the real world. The sort who sees trained staff with a corporate ethos as merely more expensive than some O/S contractor - sack ‘em!
    Spare parts - pfahh! In house expertise? - gotta be a call centre somewhere that is cheep cheeper!
    The irony is that such bean counter, asset strippers usually manage a short term dividend & share price rise - this gombeen has failed even that execrable low hanging fruit.

  • 11
    TheAppallingTruth
    Posted Thursday, 16 February 2012 at 7:54 pm | Permalink

    What happens to Qantas when THIS report emerges from the current blanket media censorship?
    http://www.expendable.tv/2011/09/transit-report.html

    And the supplementary report, which specifically covered them, on the same website?

    And what is in the documents they have not yet published?

  • 12
    Bohemian
    Posted Thursday, 16 February 2012 at 9:55 pm | Permalink

    There goes next years bonus! But I suspect that there is a lot more to this than meets the eye.
    You see I just wonder how a “no frills” airline (Jetstar) can compete internationally with even cheaper “no frills” airlines with government subsidies from around the region, once the “frills” airline is gutted?

    It looks like an accountant intepreting profitability by percentage of turnover rather than absolute quantum or am I being harsh? Nevertheless, from what I understand about the airline business, the money is always made out of the frequent flyers and the Business and First passengers. But here is where Qantas is twice the price of many other carriers in that market. Why can’t they get their configurations to optimum profitability based on more competitive pricing in the premium economy, business and first segments given they once had a reputation for safety and professionalism - something I struggle buying these days and could still garner a premium over competitors albeit not a super premium.

    So now it looks like Qantas will increasingly abandon those high value segments of the market and cut maintenance apparently making savings which will restore profitability somehow! How the heck do you make money on scant margins at the cut-throat end of the business? The international business is no duopoly like Woolworths and Coles downunder. Moreover, regional carriers do regional foods and their own brand of service sensitive to their home base. They will inevitably garner cultural preferences from their countries of origin? Has Alan Joyce been having special one on ones at the Lodge on how to succeed because it has that feel about it and may well end up the same way?

  • 13
    the man on the clapham omnibus
    Posted Thursday, 16 February 2012 at 10:17 pm | Permalink

    Interesting to see the causes listed in reports, would be interesting to see if it held up to some hard analysis:

    blaming a $194 million cost from industrial action and the grounding of its fleet”
    What was the split on industrial action & what was the customer drop off like after the grounding decision?

    Fuel cost rises $440m? What about hedging?

    How can they not make profits when they are one of our only international carriers with a herculean aussie dollar sending full planes of tourists overseas?

    Qantas has been a kiss up , kick down management style for years.. and is not interested in listening or engaging with it’s staff on productivity..reap what you sow.

  • 14
    Owen Gary
    Posted Friday, 17 February 2012 at 1:53 am | Permalink

    It is quite interesting that “South China Airlines” have increased their Australian routes already.

    I smell a rat here, Qantas would not be sabotaging their own carrier for the benefit of a Chinese Airline by any chance????

    Remembering the Australian Govt still has a stake in this carrier & that the Chinese ailines are fully run by the Chinese State!!!

    Wheres the investigation on this one?????

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