Qantas chief resets plan to make airline profitable as losses build

Job cuts and cancelled jet orders aim to stem first-half international losses of A$262m

PUBLISHED : Saturday, 01 March, 2014, 1:14am
UPDATED : Saturday, 01 March, 2014, 5:07am

Qantas Airways chief executive Alan Joyce promised last year that an alliance with Emirates would prove a "turning point" for the 93-year-old carrier. It is not working out.

Losses in Qantas's international unit hit A$262 million (HK$1.82 billion) in the six months to December 31, the carrier said on Thursday, wider than those over the preceding 12 months.

Joyce abandoned a goal to turn the division profitable by next year, meaning the earliest the company is estimated to post a profit is in 2016.

Irish-born Joyce, 47, is cutting 5,000 jobs, cancelling or deferring 50 plane deliveries, freezing pay and ending some overseas routes as he struggles to turn Qantas around.

Success with this strategy is key for him to win the support he has sought from Prime Minister Tony Abbott's government as three foreign airlines help boost finances at Virgin Australia Holdings.

"The overall strategy of retreating from the international market is not a viable long-term strategy," said Oliver Lamb, director of Pacific Aviation Consulting. "If Qantas retreats from markets such that their passengers no longer have a choice, customers are going to vote with their feet."

Virgin Australia yesterday posted a first-half net loss of A$84 million, compared with the A$235 million loss reported on Thursday by Qantas for the same period.

Revenue at the smaller carrier climbed 6.4 per cent to a record A$2.24 billion, compared to a 4.1 per cent decline to A$7.9 billion at Qantas.

The "Flying Kangaroo", as the iconic brand is called, has made A$466 million in net income since Joyce took over in 2008, according to data. Australia's biggest airline posted 18 consecutive annual profits up to 2011.

Under Joyce, Qantas's market value reached A$6.84 billion in October 2009, dropping to A$2.54 billion at the close of trading yesterday.

A single dividend, of six Australian cents per share, was declared alongside a A$500 million equity raising at his first annual results in February 2009.

Qantas rose 0.9 per cent to A$1.165 at the close of trading in Sydney, after dropping 9.1 per cent on Thursday. The stock has fallen 50 per cent since Joyce took over on November 28, 2008 in the midst of the financial crisis.

"There hasn't been any clear plan put forward to actually start growing the airline," said Nathan Safe, president of the Australian and International Pilots Association.

Profitability goals would not be met because of high fuel prices, movements in the Australian dollar, and a "deluge of capacity" that carriers have put on to routes into Australia, Joyce said on Thursday.

"The performance by our airline is unacceptable," he said adding he will cut his own pay by 36 per cent this year. "And the current situation is unsustainable."