Australian airline Qantas sheds 5,000 jobs after $235m loss

Qantas Airways says it will shed 5,000 jobs as it posted a first-half loss of AUD $235m (€153m) amid tougher competition, sending its shares down more than 7%.

The loss for the six months to December 2013 followed a AUD $111m (€72.5m) profit for the same period a year earlier. The loss excluding one-time factors was $252m.

The airline has struggled on international routes and its dominance on Australian domestic routes has been eroded.

The Australian flag carrier said the 5,000 jobs would be slashed as part of plans to reduce costs by two billion dollars over three years. The job cuts amount to just under one sixth of Qantas’ workforce of 32,000.

Qantas Airways chief executive Alan Joyce said the fleet would be reduced from 11 to seven aircraft types and wages would be frozen until the airline made a profit. He will discuss the job cuts with unions tomorrow.

Australia had been “hit by a giant wave of international airline capacity” with a 46% increase in passenger seats since 2009, more than double the global increase of 21% in the same period, he said.

“We are facing the toughest conditions Qantas has ever seen,” Mr Joyce said. “This performance by our airlines is unacceptable and the current position is unsustainable,” he said, referring to Qantas and its Jetstar Group subsidiary.

The Australian government is considering reducing foreign ownership restrictions legislated in 1992 before the state-owned airline was privatised, which would allow the airline to receive a cash infusion by bringing in a new investor or investors.

The government has also discussed with Qantas providing a standby debt facility backed by a government guarantee, for which Qantas would pay a fee.

Qantas argues that the 49% cap on foreign ownership, 35% limit on ownership by foreign airlines and 25% cap on ownership by any single foreign investor put it at a disadvantage against state-owned competitors in raising capital.

Prime minister Tony Abbott said the government was determined to create a level playing field for the airlines.

“We want to ensure that Qantas is not competing against its rivals with a ball and chain around its leg,” he told parliament.

State-owned Air New Zealand, which has 24.5% stake in Qantas’ major rival Virgin Australia, posted a record half-year profit of £70 million. That result was a 40% improvement on the same period a year earlier, and came despite a 1.6% fall in revenue.

Mr Joyce put much of the blame for the poor Qantas result on an “uneven playing field” with Virgin Australia, which is 64% owned by three state-owned carriers Air New Zealand, Etihad Airways and Singapore Airlines.

“The Australian domestic market has been distorted by current Australian aviation policy,” he said.

“Late last year, these three foreign airline shareholders invested more than 300 million dollars in Virgin Australia. That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses.”

Qantas warned in December that its loss could be as high as AUD $300m and that 1,000 jobs would be shed. That warning led to Qantas’ debt being downgraded from investment grade to junk.

Qantas shares were among the worst performers on the Australian stock market today, falling 7.1% to 1.18 dollars.

Tony Webber, a Sydney University economist who until 2011 was chief economist at Qantas, said the airline’s international business “seems beyond repair”.

“The domestic business and the regional business is still an exceptional business. It will make money eventually, it’s just in a cyclical downturn,” he told Australian Broadcasting Corporation radio.

Mr Webber was critical of Mr Joyce’s strategy of attempting to maintain Qantas’ 65% share of the Australian domestic market by expanding the number of Qantas seats on offer faster than Virgin.

“It’s completely flawed. I think that’s damaged Qantas domestic earnings enormously,” he said.

“We know that Qantas’s own capacity hurts Qantas yields or pricing more than its rival’s capacity expansion.”