Alan Joyce was supposed to be celebrating Qantas’ Centenary Year, but the COVID-19 crisis has seen Qantas effectively stalled for the past few months as demand for travel has evaporated.
Alan Joyce has just announced details of Qantas’ post COVID-19 recovery plan which are extreme and brutal in terms of cost reductions and job losses. This is because Qantas will have a much smaller operation and network moving forward in the short term. The Qantas Board have asked Alan Joyce to remain CEO at least until the middle of 2023 to ensure “leadership, experience and stability”. At that point, Alan Joyce will have run the airline for almost 15 years.
Qantas’ Recovery Plan assumes that there will be no significant number of international flights before July 2021 (possibly the Trans-Tasman service the only exception). Qantas expects international flying to recover to 50 per cent of its pre-pandemic volume in the 2022 financial year and to 75 per cent in 2023. Qantas and Jetstar will focus on domestic services which are forecast to return to 70 per cent of pre-COVID capacity within a year. These services are currently sitting at 15% of its usual network.
At the core of Joyce’s plan is the need to reduce costs by a whopping 15bn over the next 3 years followed by $1 bn in ongoing cost savings every year from 2023. Much of which will come from their international business that is currently mothballed. Qantas needs to be much leaner to combat the effects of the pandemic.
These cost cutting measures include:
- Retrenching 6000 staff redundant (20% of their workforce), a mix of pilots, cabin crew, engineers, ground workers and corporate staff
- Leaving 1500 works stood down for the time being until flying resumes without pay or on enforced leave
- Retiring the 6 remaining 747s immediately
Grounding around 100 aircraft including most of its international fleet for up to 12 months
- Putting all its 12 Airbus A380s into storage in Mojave Desert for at least 3 years
Deferring deliveries of new planes like the new Airbus A350’s for Project Sunrise
The 3-year plan aims to have 21000 active employees by June 2022. Qantas currently has 29000 staff. Qantas will also raise up to $1.9 billion in fresh capital (equity). $1.5 billion in debt had previously been obtained via a loan secured against 10 wholly owned Boeing 787-9 aircraft. These measures boost Qantas’ liquidity and safeguards Qantas credit rating so they can still borrow money at cheap rates.
Several unions have said that the redundancies were premature and should be put on hold until the federal government reviewed and possibly extended its Job Keeper wage subsidy program. Alan Joyce said discussions with the government about a special wage support package for the aviation industry had been constructive, but ultimately there would not be work for many of its employees for several years and Qantas has to position itself for several years where revenues will be much lower.
Qantas is expected to record a loss of about $700m in the second half of the 2020, which would see the airline break even for the full year or make a slight profit.
Meanwhile administrators of Qantas rival Virgin Australia announced Bain Capital as the successful bidder for the airline following the withdrawal of Cyrus. Virgin Australia is set to return as a slimmed down mid-market airline. The overhaul will include fewer aircraft, a purely domestic network and a 9000-workforce cut to about 5000.
Source: Joyce puts Qantas on recovery course by J Durie The Australian June 25th, Qantas to sack more than 6000 workers by Patrick Hatch SMH June 25th, Hard landing for Qantas workers by R Ironside The Australian June 26th, Virgin overhaul gets rid of baggage by R Ironside The Australian June 27th, Turbulence ahead as Bain steers Virgin recovery by G Korporaal The Australian June 29th.