Qantas Restructuring: Fleet Cuts, Network Changes, And Layoffs

Qantas has been performing really poorly, and was schedule to announce a major restructuring on Thursday. Well, their “plan” is out, and to be honest it’s not really as radical as I was expecting.

For a bit of background on their “problems,” Qantas has been performing poorly on their longhaul routes for a long time now. However, they were making money on their shorthaul routes (kind of the opposite of most legacy US carriers, which have performed well on longhaul routes and performed poorly on shorthaul routes). However, with added competition domestically, in particular from Virgin Australia, even their shorthaul operations have become unprofitable:

“This situation is reflected in the financial result Qantas announces today, an Underlying PBT1 loss of $252 million for the half-year.  This is an unacceptable and unsustainable result.  Comprehensive action is needed in response.

“Qantas’ competitors have increased capacity to Australia by 46 per cent since 2009, more than double the world average, at a time of record fuel costs and economic volatility.

Their frequent flyer program has been profitable and there have long been rumors of them spinning it off, though that doesn’t seem to be part of their restructuring plan.

So today Qantas shared the details of their $2 billion cost reduction program and capital expenditure review.

The basic “bullet points” of their changes are as follows:

  • $2 billion cost reduction, including 5,000 jobs
  • More than 50 aircraft to be deferred or sold
  • $1 billion capital expenditure reduction
  • Core investment in customer service to continue

Qantas fleet changes

There are some pretty major fleet changes, including the following:

  • Qantas Domestic will increase utilisation of narrow-body aircraft, allowing Airbus A330 aircraft in the domestic market to concentrate solely on East-West services and peak services on the Sydney-Melbourne-Brisbane triangle.
  • A330-200s will be freed up to enter the Qantas International fleet as replacement aircraft, helping to accelerate the retirement of older Boeing 747 aircraft.
  • All six of Qantas International’s non-reconfigured B747s will be retired ahead of schedule, by the second half of FY16.  Nine reconfigured B747s with A380-standard interiors will remain.
  • Qantas’ final two B737-400s have been retired this month and all B767s will be retired by the third quarter of FY15, resulting in cost and passenger benefits from fleet simplification.
  • Qantas International’s eight remaining A380 orders will be deferred, with an ongoing review of delivery dates to meet potential future requirements.  Schedule changes will allow maximum use of Qantas’ current 12 A380s.
  • The final three of 14 Jetstar B787-8s on firm order will be deferred.
  • Jetstar’s A320 order book has been restructured.

So the most “major” part of that is probably Qantas deferring their remaining A380 orders, though it’s also hardly surprising. Selling and deferring more than 50 aircraft is a pretty major move, though seems wise given the situation.

Qantas-A380-Melbourne
Qantas A380 in Melbourne

Qantas network changes

In terms of the network changes, here are some of the highlights:

  • Qantas International will withdraw from the Perth-Singapore route (first quarter FY15).
  • Qantas’ Brisbane-Singapore and Sydney-Singapore services will be operated by A330s, replacing B747s (first quarter FY15)
  • Qantas services between Melbourne and London will be re-timed in November 2014 to reduce A380 ground time in Heathrow (second quarter FY15).  There are no changes to overall capacity on London flights.
  • The Melbourne-London service change frees up an A380 for additional flying, and Qantas will evaluate opportunities to use the aircraft on other routes.

So they’ll cut their last longhaul route out of Perth, replace several 747 routes with A330s, and re-time the Melbourne to London flight so that it doesn’t sit in London all day, freeing up one A380.

Qantas layoffs

Qantas will lay off the equivalent of 5,000 full time positions, including:

  • Reduction of management and non-operational roles by 1,500.
  • Operational positions affected by fleet and network changes.
  • Restructure of line maintenance operations.
  • The closure of Avalon maintenance base, as previously announced.
  • Restructure of catering facilities including the closure of Adelaide catering, as previously announced.

Bottom line

Those are some of the highlights of their strategy, though for all the details check out the Qantas strategy update press release.

While the layoffs suck and are probably the worst part of the news, I was almost expecting more operational changes. They’re continuing to operate their “flagship” A380 routes to Los Angeles and London (via Dubai). I was almost expecting them to announce frequency cuts on those routes given their situation, but fortunately it seems that’s not happening.

I’ve quite enjoyed my Qantas A380 first class flights from Singapore to Sydney, Melbourne to Singapore, and Singapore and London. And I look forward to my longhaul flight with them later this year.

Qantas-A380-First-Class-123
Qantas A380 first class

Comments

  1. At the same time that qantas announced this result, Air New Zealand announced a 29% increase in profit – this from an airline that is fun to fly, has excellent service at the right price and a good FF program and is able to invest in Virgin Australia… Qantas is ‘lost in space’

  2. LHR slots would’ve brought a pretty big haul in the short term and EK can always operate the DXB-LHR routes…

  3. Interesting that the nation’s flagship carrier is effectively abandoning the fourth-largest city. Nobody in Perth is gonna fly to Singapore (and connect to the rest of the globe) via Sydney: that’s like flying from L.A. to Anchorage via New York.

    And do we know what the configuration is of the 332s that are replacing the old 747s? Do they have fully flat seats in J? And are those aircraft only replacing 747s with no First Class, or is this another erosion of F redemption opportunities?

  4. @ Josh — It seems they’re retiring the non-reconfigured 747s, and those are the ones that feature a first class cabin. So it could very well be that the A330s will be replacing 747s featuring a first class cabin.

    The A330 business class seats are angled flat as of now, though will be reconfigured with a fully flat product. So for those in business class it’s probably an improvement.

  5. @Josh: QF is re-configuring their A332’s with full flat direct aisle access seats (1-2-1 layout). Planning is late 2014 to have the first rejigged planes in the air.

  6. OK, but when will they finally open more F seats on their A380s? we have AA miles we want to put to good use!

  7. Sucks for all the people being laid off.

    Can anyone briefly summarize why long-haul operations are losing money?

  8. @Josh: I think it’s a realistic appraisal of their ability to compete from Perth. Since Qantas doesn’t really connection options beyond Singapore, anyone flying to the rest of the globe is already taking another carrier (except to the Americas, in which case they’re going through Sydney anyways). PER-SIN would have been mostly O/D traffic and no doubt there are lots of competitors who can do that relatively short run more cheaply.

  9. @Ivan Y: I’ve heard long-haul to the Americas (with limited competition) is still profitable. To Asia and Europe there are tons of Asian and Middle Eastern competitors who can operate cheaper and more frequent services.

  10. @Josh – it has long been the plan that the only F will be on some (not all) A380. Today’s announcement doesn’t change this.

    There is a reduction in capacity and interestingly Jetstar loses their A330s.

    The number of staff losses are massive, as is the loss of capital investment. It signals years of pain ahead for Qantas.

    In the short term, the unions will fight each redundancy. Staff morale will be low – not only due to the job losses but also there is now a freeze on pay increases for everyone.

    No changes announced to the FF scheme. Of course this could still come later if Qantas continues to make large losses (the first half of the financial year is usually more profitable than the second half).

  11. Ah the management when Joyce took over 5 years ago it was up there with the best! Jetstar was allowed to cannibalise Qantas routes 3 of my daily flight options to Cairns were cut to 1 if I wanted to in time for a business meeting they assumed you would fly their LCC Jetstar. They never thought you would fly Virgin ha ha ha. Jetstar has been a total waste of money, passenger loyalty, time etc.. All the planes are coming from the Jetstar fleet way ahead of new aircraft because Jetstar international’s fleet are citing on tarmacs through out Asia hameroaging millions a week. The have been putting a positive spin on Jetstars performance for years and it’s caught up with them. Oh and the announcement was in the most expensive hotel in Sydney! Have to watch what they are offering in the Chairman’s lounge over the next few months. Shocking management.

  12. Hey Lucky,

    I have an AA award on Qantas in September from HKG-SYD on the A380 in F. It doesn’t look like they are changing the equipment on this route, but do you think that the ground and soft product will take a hit because of cost cutting and poor employee morale?

    I’m trying to decide if I should see if there is any Cathay availability on the same route and switch. Any thoughts?

  13. Yes, this was once an excellent airline. It is very sad how quickly it has declined. This is a management issue.

  14. Sad how management and competition is squeezing the life out of a great and safe legacy carrier. Middle East and Asian carriers are cutting into its long haul market to Europe/Asia. For the trans Pacific market United, Hawaiian and Air Canada are cutting into that segment. Even Air New Zealand is doing great and some Aussies don’t mind flying with them to L.A. Essentially Qantas has been surrounded and I just hope they can somehow recover. But they’ll need a new CEO to pull it off. That or the fix has been in to decimate Qantas and carve up the market. Emirates alone can supply all the seats the Aussie long haul market requires with their huge A380 fleet. It’s a cruel world out there.

  15. I flew JFK-LAX-SYD a couple of months ago in business class and scored a first class seat the whole way (not an upgrade – it was a 747 that normally operates SYD-HKG and they were selling the old first class cabin as J.) Come to think of it, the demise of hard-F-sold-as-J for elite pax is probably the worst aspect of retiring the old 747s.

  16. @ Zed — Qantas has actually done a good job with maintaining the quality of their first class product so far. I’d definitely stick to Qantas. Keep in mind that Cathay Pacific doesn’t offer a first class cabin on their flights to Australia.

  17. A380s are too expensive to operate. Those ugly birds eat too much gas. 777 are leaner and carry the right load. Granted I prefer 4 engines than 2 on TPAC routes like USA-AUS.

    Same goes to FC lounges. Even LH is having problems and will be cutting unnecessary costs soon. Are Admirals clubs the right balance?

  18. I find the Cathay website the most accurate for award space in CX. How ironic. Haha. Dont understand why ppl use partner airlines to check cx.

    And yes as mentioned, ba does notoriously show phantom seats.

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