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 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 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.
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.