Qantas Profits Fall; Flights and Jobs Impacted

Sobering news from Qantas today: The Qantas Group announced underlying profit before tax of $202 million for the half-year ended December 31, a decrease of $215 million compared with the prior corresponding period. Statutory profit before tax was $58 million.

The result reflects the $194 million financial impact of industrial action, as well as increased fuel costs compared with the prior corresponding period. Total fuel costs in the half were $2.2 billion, up $444 million (or 26 percent).

The Group also outlined measures that include a reduction in capital expenditure of $700 million over 2011/12 and 2012/13; a review of Qantas’ heavy maintenance footprint in Australia; and changes to Qantas’ catering and engineering operations.

Qantas Chief Executive Officer Alan Joyce said the first-half result was a good performance in light of challenging circumstances.

“The termination of industrial action [on October 31] brought operational certainty for the Qantas Group, our customers and our shareholders,” Joyce said in a statement. “While the impact of the dispute was severe, our portfolio of businesses once again demonstrated its resilience in difficult conditions. Improvements in operating cash flow, revenue, yield and unit costs, and record results for Jetstar and Qantas Frequent Flyer, helped offset the financial effect on the Group.”

Joyce said the Group was taking "decisive action" to meet the challenges of the changing global economy and aviation industry. “We have a clear strategy for the future based on our strong domestic airline businesses, transforming Qantas International and other business areas, the continued growth of Qantas Frequent Flyer and growing Jetstar in Asia. With a volatile world economy, disciplined financial management remains vital. Today we have set out a package of initiatives appropriate both to the current conditions and our long-term goals.”

In a speech, Joyce said that Qantas International remains a weakness and a key focus for the company. “The reality is that even the strengths of the rest of our business will not be able to compensate for this issue over the long term. We face high competitor capacity growth into Australia. While we have a strong outbound travel market, the inbound market is flat and, in particular, there is a softening of demand for travel out of the UK and Europe. The challenges are structural and ongoing which is why last year we developed our five year plan for building a better and stronger Qantas.” The plan includes increasing the airline's services to Dallas. Qantas will fly daily between Texas and Sydney as of July. The airline has also received Anti Trust Immunity clearance for the Joint Business Agreement with American Airlines, which Joyce says will bring commercial benefits to both parties. British Airways will replace Qantas' flights between Bangkok/Hong Kong and London in March, and Qantas will also cease services from the Singapore-Mumbai and Auckland-Los Angeles routes in May.

Perhaps most worrisome, Joyce said that 500 positions throughout the company will be "affected" by the immediate changes that that were announced today. “But let me clarify that there will be no jobs going offshore,” Joyce emphasized. “Not one. The jobs that are going have become structurally redundant.” The airline is offering a range of options to employees whose jobs will be impacted.

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