Qantas is set to cut jobs before Christmas as it embarks on its latest cost-cutting drive. The move comes as the Qantas share price trades at record highs. But the airline sees turbulence on the horizon and wants to put itself in the best possible position to grow and meet earnings targets.
Dispute over the exact number of job losses
Exactly how many jobs are set to go is unknown. An unnamed “Qantas source” quoted in a report in The Financial Review says around 400 jobs would go. But Qantas said job losses would not be that high. A spokesperson told the newspaper;
“We recently confirmed that our group executive committee would reduce by one and there would be a consolidation of some corporate roles where it made sense to do so, but the figures being quoted are wrong.’’
The airline noted that job losses would come from a corporate restructuring at their Sydney H.Q. rather than from operational roles. The Qantas spokesperson said;
“To be clear about this, we are still growing in cabin crew, in pilots, in airport staff.”
Qantas has set ambitious earnings margins improvements
Qantas had flagged job cuts at an investor briefing held earlier this month. The airline had noted that weakening global and local economies was putting downward pressure on passenger numbers. But the airline has ambitious plans to improve its earnings margins and decrease costs over the next five years. The planned job cuts are one part of the equation.
Qantas CEO, Alan Joyce, told investors at the briefing;
“In the year ahead there will be a lot more focus on cost and in the next five years we think there is a path to achieve significant improvement in margins.”
According to The Sydney Morning Herald, Qantas has a five-year plan to raise its profit in its domestic operations from 12% to 18% and Jetstar from 9% to 22%, bringing both operations into line with global peers.
Jetstar will focus on increasing its ancillary revenue. Currently, around 17% of Jetstar’s revenue comes from ancillary revenue and this is growing at around 8% annually. Just this week, Jetstar increased its carry on allowance across many routes from 7kg to 14kg – for a fee.
Qantas domestic operations account for 40% of the Qantas Group’s overall profit. It had underlying earnings before interest and tax across the 2018/19 financial year of USD$502 million. Qantas domestic boss, Andrew David, says costs can be made from digital integration, maximising the time aircraft spent flying, using flight planning tools to improve fuel efficiencies, and making some changes to engineering strategies.
Can these targets be met?
Alan Joyce thinks his cost-cutting and profit margin targets are achievable. Given his record with transforming the airline after a dramatic series of post GFC losses, unless economic conditions deteriorate significantly, there is a lot of confidence in Mr Joyce.
Peter Harbinson, executive chairman at CAPA – Centre for Aviation said;
“Domestically, they’re pretty prepared to see the market slow down and squeeze the juicy bits out of it.”
Many industry observers see Virgin Australia as the biggest unknown in Qantas’s strategy. Qantas’ domestic competitor is financially stretched with a high-cost base. But Virgin Australia has a new chief executive, Paul Scurrah, who has a formidable reputation and has set his airline on its own cost-cutting drive.
Should Virgin continue to struggle, Qantas will be in the pole position and well placed to achieve its goals. Should Virgin Australia find its feet and rein in its costs, Qantas could see a resurgent competitor and its five-year targets at risk of not being met.
None of which is much consolation to the Qantas staff who will find themselves out of a job by Christmas.