THE Qantas Group is bent on massive cost reductions for 2014 in response to “fundamentally changed market conditions”, it said in a market update today.
The group expects an underlying loss before tax in the range of A$250 million (US$225.4 million) to A$300 million for the six months ending December 31. Trading conditions saw a marked deterioration in November in particular, with both passenger loads and yields below the already negative trends for year to date.
For 1H2014, group yield is expected to be approximately 3.5 per cent lower and loads, 1.6 percentage points lower, while underlying fuel costs (excluding the impact of the carbon tax) will hit approximately A$2.27 billion, an increase of A$88 million.
The group will also make accelerated cost reductions across all areas of the business, to achieve total cost savings of A$2 billion over three years. Steps to be taken include head count reduction of at least 1,000 positions within 12 months, pay cuts for the CEO and Board, pay freezes and no FY14 bonus for executives, a review of spending with top 100 suppliers, network optimisation and improved fleet utilisation as well as further overhead reductions.
Additionally, it will conduct a review of all planned capital expenditure to achieve further substantial reductions to ensure that the business generates positive net free cash flow from FY15. An immediate review will be conducted to identify structural changes that could potentially unlock sources of capital and value for shareholders.
Qantas CEO Alan Joyce said in a press statement that the circumstances demand urgent action. “We cannot and we will not stand still in these extraordinary circumstances…We will focus relentlessly on cutting costs and improving productivity, while maintaining our competitive advantages as a business.
“As we take these urgent actions, we will continue to take the fight to the competition and strengthen our leading position in the domestic market, and we will continue the turnaround of Qantas International.”