* Carrier reports H1 underlying loss of A$252 mln
* Cuts 15 pct of staff, to defer or sell 50 planes
* PM Abbott says should ensure level playing field
By Jane Wardell and Lincoln Feast
SYDNEY, Feb 27 Qantas Airways Ltd is
axing 15 percent of its workforce, slashing spending and selling
gas-guzzling older planes after stiff competition at home and
overseas pushed the Australian flag carrier deep into the red in
the first half.
In the most radical surgery at the airline since it was
privatised two decades ago, Qantas plans to cut costs by A$2
billion ($1.8 billion) over the next three years. It hopes the
shakeup will convince the Australian government Qantas is worthy
of the state assistance it says it desperately needs.
Bruised by high fuel costs, a strong Australian dollar,
increasing international competition and a domestic price war
with arch-rival Virgin Australia Holdings, the national
flag carrier saw its debt relegated to junk status by rating
agency Standard & Poor's in December. Qantas is now asking the
government for a debt guarantee, which would give it access to
The so-called 'Flying Kangaroo' also wants the government to
change a law dating back to Qantas's privatisation that
restricts how much money foreign investors can put into the
carrier. Qantas claims Virgin Australia's unfettered access to
foreign capital has given it an unfair advantage.
"We will cut where we can in order to invest where we must,"
Chief Executive Alan Joyce told a news conference after the
company reported what was only its second first-half loss since
privatisation in 1995. "We will be a far leaner Qantas Group."
Speaking in parliament after the results were announced,
Prime Minister Tony Abbott offered encouragement without
"We want to ensure that Qantas is not competing against its
rivals with a ball and chain around its leg," Abbott said.
While Joyce said discussions were continuing with the
government, Abbott appeared to shy away from a debt guarantee,
saying that would need to be offered to all airlines if it was
given to Qantas.
The government is drafting changes to the Qantas Sale Act to
lift the current 49 percent foreign ownership limit, as well as
alter restrictions on smaller shareholdings for foreign
airlines. But that move will likely be blocked by opposition in
the Upper House of parliament, preventing it from becoming law.
CEO Joyce said the 5,000 job cuts, which have already drawn
threats of strike action from trade unions, would be across the
company, with pilots and cabin crew in the firing line. A wage
and bonus freeze for executives will be extended across the
Shares in Qantas, which have plummeted around 80 percent
from a high of A$6.03 in December 2007, were down 8 percent at
A$1.17 at 0430 GMT.
"The government guaranteeing Qantas financially is the most
sensitive question now in terms of market valuation," said Peter
Esho, chief market analyst at Invast Financial Services. "The
share price is unlikely to rise significantly until this is
announced and any rally might see sellers until this is
Qantas's underlying loss before tax - viewed by analysts as
the best measure of its performance - was A$252 million ($226
million) for the six months ended Dec. 31. That was in line with
the A$250 million to A$300 million loss the airline warned last
month it would report.
In the same period a year earlier, Qantas made a profit of
A$220 million, helped by a compensation payout for late delivery
of Boeing Co's Dreamliner jets.
The A$262 million loss in Qantas' international division was
greater than analysts anticipated, raising concern that an
alliance it signed last year with ambitious Gulf carrier
Emirates is not yet paying off. Meanwhile, Jetstar, its low-cost
Asian airline, has suspended the planned expansion of its
At home, Qantas did make a profit of A$57 million - but that
was just a quarter of the A$218 million it made the previous
Qantas complains that Virgin Australia retains the
international traffic rights and benefits of an
Australian-designated carrier even though it is effectively
foreign-owned - its major shareholders are Middle Eastern
carrier Etihad, Singapore Airlines and Air New Zealand
That access to foreign funding has allowed Virgin Australia
to undercut Qantas on fares and increase capacity in an already
overcrowded domestic market, even while making a loss itself.
Virgin Australia has said it expects to post a first-half
loss of A$49 million before tax, excluding large losses from
Tigerair Australia and other one-off restructuring costs, when
it reports its earnings on Friday.
By contrast, Air New Zealand, which owns just over a quarter
of Virgin, reported a 40 percent rise in first-half profit to
NZ$140 million as passenger numbers grew.
Another option for Qantas could be to sell its Frequent
Flyer loyalty programme. With almost 10 million members,
analysts estimate the business is worth as much as A$3 billion -
more than the airline's current A$2.7 billion market value.
Among cost-cutting measures, Joyce said Qantas would defer
receipt of the final three Boeing 787 Dreamliner jets it
ordered for budget arm Jetstar, as well as the eight remaining
Airbus A380s it has on order. The moves are part of a
plan to either defer or sell a total of 50 aircraft.
The airline has also agreed to sell a lease it owns at
Brisbane airport, raising A$112 million in cash.
Net capital investment will be reduced to an average of
A$800 million per annum over the next two financial years, a
total reduction of A$1 billion over the same period.
But Joyce said the company would continue to invest to
protect its competitive advantage, and defended those moves in
the domestic market.