* H1 loss, job cuts highlight Australian carrier's woes
* A$2 bln savings target as CEO seeks state assistance
* Debt guarantee, law change could bring breakthrough
By Jane Wardell
SYDNEY, Feb 28 Whether through error or
circumstance, Qantas Airways Ltd's spectacular fall
from grace is giving chief executive Alan Joyce his best chance
of steering the airline toward long-term salvation.
Joyce has called on the Australian government to help the
national flag carrier in its hour of need. If
Canberra is convinced Qantas is in peril, it may have little
option but to abandon decades of resistance and provide state
The executive needs little help making a convincing case:
losses from a domestic price war and international competition
are piling up; Qantas is now worth only half what it was when
Joyce took the helm in 2007; and its credit rating is now junk
across the board.
The A$2 billion cost savings and 5,000 job cuts Joyce
announced on Thursday represent the airline's most radical
shake-up since it was privatised in 1995.
As yet, Prime Minister Tony Abbott appears unmoved by
Joyce's plea for the government to offer a debt guarantee that
would lower Qantas's costs. A change in laws to allow more
foreign investment to flow into Qantas, as it has done to rival
Virgin Australia Holdings Ltd, is a longer-term
Yet Qantas still has plenty of cash to keep it afloat
pending changes, as well as inevitable disputes with trade
unions over cutting 15 percent of the carrier's workforce.
As Joyce's calls for state support grow louder, so too does
criticism of the way he has run the airline. The spotlight on
his management has spurred some to call for his resignation.
"The only way for Qantas to get out of this nosedive is for
Alan Joyce and the board to resign," said lawmaker Nick
There's no sign of that happening. The Irish-born executive,
47, promoted from Qantas's low-cost Jetstar unit seven years
ago, likes to say that the struggling carrier is fighting
lavishly funded competitors "with one hand tied behind our
back", citing the unfettered foreign funds provided to Virgin
Australia and others.
The law authorising Qantas's privatisation contains a
provision that foreign investors may not hold more than 49
percent of the company: Though officially a domestic airline,
Virgin Australia is nearly two-thirds owned by non-Australian
carriers - Etihad, Singapore Airlines and Air New
Zealand - whose investments have provided funds for
Others say Qantas' troubles rest squarely with the airline -
and in part with Joyce himself.
Analysts point to what they say are a number of key errors
by Joyce, notably the fight to retain Qantas's share of an
already crowded domestic market and the failure to get proper
lift-off for low-cost subsidiary Jetstar.
"Alan Joyce came from Jetstar, his performance in Jetstar
was pretty good, but Jetstar is a cheap airline and the cheap
airlines were quite popular during the global financial crisis,"
said Biyi Cheng, head of Asia Pacific dealing at City Index.
"Since he took over the role at Qantas I haven't seen too much
improvement for the company structure or commercial plans to
improve the revenue."
Joyce has dug in his heels in the Australian market,
spending on planes and staff to keep Qantas' domestic market
share at 65 percent or above. That has locked the airline in to
a deeply unprofitable price war with Virgin Australia.
Joyce defended that strategy on Thursday after unveiling
A$252 million ($226 million) for the six months ended Dec. 31.
The domestic arm remained profitable but earnings of just A$57
million were a quarter of the A$218 million it made the previous
"We are very clearly protecting our position in the domestic
market," he told reporters, noting Qantas's dominance of flight
schedules gave it a significant advantage. "It would be remiss
of us to weaken that product in any way," he added.
Joyce does have supporters, who credit him with decent
stewardship through competitive times in the Asian airline
business, the most attractive in the world with passenger
numbers growing faster than in any other region.
"I think Joyce has done a solid job," said Geoff Wilson at
Wilson Asset Management. "It's a lot easier when you are running
a company and things are going forward. I don't necessarily
think he's the wrong man for the job."
Still, analysts say, the brand was weakened in an incident
in 2011 when Joyce grounded the entire airline in an attempt to
win an industrial dispute, stranding passengers and creating
headlines around the world.
The incident cost shareholders some A$70 million and allowed
Virgin Australia, under the stewardship of Joyce's former rival
for the top Qantas job, John Borghetti, to ramp up its business,
adding lounges and routes and building up an international
The A$262 million first-half loss in Qantas's 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.
"The leakage out of the international business is really
surprising and we think that Qantas will find it very hard to
articulate how it plans to stop this," Peter Esho, chief market
analyst at Invast Financial Services.
Meanwhile, the Jetstar brand, launched 10 years ago, has
sputtered after its strong start amid well-leveraged
competition. Jetstar recorded a pre-tax loss of A$16 million for
the six months to Dec. 31 compared with a A$128 million profit
the previous year, largely blaming regional operation Jetstar
Asia for the result.
Joyce said Jetstar Asia had suspended further expansion
until market conditions improved. At home, Jetstar is competing
with its parent as well as Virgin.
"Expansion into Asia is a long-term plan and it doesn't seem
like it is paying off anytime soon," Invast Financial's Esho
The change to a law dating back to Qantas's privatisation
that restricts how much money foreign investors can put into the
carrier would make a significant difference.
Prime Minister Tony Abbott has suggested he is in favour of
amending the Qantas Sale Act privatisation legislation, to lift
the current 49 percent foreign ownership limit, as well as alter
restrictions on smaller shareholdings for foreign airlines.
Such a move may be some time coming. It will require the
government to win over the major opposition parties which have
vowed to block any bill in the Upper House of parliament,
preventing it from becoming law.
Still, if the opposition is eventually won over, Joyce and
his management team will score a big win.
Relaxing the foreign ownership rules, as well as providing a
potential direct funding injection, would allow the capital-
intensive group to move offshore, outsourcing parts of its
($1 = 1.1159 Australian dollars)
(Reporting by Jane Wardell; Editing by Kenneth Maxwell)