Qantas share price slumps on profit warning and job cuts

on Dec 5, 2013
Updated: Oct 21, 2019
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iNVEZZ.com, Thursday, December 5: Shares in Qantas Airways (ASX:QAN) plunged more than 15 percent today after the Australian carrier issued a surprise profit warning and announced 1,000 job cuts amid “immense challenges” in the aviation sector.

In a statement to the Australian stock market today, Qantas CEO Alan Joyce warned that the airline was headed for an underlying pre-tax loss of between A$250 million and A$300 million for the six months to December 31, following a “marked deterioration” in market conditions. Analysts had been expecting a pre-tax loss of $74 million in the first half of the financial year, while in the same period a year ago, Qantas reported A$223 million in profit.

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“The challenges we now face are immense,” Joyce said, adding that the growing domestic capacity, higher fuel costs and sluggish demand all take their toll on Australia’s number-one airline, forcing a fresh cost-cutting drive to save A$2 billion over three years. Measures will include 1,000 job cuts within 12 months, a pay cut for Joyce and the board, a pay freeze and no bonuses for executives as well as a review of spending with the airline’s top 100 suppliers.

The move follows a 300 job reduction due to the closure of Qantas’ heavy maintenance base in Avalon. Joyce declined to give a breakdown of the new job cuts, saying the carrier was consulting with the labour unions and workers.
***Unfair competition?***
Qantas has moved to turn around the performance of its long-haul business, largely through an alliance with Gulf carrier Emirates Airline, which has allowed it to cut back on poorly performing European routes and focus its attention on faster-growing Asian markets (Qantas’ Europe Bookings Rise Six-Fold on Alliance with Emirates).

Profits in Qantas’ domestic business are coming under increasing pressure as its main rival Virgin Australia Holdings (ASX:VAH), intensifies competition with the assistance of three major state-backed shareholders — Gulf carrier Etihad, Singapore Airlines and Air New Zealand. Last month, these shareholders injected A$300 million into Virgin Australia to further pursue its expansion in Australia, which Joyce complained was “designed to weaken Qantas”.

“Since early 2012, there has also been an unprecedented distortion of the Australian domestic market, with Virgin Australia’s strategy to seek majority ownership and massive financial backing from foreign government-owned airlines,” Joyce said. “The uneven playing field in Australian aviation is being tilted further. We cannot and we will not stand still in these extraordinary circumstances,” he added.
Current laws restrict foreign stakes in Qantas to 49 percent, with overseas airlines allowed to own just 35 percent. The company claims this puts it at a disadvantage to rivals such as Virgin Australia, which is not subject to the regulations.
Acknowledging that Qantas is in “regulatory handcuffs”, Australia’s Treasurer Joe Hockey last week last week called for a debate on the carrier’s future. Options being discussed include the abolition of the law, a government guarantee on Qantas debt and direct taxpayer investment of up to 10 percent in the airline. Joyce said however that the cost-cutting action being taken by the airline would go ahead regardless of the outcome of discussions currently underway with the government.
Shares in Qantas were down 11.2 percent at the close of trading today, after touching a 16-month low at A$1.01.
**As of Thursday, December 5, buy Qantas shares at A$1.08.**
**As of Thursday, December 5, sell Qantas shares at A$1.07.**

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