QANTAS will slash 5000 jobs from its workforce after posting a $235 million half-year loss.
The $2 billion in savings will see the airline cut the full-time equivalent positions across its operations in a bid to return to savings.
The airline posted an underlying before tax loss of $252 million for the six months to the end of December.
The result was only slightly better than the worst forecast of up to $300 million.
The announcement comes on the same day that Air New Zealand announced a big increase in its profit.
Qantas chief executive Alan Joyce says the result is unacceptable and the airline will accelerate its previously announced 'transformation program', targeting $2 billion in cost savings by financial year 2016/17.
This program will involve a reduction of 5,000 full-time equivalent positions out of more than 30,000 staff currently employed by Qantas.
Qantas says it will also cut capital expenditure, such as on purchasing new aircraft, by $1 billion over the next two financial years.
• Underlying PBT loss: $252 million
• Statutory Loss After Tax: $235 million
• Yield1 excluding FX down 3%
• Revenue: $7.9 billion, down 4%
• Underlying fuel costs excluding FX impact: $2.3 billion, up 3%
• Comparable unit costs down 2%
• Liquidity: $3 billion
Qantas says the loss reflects fundamental changes in the Australian aviation market, with a significant deterioration in earnings during the half.
"We are facing some of the toughest conditions Qantas has ever seen," Mr Joyce said in a statement released on Thursday.
"Australia has been hit by a giant wave of international airline capacity, with a 46 per cent increase in competitor capacity since 2009 - more than double the global increase of 21 per cent over the same period.
"The Australian domestic market has been distorted by current Australian aviation policy, which allows Virgin Australia to be majority-owned by three foreign government-backed airlines and yet retain access to Australian bilateral flying rights.
"Late last year, these three foreign-airline shareholders invested more than $300 million in Virgin Australia at a time when, as Virgin Australia reported to the ASX on 6 February, it was losing money. That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses.
"Qantas has been undertaking its biggest ever transformation over the past four years, cutting comparable unit costs by 19 per cent over four years, but this is not enough for the circumstances we face now.
"With structural economic changes being exacerbated by the uneven playing field in domestic aviation, we must now take actions that are unprecedented in scope and depth.
"We will accelerate our Qantas Transformation program to achieve $2 billion in cost reductions by FY17. Hard decisions will be necessary to overcome the challenges we face and build a stronger business."
Summary of Results (from Qantas)
Qantas Domestic reported Underlying EBIT1 of $57 million, down from $218 million in 1H13.
Competitor capacity growth in the domestic market continued to outpace Qantas Group capacity growth, as it has since FY12. At the same time, demand was lower than market growth, putting pressure on yields and passenger loads.
Overall, the total domestic profit pool has shrunk from more than $700 million in FY12 to less than $100 million in 1H14.
During this period the Virgin Australia Group added 4.5 billion Available Seat Kilometres (ASKs), compared to 4.3 billion ASKs added by the Qantas Group.
A softening resources market, corporate account pricing pressure, and fuel and foreign exchange impacts also affected the Qantas Domestic result.
Despite the challenging market conditions, Qantas Domestic continues to deliver outstanding service, earning record customer advocacy. It was the most punctual major domestic airline in 12 out of 12 months during 2013, while its ongoing fleet renewal program helped reduce unit costs and improve the customer experience.
Qantas Domestic remains the airline of choice for business travellers, holding more than 80 per cent of the corporate market by revenue in the half.
Qantas International reported an Underlying EBIT loss of $262 million, compared with a loss of $91 million in 1H13.
The trend of intense competitor capacity growth in the Australian international market continued in the half. Total international market capacity growth for FY14 is expected to be 9 per cent, well above the global average, resulting in particularly strong yield pressure for Qantas' Asian and European markets.
Qantas International made continued progress in reducing comparable unit costs (by 4 per cent in the half) and maintained record customer advocacy.
However, the lower Australian dollar has meant higher fuel costs, with a significant impact on the long-haul sectors flown by Qantas International.
The Jetstar Group reported an Underlying EBIT loss of $16 million, down from an Underlying EBIT profit of $128 million in 1H13.
Competitive pressure on yields (especially in South East Asia), a $29 million share of associate losses, and fuel price and foreign exchange impacts were the main factors behind the result. Jetstar's domestic operations in Australia remained profitable.
The fundamentals of Jetstar's low-cost carrier model remain strong, with a 2 per cent improvement in unit costs1 and increased ancillary revenue1 during the half, and customer advocacy is at record levels. The introduction of the B787-8 into Jetstar's long-haul network is delivering cost and customer service benefits.
Qantas Loyalty reported Underlying EBIT of $146 million, a record result , up from Underlying EBIT of $137 million in 1H13.
The business continues to perform very strongly, with billings up 9 per cent in the half, three million awards redeemed and record customer advocacy. There are currently 9.8 million Qantas Frequent Flyer members , with a target of 10 million for the full year.
Qantas Loyalty's growth initiatives are exceeding expectations, with a positive customer response to both the new Qantas Cash member card and the AQUIRE small-to-medium enterprise loyalty platform.
Qantas Freight reported Underlying EBIT of $11 million, down from $22 million in 1H13, in the context of reduced capacity, consolidation and a weak global cargo market.
Financial Position and Capital Expenditure
Qantas has strong liquidity of $3 billion, comprising $2.4 billion in cash and $630 million in undrawn debt facilities, as at 31 December 2013. There are no major unsecured debt maturities until April 2015.
Approximately 30 per cent of the Qantas Group's passenger fleet is debt-free.
The Group has added 31 new unencumbered aircraft since FY10, including seven added in the first half of FY14. Twenty mid-life aircraft become debt-free in FY14.
The Group's average passenger fleet age is 7.6 years, the youngest in two decades.
Capital expenditure in FY14 is weighted to the first half, with $900 million invested in the six months to 31 December 2013 and a further $300 million planned for the second half.
Following the review launched in December, planned capital investment has been aligned with financial performance, with a total reduction of $1 billion over FY15 and FY16.
Capital expenditure in FY15 and FY16 will be $800 million in each year, including movements in operating lease liabilities1, while the Group maintains flexibility to make further changes if needed.
The Group's 2H14 operating environment remains very challenging and volatile. Soft underlying domestic demand is continuing in the seasonally weaker half, with domestic and international yields and loads expected to remain depressed.
The Group's current operating expectations are as follows:
• Group capacity to increase by 3-3.5 per cent in 2H14 compared to 2H13.
• Group domestic capacity to increase by 3-4 per cent in 2H14 compared to 2H13, while maintaining flexibility.
• Underlying fuel costs expected to be approximately $4.6 billion in FY14.
No Group profit guidance can be provided at this time due to major transformation being undertaken by Qantas, the high degree of volatility and uncertainty in the competitive environment, global economic conditions, fuel prices and foreign exchange rates.
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