Qantas today announced a total operational and staffing overhaul – “rightsizing” all aspects of its operation to reflect anticipated long-term reduced demand.
It’s part of a three year strategy to “guide recovery and return to growth in a changed market”. All details contained in following media release:
QANTAS GROUP ANNOUNCES POST-COVID RECOVERY PLAN AND EQUITY RAISING FOR A STRONGER FUTURE
- Costs reduced by $15 billion during three year period of lower activity; $1 billion in ongoing cost savings per annum from FY23.
- Around 100 aircraft to be grounded for up to 12 months; some for longer.
- Job losses and extended stand downs to manage long period of reduced flying (especially internationally).
- Equity raising of up to $1.9 billion to accelerate recovery and position for new opportunities.
- Approximately $1.4 billion fully underwritten institutional Placement and up to $500 million non-underwritten Share Purchase Plan.
- Issue price for new shares under the Placement of $3.65.
- Pro forma liquidity of $4.6 billion following completion of the underwritten Placement and before the SPP proceeds, with $3.6 billion of cash and $1.0 billion of undrawn facilities.
The Qantas Group has announced a three year plan to accelerate its recovery from the COVID crisis and create a stronger platform for future profitability, long-term shareholder value and to preserve as many jobs as possible.
The immediate focus of the plan is to:
- Rightsize the Group’s workforce, fleet and other costs according to demand projections, with the ability to scale up as flying returns.
- Restructure to deliver ongoing cost savings and efficiencies across the Group’s operations in a changed market.
- Recapitalise through an equity raising to strengthen the Group’s financial resilience for recovery and the opportunities it presents.
Subsequent phases of the plan focus on the increasing ramp up of flying and pursuing new opportunities – including the airline’s ambition for more non-stop international flights.
The plan is designed to account for the uncertainty associated with the crisis, preserving as many key assets and skills as the Group can reasonably carry to support the eventual recovery. COVID represents the biggest challenge ever faced by global aviation and the Group’s response to the crisis is scaled accordingly. This unfortunately means a large number of job losses across Qantas and Jetstar.
The plan targets benefits of $15 billion over three years, in line with reduced flying activity including fuel consumption savings, and delivering $1 billion per annum in ongoing cost savings from FY23 through productivity improvements across the Group. Key actions of the plan include:
- Reducing the Group’s pre-crisis workforce by at least 6,000 roles across all parts of the business.
- Continuing the stand down for 15,000 employees, particularly those associated with international operations, until flying returns.
- Retiring Qantas’ six remaining 747s immediately, six months ahead of schedule.
- Grounding up to 100 aircraft for up to 12 months (some for longer), including most of the international fleet. The majority are expected to ultimately go back in to service but some leased aircraft may be returned as they fall due.
- A321neo and 787-9 fleet deliveries have been deferred to meet the Group’s requirements.
The cost of implementing the plan is estimated at $1 billion, with most of this realised during FY21.
Announcing the plan Qantas Group CEO Alan Joyce said: “The Qantas Group entered this crisis in a better position than most airlines and we have some of the best prospects for recovery, especially in the domestic market, but it will take years before international flying returns to what it was.
“We have to position ourselves for several years where revenue will be much lower. And that means becoming a smaller airline in the short term.
“Most airlines will have to restructure in order to survive, which also means they’ll come through this leaner and more competitive. For all these reasons, we have to take action now.
“Adapting to this new reality means some very painful decisions. The job losses we’re announcing today are confronting. So is the fact thousands more of our people on stand down will face a long interruption to their airline careers until this work returns.
“What makes this even harder is that right before this crisis hit, we were actively recruiting pilots, cabin crew and ground staff. We’re now facing a sudden reversal of fortune that is no one’s fault, but is very hard to accept.
“This crisis has left us no choice but we’re committed to providing those affected with as much support as we can. That includes preserving as many jobs as possible through stand downs, offering voluntary rather than compulsory redundancies where possible, and providing large severance payouts for long serving employees in particular.
“As we’ve done throughout this crisis, our decisions are based on the facts we have now and the road we see in front of us. Our plan gives us flexibility under a range of scenarios, including a faster rebound or a slower recovery.
“Despite the hard choices we’re making today, we’re fundamentally optimistic about the future. Almost two-thirds of our pre-crisis earnings came from the domestic market, which is likely to recover fastest – particularly as state borders prepare to open. We have the leading full service and low fares airlines in Australia, where distance makes air travel essential, and diversified earnings through Qantas Loyalty.
“We still have big ambitions for long haul international flights, which will have even more potential on the other side of this.
“As a business, recapitalising means we can get ready sooner for new opportunities, returning to profit and building long term shareholder value. As the national carrier, we remain committed to supporting tourism, connecting regional communities and safely flying millions of people every year.”
The Board has today announced that the Group will seek to raise up to $1.9 billion, comprising of a fully underwritten institutional Placement to raise approximately $1,360 million and a non-underwritten Share Purchase Plan for eligible existing shareholders to participate of up to $500 million.
Proceeds from the Equity Raising will be used to accelerate the Group’s recovery, strengthen its balance sheet and position it to capitalise on opportunities aligned with its strategy.
The Placement issue price of $3.65 per share represents a 12.9% discount to the last traded price of $4.19 on 24 June 2020.
The approximately 372.7 million new fully paid ordinary shares issued under the Placement represents a 25% increase to total shares on issue – which itself has decreased by more than a third through share buybacks in recent years.
IMPACT ON OUR PEOPLE
Of the Group’s 29,000 people, around 8,000 are expected to have returned to work by the end of July this year. It’s anticipated that this will increase to around 15,000 by the end of calendar year 2020 in line with the opening up of domestic flying, and increase further during calendar 2021 and 2022 as the international network returns, reaching 21,000 active employees by June 2022.
Redundancies are proposed to manage a surplus of around 6,000 roles, with the temporary surplus of around 15,000 managed through a mix of stand down, annual leave and leave without pay.
Stand-ups will increase as travel restrictions lift and flying returns. This allows the Group to preserve as many jobs as possible for the longer term and respond faster if recovery timelines improve.
In line with its obligations, the Group will consult with relevant unions on the proposed job losses announced today. These span the following areas of Qantas and Jetstar:
- Non-operational – at least 1,450 job losses, mainly in corporate roles, due to less flying activity.
- Ground operations – at least 1,500 job losses across airports, baggage handling, fleet presentation and ramp operations due to less flying activity.
- Cabin crew – at least 1,050 job losses due to early retirement of the 747s and less flying activity. A further 6,900 cabin crew will be on stand down from July 2020 onwards.
- Engineering – at least 630 job losses due to 747 retirement, less flying activity (particularly of the wide-body fleet) and redistribution of work from Jetstar’s Newcastle base to make better use of existing maintenance capacity in Melbourne.
- Pilots – at least 220 job losses mostly due to early retirement of the 747s. A further 2,900 pilots will be on stand down from July 2020 onward.
Additional reduction in total roles will result from contractors, particularly in corporate areas such as IT, not returning.
While most of the Group’s long-haul aircraft are expected to steadily return to service over time, there is significant uncertainty as to when flying levels will support its 12 Airbus A380s. These assets will be idle for the foreseeable future, which represents a significant percentage of their remaining useful life. As a result, the carrying value of the A380 fleet, spare engines and spare parts will be written down to their fair value, resulting in an estimated non-cash impairment charge in the FY20 statutory result. This represents the majority of the asset impairment charge of $1.25–$1.4 billion, outlined in the table below. As a consequence of the writedown, future depreciation expenses will reduce.
The Group’s fuel was fully hedged for the second half of FY20, and 90% hedged for the first half of FY21. With the significant decline in flying activity, the Group’s overall capacity flown has resulted in a substantial reduction in fuel consumption from April 2020 and the anticipated decline in consumption to June 2021 will lead to the non-cash recognition of hedge ineffectiveness of $550–$600 million in the FY20 statutory result.
FY20 FINANCIAL PERFORMANCE
After reporting a strong Underlying Profit Before Tax of $771 million in the first half of FY20, the Group saw a significant reduction in revenue during the second half. By taking swift action to reduce its cash burn as travel demand evaporated, the Group expects to report a full year result between breakeven and a small Underlying Profit Before Tax.
Qantas Loyalty is expected to make the largest positive contribution to this result, with only a 5%–10% reduction in earnings compared to FY19 as a result of the impact of COVID on travel related products and credit card spend. The program continues to see strong levels of engagement, with a range of initiatives planned over the next six months to maintain and improve its value to members and partners.
Qantas Freight performed strongly, driven by major increases in ecommerce that are also expected to continue.