The Qantas Group has announced a 3 year plan to accelerate its recovery from the COVID-19 crisis and create a stronger platform for future profitability, long-term shareholder value and to preserve as many jobs as possible. The airline’s A380s, which will be stored in the Mojave desert, won’t return until mid-2023, at the earliest. The remaining 6 Boeing 747s will be retired immediately, 6 months ahead of schedule.
“We’re parking the A380s for at least three years,” Qantas Group CEO Alan Joyce confirmed to media during a press teleconference (via Executive Traveller). Joyce said he doesn’t expect the Qantas’ international network to restart “in any real size from July next year”, with those flights led by Boeing 787 Dreamliner and Airbus A330 jets “to establish the network as fast as possible.” However, “the A380s have to remain on the ground for at least 3 years until we see those international volumes brought back”, Joyce said.
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 targets benefits of $15 billion over 3 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. The cost of implementing the plan is estimated at $1 billion, with most of this realised during FY21.
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’ 6 remaining 747s immediately, 6 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 Dreamliner fleet deliveries have been deferred to meet the Group’s requirements.
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.
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.