Qantas would reduce costs and create a war chest to see it through the next three years as it braces for lower travel activity after the coronavirus crisis for an extended time.
Qantas Share Price: The airline is reducing at least 6,000 jobs in all parts of the business and will have to stand down to accommodate a reduced flight network of 15,000 employees.
While part of its turnaround strategy, Australia’s flag carrier said it would ground at least 100 aircraft for up to 12 months and slash costs of $15 billion over the next three years. It is also collecting $1.9 billion in a share sale.
“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,” Qantas Group CEO Alan Joyce said.
“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.”
Qantas operated domestic capacity at just five percent of pre-coronavirus levels, which this week will rise to 15 percent following a relief in social restrictions associated with coronavirus. It plans to increase capacity by the end of July to 40 per cent.
It has however suspended all international flights until late October, except for services to New Zealand.
The airline had stood down two-thirds of their workforce in March, but announced 6,000 jobs will be permanently axed on Thursday.
Approximately 8,000 of the 29,000 workers in the company are scheduled to return to work by the end of July, which will eventually rise to about 15,000 by the end of 2020 as domestic constraints will ease.
When the international network expands, that will\ rise to 21,000 active workers by June 2022. Qantas said it expects a partial reestablishment of international flights by July 2021.
“We think this is a realistic plan. The domestic market will get back to maybe 70 per cent of pre-COVID levels in the next year but we think international will take a long time,” Mr. Joyce said over a media call.
It will offer voluntary redundancies to manage a surplus of approximately 6,000 roles and spend about $600 million on related payments.
The temporary surplus of about 15,000 is handled by a combination of stand-down, annual leave and unpaid leave, with stand-ups to rise as travel limits lift and flying returns.
Qantas Share Price: For the next three years, Mr. Joyce will remain in his position as Group CEO.
Qantas also said it will raise $1.9 billion through a share sale to help reinforce its balance sheet and position it to capitalize on future opportunities.
The share sale will consist of a $1.4 billion at $3.65 per share for institutional investors, a 12.9 percent discount on the closing price of $4.19 on Wednesday.
About $500 million to be provided for retail investors via a share-purchase program.
Shares in Qantas were placed in a trading halt pending sale of institutional shares.
Currently the airline burns $40 million in cash each week, Mr. Joyce said.
Combined with a $1.5 billion debt raise back in March, the current equity raise will help the airline reach 2023, he added.
Moreover, as a result of the coronavirus epidemic, the company has said it expects a $2.8 billion hit in its full-year accounts.
Qantas Share Price: The largest proportion of that will be a non-cash asset impairment fee of between $1.25 billion and $1.4 billion to write off the value of the A380 aircraft fleet ‘s international long haul.
Qantas also expects restructuring or redundancy-related costs of $600 million to $700 million and lower fuel consumption costs of another $550 million to $600 million in a fuel hedging-related expense.
This expects the non-executive staff to pay $200 million in transformation expenses and discretionary compensation.
As a result, the Qantas Group expects full-year recording of a modest underlying profit before tax, but has removed the interim dividend it postponed in March.
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