Wed "Sydney Morning Herald" 19/2/03
Qantas ready to demobilise
By Elizabeth Knight
February 19 2003
Qantas has devised a contingency plan should Iraq be invaded that will result in the airline removing up to 2500 staff from its workforce in order to minimise the impact on profits.
There has already been some movement in this direction with anecdotal reports that labour slimming has begun. Even the threat of war is beginning to affect forward international sales for Qantas, as it has for other international airlines.
Word is that the model Qantas has engineered puts the fall in passenger volumes at between 15 and 20 per cent should the shooting start.
Given the fact that Qantas - like all other airlines - has a high fixed cost base the impact on profit will be far greater.
To get some idea of these major events, Qantas lost $15 million before interest and tax from its international operation in the six months that included September 11, 2001. In the same period a year earlier it made $285.9 million.
It was able to redirect its staff and planes to domestic routes because September 11 coincided with the collapse of Ansett, so overall profits were still ahead. There will no such buffer this time if the war goes ahead.
Qantas will pull out all stops to cut costs to minimise the impact of the fall-off in volumes. Clearly, staff reductions are the easiest target.
After September 11 volumes on many of the international routes were back to normal within six months, but the number of US flights per week is still marginally down.
The airline experienced a similar reduction in volumes after the previous Gulf War. But with both September 11 and the first Gulf War, Australia was seen as something of a safe haven.
While air travel fell all over the world, Australia was viewed as removed from the conflict.
Thanks to PM John Howard's outspoken support of US aggression this cannot be said of this potential conflict. We have already been identified as a terrorist target - which does not help public confidence in the safety of our national airline.
How much Qantas chief executive Geoff Dixon can drag out of costs will determine how badly the airline will be damaged by war.
There are suggestions that $120 million to $150 million can be saved from labour costs.
But others say this is overly optimistic.
It all depends on whether this is a short, sharp war or a protracted engagement.
Qantas will try to extract some non-cash savings by asking staff across the board to take accumulated leave.
It won't actually save it any cash but will reduce the liability on its balance sheet. To get the real savings it will have to make real redundancies - although this move will result in a large, one-off cost.
Meanwhile, analysts predict Qantas will report a bumper profit on Thursday for the half to December of $490 million, pre-tax. This should provide it with the fat it needs to see it through a lean six months.
How long it takes to rebuild profit to the levels it has experienced over the December six months is mostly a factor of the length of the war - if, indeed, there is going to be a war.
The extent to which Qantas can rely on its buoyant domestic operations to offset a fall in international volumes is dependent on whether Singapore Airlines makes good its threats to start up a domestic service.
Suggestions that Singapore will tie up with Virgin are said to be incorrect. Clearly, if Singapore has Australian domestic plans they will not be put into effect until the issue of war is resolved.
The near domestic monopoly - and the total monopoly in the business market - has been a boon for Qantas. And Dixon has worked it masterfully.
But it has resulted in serious problems for its service levels. When its only competition is a discount airline it has been able to wade through complaints that extend from the lack of timely departures to a passenger being thrown a box containing a half frozen muffin as a refreshment.
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Pic: Qantaslink 717-200 VH-VQE airbourne from rwy 01 BNE.
http://www.jetphotos.net/viewphoto.php?id=868
Photo: Wirraway (Ian Sharp)