New cost cuts for Qantas

[Wirraway]

Fri "Courier Mail"

New cost cuts for Qantas
Geoff Easdown
25jul03

QANTAS staff were last night warned to expect a new round of savage cost-cutting to shore up the future of the nation's flag carrier.

The move is almost certain to result in further cutbacks.

They will follow the 1500 redundancies the carrier announced three months ago to overcome the economic crisis confronting world airlines.

Managing director Geoff Dixon said Qantas would trim $1 billion off capital expenditure during 2003-04, and operational costs would be cut by a further $1 billion over the next two years years.

The carrier's 35,000 workers and their unions would have to understand that Qantas had to introduce more efficient work and rostering practices, Mr Dixon said.

Work, presently done in-house, would be contracted out.

More fixed term and casual employees would also find jobs with the airline, he signalled.

Announcing the new measures in Perth, Mr Dixon said: "We either make the changes and make them quickly or face the prospect of shrinking market share and loss of jobs."

And he added: "I do not want to underestimate or trivialise the impact that change will have on our employees, or the challenges that this poses for unions."

Mr Dixon's strong words about how Qantas would operate in the new era of tightened airline budgets were also directed at the Howard Government and the existing restriction on injections of foreign capital.

"The notion that Qantas operates in a competition-free world and will remain unaffected by severe regulatory penalties like limitations on access to foreign equity capital is just plain wrong," said Mr Dixon.

"Similarly, any feeling that Qantas should continue to operate in an inflexible and old-fashioned way, commensurate with its icon status, is misguided and dangerous."

He said that unlike its competitors Qantas did not have access to bankruptcy protection, government ownership shelters or the luxury of no-frills flexible operating arrangements.

Mr Dixon said that "some people think Qantas is impregnable, and will survive no matter what".

"This simply is not true," he said, adding that the airline had to address challenges and ensure it had a sustainable future.

Qantas, like all other international airlines, suffered a severe cutback in passengers because of the war in Iraq and from the outbreak of severe acute respiratory syndrome in its prime markets in Asia.

The passenger falloff, down 6.1 per cent in May to 69.8 per cent, is expected to result in a second-half loss when the carrier's annual results emerge next month.

Mr Dixon said it needed to be understood that almost 30 per cent of Qantas's total costs were labour costs.

Qantas shares fell 2 per cent or 7¢ to $3.12 yesterday.

===========================================

AAP

Qantas in vulnerable position: analyst

Australia's flagship airline Qantas Airways Ltd is in a vulnerable position at present, a major broking house said.

Merrill Lynch warned in a report that the airline was facing increased competition for its core franchise markets.

"Qantas is arguably facing its biggest challenge in recent history," the report stated.

Merrill Lynch warned that Virgin Blue "has been relentlessly winning market share" and could become a full-service product "if not stopped now".

Competition was also likely to increase on Qantas' international routes.

"Equally, incumbent international airlines are facing their greatest historical challenge while others are looking to rapidly build a global network," the report said.

The broking group added that, while it believed Qantas could respond to the heightened competition, the issues posed significant risks to investors, therefore it retained a neutral recommendation on the stock.

Merrill Lynch said the airline would have to immediately lower operating costs by 10-15 per cent in order to compete on costs and regain leadership in its key markets.

"We believe a cost cut of this magnitude is possible by aggressively re-engineering both its labour practices and its fleet configuration," it said.

Earlier this week, Qantas said international traffic, measured in revenue passenger kilometres (RPK), slumped by 18.7 per cent in May compared to the same time last year.

The number of international passengers fell 18.5 per cent to 530,000 while domestic patronage rose half a per cent to 1.3 million.

Total passenger numbers fell 6.2 per cent to 2.1 million, from 2.3 million in May 2002.

However, for the 11 months to the end of May 2003, the airline's total passenger numbers were 26.7 million, up seven per cent on the same period for the 2001/02 fiscal year.

Qantas shares closed down seven cents at $3.12.

=========================================

[Thunderbox]

These management people go on like cracked records. Structural reform, cost cutting, outsourcing etc. etc. Sounds great at the press conference, and all the middle management types with their MBA's must swoon every time they hear this stuff.

Meanwhile at QF millions are being spent on upgrading the small fleet of classics, whilst new aircraft orders are deferred... a short term strategy if ever there was one. Still, as long as those executive bonus's keep on coming, it doesn't matter what happens in five or ten years time because these genius's will be long gone. :*

[Chocks Away]

Here, here Thunderbox!:D

...economic crisis confronting world airlines ...
:} sure, the advent of Low Cost operators has changed the scene but when you tie Thunderboxs' comments with this report : U.S./Aust report bags Managers (http://www.pprune.org/forums/showthread.php?s=&threadid=97145)
it becomes all too obvious.:yuk:

[engine out]

Have heard from reliable sources that the new round of cutbacks will include tech crew, whether voluntary redunaces, leave of abscense, or retrenchments has not been decided. Flew six sectors over the last few days and every one was full with staff travel on jump seat or left behind so domestic yields can't be that bad.

[sprucegoose]

Well the domestic LOADS may not be bad but the yield could be sh!thouse. don't assume a full seat pays for itself.

[MoFo]

If 100% load factor 12 months ago was making a big profit,( see last years profit) why does 100% load factor now suddenly mean your not making a profit. By 100% I mean you have numerous domestic flights oversold at present, and turning customers away.
If you can't make a profit from full aircraft your in the wrong business.
Methinks one Mr Dikko has an agenda here that may not be the obvious one.

[Kaptin M]

How about making #1 on the "savage cost-cutting" agenda the ABOLITION of the ludicrous "performance bonuses" paid to management!
Pay THEM a set fee for the job that they are EXPECTED to do - if they don't, then replace them.

Other staff aren't paid extra when they achieve above expected quotas eg. the check-in staff who processes 120/hr instead of 60...the baggage handler who lifts more than 25kgs, or loads more than the usual number of pieces of luggage...the pilots who save fuel, or arrive early.

The number and cost of management in most airlines is WAY higher than it has been in the past, when airlines operated profitably!
Has anyone stopped to think that THAT may be the REAL CAUSE of so many airlines fighting for financial survival these days??!!
Management GREED.

[Col. Walter E. Kurtz]

Kaptin - here here

[CI300]

Its not a social club any more,
the QF cost base is to high to be competitive.

[Patriot One]

You're all right - the QF cost base is too high to be competitive. It's worse than Ansett's was and it will be a long road down to a competitive level.

But remember, VB's is creeping up all the time. QF has a massive International operation to off-set its domestic costs, and as long as it has good performance and growth Internationally QF will be able to survive a lot longer than most and in the meantime Dixon will focus on strategies outside of the commercial environment to a) cut costs and b) keep the opposition at bay. This guy has the handle "junkyard dog" for a very good reason.

The worry for you fella's and gals at VB is that your costs are creeping up considerably given the massive growth that you have undertaken, which is way way outside of the original business plan. The first mistake in low-fare carriers is to forget your business plan - and they have. New computer systems, inefficient layers and layers of staffing in administration and management, and a stumbling, demented engineering structure in the management levels. An overstretched schedule, unproductive crew rosters, and now an international schedule is the final straw. One puff of wind and the house of cards will come tumbling down.

Before you all jump on me for being anti-VB there is a very good example of what I am saying right here in Australia - Ansett. Costs got out of control, inefficient and ineffective management strategies, a defensive union, a sense of confusion, an airline more suited to tactical response than future strategy. All it took was a small airline entering into the market and destabilising yields and Ansett came down like a tonne of bricks and you know there was no stopping it once it was falling.

VB is right now in the same boat. Very successful in the status quo. No-one to challenge, a cosy duopoly and yields are better than originally planned. It will not take much to destabilise it.

Undoubtadly I will be attacked for this perception. Before you do, take one look at your management and the other signs I indicated above. Those of you that are ex-QF or ex-AN, or ex-another airline...do you feel that your management have avoided all of the issues that dogged you where you were?

Its just more of the same...

[thumpa]

thunderbox, patriot etc

Why dont you big know it all pricks go and run an airline

[Disco Stu]

thumpa

Now that would be a worry:confused:

In my politest way I ask you not to make such a suggestion.


Disco Stu:sad:

[Next Generation]

THUMPA has made a very good point.

If all these self-proclaimed experts had abilities half as developed as their ego's, they would be out there getting things done instead of sitting here playing with themselves and criticising everybody else who is actually out doing something.

Try turning the computer off occassionally and get outside into the real world.

Just my two cents worth.

[Reverend Doctor Doug]

Patriot One

Let me get this right.

You're saying that Richard Branson, having started 3 airlines, all hugely successful, one having taken on the might of BA (when it was mighty) and beaten them.

Started dozens, if not hundreds of other successful businesses, enough of which have been successful to make him a billionaire, all with a business theory that he has held for over 30 years, will now all of a sudden lose direction because his one tiny airline in Australia is hugely successful.

I dont think so!

Rev

[Chocks Away]

...and further more, wake up and smell the coffee!:}
QF has a massive International operation to off-set its domestic costs ... WHAT?

Who the heck has been pulling your brand out of the mire, while the fat cats on International have had airframes parked up??? DOMESTIC AND REGIONAL!!!:}

"Massive International Operation..." PLEASE, look outside the square!
Need I say Emirates, Virgin Atlantic and the sleeping giant SQ!?

[mjbow2]

thumpa...

these know it all pr1cks as you call them never said they could or wanted to run an airline! they are entitled to their opinion right or wrong.....

when a pilot signs on to a job he/she is saying they can do the job being asked of them. Same with mechanics etc. When we make mistakes we take the ultimate punishment....casa takes our license and hence livelyhood......

CEO's baord members and management at all levels by virtue of their positions have said "I can run this airline".....

so when they f0ck it up they deserve the critisism. God forbid they only get voted off the baord with a golden parachute.....livelyhood in tact!

[balance]

Just remember guys, you can criticize QF all you want, but don't ever touch VB, lest the net nazi's smite you!

Good grief.

P1. Whilst we don't necessarily agree with everything that your posts describe, at least your scribbling is an interesting read. And you don't attack the man, which cannot be said for some around here. Keep it up.

[Patriot One]

You know what is really disappointing here is that about 90% of the replies dont even address the bigger issue of the discussion but moreover focus on a single comment.

Whether you believe it or not QF's International operation has kept them alive and profitable. Sure there was a downturn because of Global events, and they had the subsequent balance of a collapsed Ansett to re-deploy that capacity. Worked out for them - no brilliant strategy, just a beautiful (tragic) coincidence. Start thinking in years and not months or the conversation goes nowhere.

Regarding RB - I find it extraordinary that you simply do not understand this man's professional reputation. On the eve of the SQ bailout of Virgin Atlantic they were about to miss a $U400million debt payment - SQ's purcahse of 49% saved VA from administration. RB is a clever bastard - he gets out intact and leaves the companies he runs in a mess. This is not my opinion this is fact - read financial industry commentary on him. Further, VA was unprofitable for te first 10 years of its life and he used the record label revenues to bail it out. This is a clever con man, but nothing more.

I don't understand half the people on this site. You're here to comment and talk and discuss, and yet the moment someone raises a topic that you're ignorant on you just get insulting. Why don't you just go out and get better read so you actually contribute to a discussion....there is a bigger world outside of the confines of a cockpit.

[Pete Conrad]

Well said patriot one. I don't think VB have to worry about anything. They have the best prospects for expansion and at the end of the day, people are just going to have to accept the fact that SQ will come in behind them, and they will have REX as regional feed.

It's with this knowledge I think Geoff Dixon is trying to get his cost base down.

Australia will eventually end up with two and a half airlines. A lean SQ backed VB with regional feed and two class service and international flying and a "hopefully" leaner QF.

Lets hope that not many people get hurt in all of this.

[Echo Beech]

good old Dick Smith forcast the fall of Ansett followed by the fall of Qantas. Unless they do something they will crumble.

I have a choice of flying A to B company A will charge me $100 company B will charge me $80 but not serve me a meal. Mmmm lets see do I want crappy airline food, NO ok I'll go the $80 jobby.

Company A pays its captains $100 dollars to do a flight, the other company pays its captains $80 dollars to do the same flight.
Mmmmm lets see who is coming out in front??

Unless company A can reduce its expenditure to the compete with company B, then eventually, and it may not happen over night but eventually company A WILL go down. The paying public will pay less for a fare no matter what.

Wake up and smell the daisies. Qantas is way to fat with management it does not need and pays its crew way too much. I'm not saying it should not pay its crew that much but in reality the fat guys will cause the fall of the big company

[oicur12]

Echo beech.

So that explains why BMW are no longer in business huh. Undercut by Hyundai.

People will always pay a premium for better quality/service.

Full service flying is always going to be around but it will be in a reduced form - the larger outfits will be no frills in the future.

[huan hung lo]

Echo Beech

According to your misguided ramblings and flawed mathematical reasoning, all that QF have to do is remove the meal service from the equation to go broke as slowly as VB would.

Load factors are not a problem with either mob. So with your superb mastery of numbers the yields are just as bad for both airlines.

Your not exactly a mental giant so the rest of us won't loose any sleep over your predictions.

Chow.

[Three Bars]

P1 raises an interesting point that I too have been thinking about now for a while.

If VB are serious about chasing the business market, is it possible that they might have to be prepared to provide some of the same perks that QF have had to do. That is, provide better seats, inflight meals, lounges separate from the great unwashed, etc.

Might those gorgeous young things who make cutesy PAs have to be trained to provide proper meal service? Might they then grow tired of doing more work (including cleaning the aircaft - much dirtier when meals are involved) for the same amount of pay?

Might the pilots, engineers and other staff who see the company making a disproportionately large profit out of their undervalued work (compared to QF) decide that it's time for VB to pay back some of their efforts through higher wages?

Might the requirement to pay rental on first class gate facilities become more expensive as privatised airports seek to increase their profits? Might the requirement to run their own simulators become increasingly more expensive as the airline expands?

In other words - is it just possible that VB's costs may start to rise as QF seeks ways to cut their costs?

On a slightly different theme, we at QF have now been told that there is a staff travel backlog for people trying to travel - particularly in Europe and LA. So maybe we have turned the corner (post-SARS, Iraq) before the scaremongering of QF's imminient demise has had its desired affect of scaring the unions into considering pay cuts.

[Echo Beech]

huan hung lo

yea right pick the bits you want to reply to and ignore the rest, go bury your head in the sand mate. Either quote the entire post and make intelligent comment or....

cheers to you to :yuk:

Its not about food its about good quality cheap airfares.

As for the BMW analogy, you can't compare Qantas and Virgin with BMW's and Hyundai's that really is a poor comparison. BMW's target a totally different market than the common car class.

Please if you are going to flame someone make it a good one sheesh

[huan hung lo]

Echo Beech,

Getting a tad hot under the collar champ?

You carry on about how QF pays its crews too much and as justification you come up with a piss poor comparative argument that barely meets kindy level economics!

If you are inclined to have a dig at QF pilots wages mate then you are gonna have to come up with something substansive accurate and economically sound.

Otherwise me old boy your pissing in the wind!

[Echo Beech]

huan hung lo


Mate never said they were getting paid too much, infact they may be getting paid way too little. I'm just stating facts unlike you who seems to be getting hot under the collar?

All I'm saying is company A pays pilots a certain wage company B pays pilots a smaller wage, lots of people per week makes a lot more money company A has to put out. Tell me were my logic is flawed?

Over time this will take an effect is all I'm saying. Qantas either need to cut down some upper level fat or restructure its wages to stay competitive!

[Kaptin M]

Be advised that administrative staff will not be available on Monday 4th of August due to the Bank Holiday.

Cost cutting is dandy :ok: but please, don't make me work on public holidays!! :{

[bitter balance]

Don't QF pilots get 6 weeks annual leave (2 more than admin staff) to compensate for working on public holidays?

[Desert Digger]

In an interview not all that long ago on a TV program such as Business Sunday, or such like, GD of QF was prepared to admit, if recalled correctly, bonus payments for his performance.
Does it not seem a bit off to shareholders, and the Fed. Gov is one, that not all that long after such an admission, the QF CEO is warning that all employees are going to live under the fear of redundancy, ( not his of course).
On top of that, QF pilots, who think they smell like rose petals after ablutions, will face downgrades in pay and conditions like they never dreamed would happen.
Get it into your heads, boys and girls, you were warned of this possibility in the 1980's by - yep! - the AFAP, and you all chose to ignore it.
SO don't come bleating to Prune on the event as it unfolds.
As for DS of Vegemite fame, he was long preempted about the downfall of AN by - Yep! - the AFAP.
Hard to believe how stupid pilots are these days.

[bitter balance]

SARS costs Qantas chief $1m bonus
Matthew Denholm and Malcolm Cole
09may03

THE SARS crisis which has ravaged Australia's tourism industry and forced another round of job cuts at Qantas has cost the airline's chief executive his annual performance bonus which last year was worth a million dollars.

Qantas chief Geoff Dixon yesterday told union leaders who were meeting with him about the fourth round of job losses in as many months that none of the airline's executives would receive performance bonuses this year in light of mass redundancies.

A Qantas spokeswoman last night confirmed the pledge.

"It is correct that no executive will be receiving a bonus this financial year, given the environment," she said.

She was unable to say what the performance-related bonuses would have been, but pointed to those paid last financial year as an indication.

In 2002, Mr Dixon received a performance bonus of $1 million and chief financial officer Peter Gregg was paid $672,000 extra.

Qantas unions have asked the ACTU to help them present a united front against the airline's repeated cuts.

Also yesterday, it was revealed Australia is moving to capitalise on its SARS-free status with a $7.9 million tourism campaign targeting Japan and New Zealand.

Tourism Minister Joe Hockey announced the campaign in response to claims from the inbound tourism industry that it faces a $2 billion loss because of SARS and the Iraq war.

Mr Hockey said Australia was also "negotiating significant arrangements in the US" for a relaunch of tourism promotion, put on hold earlier this year because of the war.

"We have just launched a more than $7 million campaign into our number-one market, NZ, and our number two market, Japan, promoting Australia as a destination," he said.

The campaign will pump $6.8 million into advertising on Japanese television, in magazines and on the internet.

It will target travel groups identified as being "more robust than others", such as backpackers and families.

[Willie Nelson]

Keep in mind that there is nothing wrong with playing the "Devil's Advocate"

I am very happy to see Virgin Blue going great guns, as I believe would seem to be the case, however not all of us saw the AN collapse coming and those working at Virgin would do well to keep this in mind regardless of current performance.

"A house of cards" might be stretching a long bow (to quote Gaunty), however this is the era of insecurity and continual stress on Airline bottom lines. There is nothing more healthy than taking a good hard look at yourself well before everything goes to the wall.

I know too little to comment on QF other than to say that GD's comments regarding the long term cost cutting measures at QF is a treatise stated not only for the benefit of shareholders confidence, it also helps keep the screws on the competition potentially limiting any "big ideas" than might be espoused sooner rather than later.

Willie

[Desert Digger]

Very good of the QF execs. to refuse to take bonuses for doing the job for which they are already handsomely paid.
Some couple of months ago, the the recently appointed CEO of AMP received bonuses also, but the share price continued to plummet.
These characters are gonna use the old Flick slogan as long as they can get away with it - "When you're on a good thing, stick to it!"

[Echo Beech]

huan hung lo


How's my flawed logic looking today mate?:rolleyes: