Joyce coy on frequent flyer sale

Divestment of Qantas frequent flyer business remains a 'huge and complex issue'.

Qantas boss Alan Joyce says a sale of the company’s lucrative frequent-flyer business to drive down its crippling debts remains “a huge and complex issue” and he has yet to determine whether to offer a stake in the business.

Mr Joyce’s comments came yesterday as he confirmed an ­acceleration of the company’s $2 billion cost-cutting program.

He told investors at the Macquarie Group conference yesterday that job cuts would include 1500 management and non-­operational positions, with 1000 to go by June and a further 500 by December. He also revealed plans to target $800 million in savings by the end of next financial year and reduce debt by $1bn. Qantas would have shed 2200 jobs by June, he said.

The largest single initiative would be restructuring of the management and non-operational roles. “The strategic initiatives remain consistent, but the pace in which we are making these changes have increased dramatically,” Mr Joyce said.

His presentation was an update on the cost-cutting program flagged by the national carrier, which this year appealed to the government for financial support after staggering losses. He had said Qantas would slash costs by $2bn across three years.

There has been speculation that the frequent-flyer business would to be at the centre of a selldown in an effort to reduce debts.

Mr Joyce said yesterday that frequent flyer had nearly 3000 businesses registered and was a huge area of growth. Qantas was still working through its options.

Commenting on this week’s news Qantas would begin flying A380s on the Sydney-Dallas route, Mr Joyce said: “This is a market where we see huge ­opportunity.”

Rescheduling its Melbourne-London flights and quadrupling the destinations available from the Dubai stopover would also offer a revenue boost, he said.

Jetstar routes into Japan allowed the airline to improve its presence in what was already a good market for Qantas.

Mr Joyce said he remained ­focused on the domestic corporate market. The revenue from the domestic corporate market was more than 80 per cent, while the overall domestic market was 63 per cent.

“We are very focused on making sure Qantas has the frequency and network advantages over Virgin that allow us to maintain the corporate market share advantage that we have and I think that if you look at the capacity growth over the last few years it is a lot less than our competitor,” he said.

A breakdown of the Qantas jobs plans shows an additional 1800 will be due to go in fiscal 2015. It aims to reduce its costs, not including fuel, more than 10 per cent by 2017 to bring the differential with Virgin Australia down to less than 5 per cent.

Mr Joyce told the conference the cost-cutting program would also narrow the gap between Qantas and its international competitors and maintain Jetstar’s “cost leadership’’.

The airline is still expecting positive cashflow from 2015 as it rationalises its fleet and network, increases fleet utilisation, scales back investment, defers growth and sells assets.

It has reduced 2015-16 capital expenditure by $1.2bn since ­August.

The remaining 500 of the 1500 full-time back-office ­pos­itions to go as part of the head ­— office and management restructure will be axed next financial year with an annual benefit of $175m outweighing redundancy costs of $165m to deliver a benefit after the first year.

A streamlining of line maintenance operations, opposed by engineers, will involve 272 jobs and is expected to bring an ­annual benefit of $45m compared to the total redundancy cost of $70m.

The 1800 jobs expected to be shed across the group next year will be followed by another 1000 positions in 2016-17.

The plan envisages that reduction of domestic aircraft types from four to two after 17 retirements in 15 months will save more than $55m annually and produce cost benefits from increased utilisation.

Increased asset utilisation in the international network, voluntary redundancies for surplus cabin crew and early retirement of older Boeing 747s is tipped to save more than $100m annually.

Overall, Qantas expects fleet and network reductions to save up to $600m of the $2bn total.

Analysts at Macquarie, who maintained their outperform rating, described the detail in yesterday’s presentation as an “incremental positive to our current view’’.