Qantas averts its collision course

The scale of Qantas' losses - driven by intense competitive pressures both at home and overseas - leave Alan Joyce no choice but to carve radically into the airline's cost base.

The Qantas losses were at the lower end of expectation and the planned job losses were at the higher end. The scale and underlying causes of the losses, however, explain the brutal nature of the response and the 5000 job losses that will occur as Alan Joyce tries to cut $2 billion from the group’s cost base over the next three years.

Qantas is being throttled inexorably and across the range of its flying operations by the big and continuing increases in capacity throughout being added by lower-cost airlines, generally government-owned or backed, pursuing aggressive long-term growth strategies.

Much of that capacity has been directed into the Asia Pacific market, forcing Qantas International, which had been reducing its losses, deeply back into the red and also plunging Jetstar’s Asian businesses into losses.

In the domestic market that it dominates, Qantas has remained profitable, but only barely so, as Virgin Australia, backed by three of Qantas’ key competitors, has continued to ramp up its capacity and targeted Qantas’ key and high-yield business customer base, despite mounting losses of its own.

With more than $250 million of losses in only six months, and no sign of the competitive pressures abating, Qantas has no option but to try to carve into its cost base, slash its capital expenditures, sell assets and reconfigure its fleet plans to conserve cash and capital and strengthen its ability to survive even more of the same.

The result and the underlying influences driving the losses explain why Joyce has asked Canberra for help in the near term with a government-guaranteed line of credit, and in the longer term through amendments to the Qantas Sale Act that would give it the flexibility to offshore some if its operations to lower-cost jurisdictions.

To read more from Stephen Bartholomeusz on the Qantas results, click here.

Watch: Flight Centre's Graham Turner tells the KGB that Australia doesn't need a national carrier.

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