Qantas has shelved a project to replace a 26-year-old IT system which supports almost 10 million members of its frequent-flyer loyalty program because it would have to spend another $40 million to complete.
The decision highlights the pressure on Qantas to slash costs for it to retain a cash buffer and keep up the fight in the domestic market against a rejuvenated Virgin Australia. Qantas has spent $20 million on the NewGen program, which was begun in early 2010 to replace the existing frequent-flyer IT platform called Profile.
The new system was originally due to be introduced within 18 months. Insiders have questioned the benefits of the work carried out on the program but Qantas said the old system had been enhanced by incorporating elements from NewGen. Contractors were kept on until October to ensure parts of the new project were bolted on to the old Profile system.
Those full-time Qantas employees working on the new system have since been sent to other projects within the frequent-flyer business such as the Qantas Cash and Acquire programs.
Qantas said it decided to suspend the ‘‘non-critical IT project’’ to build a back-end computer system for the frequent-flyer business ‘‘as part of an ongoing review of our capital expenditure’’.
‘‘These are some of the tough choices that Qantas has to make in the current environment,’’ a spokesman said.
Despite its age, Qantas insisted that the ‘‘existing system is running well with the enhancements we’ve made’’, although it conceded that a ‘‘new system is something we’ll need to consider’’.
Staring at a first-half loss of up to $300 million, Qantas has outlined a plan to axe at least 1000 jobs within the next 12 months and strip out an extra $2 billion in costs over the next three years.
Qantas also has a team of internal strategists working on a wide-ranging structural review, which will canvass the possibility of partial sales of assets such as the Frequent Flyer division and Jetstar. The airline has yet to decide whether it will bring in external advisers to work on the review.
The airline called on Thursday for expressions of interest for voluntary redundancies among its engineering workforce. However, it did not outline how many engineering jobs it wants to axe.
Qantas chief executive Alan Joyce and his senior managers will on Wednesday meet representatives from unions which represent the bulk of the airline’s 30,000-strong workforce. The ACTU is spearheading the talks, which will be the first time unions get an opportunity to hear about the business units likely to be hit hardest by the job cuts.
But in a sign of divisions within the union movement about Qantas, the Australian Licensed Aircraft Engineers Association has decided to boycott the meeting on Wednesday.
ALAEA president Paul Cousins said it had told the ACTU that it did not want it to bargain on its behalf. ‘‘The ACTU has said that Qantas needs help,’’ he said. ‘‘The truth of the matter is Qantas management needs removal.’’
Analysts say large institutional investors recognise the challenges facing Qantas management, but some are questioning its costly strategy of maintaining a 65 per cent share of the domestic market.
Qantas management’s insistence on sticking with the strategy has forced it into a fare war with Virgin, which has severely dented the earnings of both airlines.