Qantas warns of bumpy ride as it cuts budgets

Qantas planes Qantas's ownership structure has sparked debate among the country's politicians

Australia's Flying Kangaroo is facing the most tempestuous times in its long history.

Battling record fuel costs and unrelenting competition from subsidised rivals, Qantas has just announced 5,000 job cuts alongside an underlying pre-tax loss of 252m Australian dollars (£135m; US$225m) for the second half of 2013.

The cuts are part of the airline's ruthless make-or-break plan to revive its wilting fortunes by reducing costs by A$2bn over the next three years.

"Hard decisions will be necessary to overcome the challenges we face and build a stronger business," chief executive Alan Joyce said in a statement.

So can Australia's national carrier turn things around?

Qantas staff The 5,000 job cuts are equivalent to about 15% of Qantas's workforce
Foreign ownership

An airline that began with flimsy planes ferrying passengers in windy open cockpits in the 1920s has been lobbying the government in Canberra to ease limits in foreign investment or provide state intervention to boost its financial health.

While unwilling to pour taxpayers' dollars into the country's ailing car industry, Australian Treasurer Joe Hockey appears sympathetic to Qantas's plea for help.

Ministers are drafting new laws to allow foreigners to buy a majority stake in the airline and to strip away other restrictions.

The Qantas Sale Act, brought in under a Labor administration in 1992, prevents overseas interests owning more than 49% of the company. It also blocks any single foreign investor holding more than a quarter of its shares.

Qantas management has argued that the legislation distorts the market and stifles its ability to grow.

Alan Joyce Mr Joyce said Qantas was facing some of the toughest conditions it had ever seen

"The government is philosophically attracted to levelling the playing field," said the federal Transport Minister, Warren Truss.

The Labor opposition has insisted that Qantas should be supported by the state, because it would be against the national interest for it to fold.

Rival complaints

Start Quote

This is all about Qantas trying to get a free ride”

End Quote John Borghetti Virgin Australia

Earlier this month, Virgin boss Sir Richard Branson took out a full-page advertisement in Australian newspapers urging Canberra not to give a financial leg-up to its arch-rival.

"Should the Australian taxpayer be forced by the Australian government to prop up the Qantas Group, as federal Treasurer Joe Hockey is suggesting, businesspeople worldwide should think twice about investing in Australia for fear of such intervention in their sectors," Sir Richard wrote in the ad.

"It is not right for the industry and it will not benefit the travelling public or the economy."

Sir Richard's comments were a further escalation in a sky-high dispute.

Qantas claims that it is unfairly hobbled in its fight for customers, because domestic rival Virgin Australia is largely owned by three government-backed operators - Air New Zealand, Etihad and Singapore Airlines.

Even Virgin Australia's usually measured chief executive, John Borghetti, felt the urge to come out swinging, accusing the competition of being underhand.

"This is all about Qantas trying to get a free ride, and there's no doubt about that," he argued on Australian radio.

Qantas logo Soaring fuel costs and rising competition have hurt Qantas

The Flying 'Roo has repeatedly stressed that it does not want handouts, but rather a debt guarantee from the government that would allow it to borrow at more favourable interest rates. The airline is under pressure to tame its finances as ministers consider their next move.

'Megaphone diplomacy'

Media commentators, however, have accused the carrier's executives of leaking information earlier this week about the sweeping job cuts to force Canberra to intervene at a time when unemployment in Australia is creeping higher.

Start Quote

It must sink or swim on its own merit”

End Quote Michael McCarthy CMC Markets

"This is megaphone diplomacy at its worst," said John Durie from The Australian newspaper.

"The obvious intent of this [speculation about job losses] is to get some sort of government assistance, but each time we get one of these headlines, which are deliberately encouraged by Qantas, it just damages the Qantas brand and I think it is ultimately self-destructive."

Chief executive Mr Joyce is due to meet trade unions on Friday to discuss the job losses, but in union circles, there is anger and anxiety.

The national secretary of the Transport Workers' Union, Tony Sheldon, has blamed Qantas's ill-advised foray into neighbouring markets through its budget airline, Jetstar.

"Quite clearly the company has made some very poor strategic decisions about its investment in Asia with its Jetstar operations," he said earlier this week.

'Sentimental' support

Mr Joyce has previously defended Jetstar's operations in Asia, but on Thursday, seemingly admitted to mistakes. "This performance by our airlines is unacceptable and the current position is unsustainable," he said on Thursday, referring to the budget carrier.

He also said Qantas would defer receipt of the three Boeing 787 Dreamliners it had ordered for Jetstar, as well as eight other Airbus A380s it had on order for the group.

Michael McCarthy, chief strategist for CMC Markets in Australia, says these are critical times for the famous old company.

"It certainly has sentimental support, but those of us who are involved in markets tend to think it must sink or swim on its own merit," he said.

In 1921, the Qantas fleet consisted of two humble biplanes. It has grown to become a treasured part of the Australian story, connecting not only distant parts of this vast island, but also providing a gateway to places far beyond.

A country now waits to see what sort of drama the next chapter of this turbulent story will bring.

More on This Story

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Business Live

  1.  
    15:39: US consumer confidence
    Walmart store

    The nasty winter weather knocked US consumer confidence in February, with the University of Michigan index slipping to 95.4 from an 11-year high of 98.1 last month. But before we get too worried, confidence levels remain at the highest level in eight years.

     
  2.  
    15:27: Greek bailout
    Klaus Regling

    Klaus Regling, head of the European Financial Stability Facility (the eurozone bailout fund to you and me), says the four-month loan extension for Greece will "build on the considerable progress achieved in Greece so far - thanks to the huge efforts of the Greek people".

     
  3.  
    15:14: Oil prices
    Texas oil well

    Oil has gone off the boil a bit of late, but the difference between the price per barrel of Brent and US crude is now $12 - the widest spread since January 2014. The lower price for American oil ($49.12 versus $62.32 a barrel) is due to large reserves and too few customers.

     
  4.  
    14:57: Volkswagen results
    VW Beetle Dune

    It's been a bumpy ride for Volkswagen today, with shares down as much as 6% earlier, despite reporting record operating profits of €12.7bn for 2014. Finance chief Hans Dieter Poetsch is cautious on prospects for Europe's biggest car maker: "There is no guarantee that 2015 will be a successful year, either for the industry or for VW."

     
  5.  
    14:39: Wall Street
    Wall Street

    US markets have opened flat on Friday after GDP was revised down to 2.2% for the last three months of 2014. The Dow Jones shed 9 points to 18,205, the S&P 500 was down less than 2 points to 2,108 and the Nasdaq was off 4.6 points to 4,983.

     
  6.  
    14:28: Lloyds Banking Group Joe Lynam BBC Business Reporter
    Lloyds sign

    Another interesting detail from the bank's press conference today: 49 employees were paid more than €1m (£726,900). Lloyds reports the euro figure in accordance with European Banking Authority rules. What we don't know is just how many were paid more than £1m.

     
  7.  
    14:15: Airbus soars
    A320

    The weak euro has helped Airbus, Europe's largest aerospace group, beat expectations with a 54% rise in operating profits for 2014 to €4bn, on sales 5% higher at €60.7bn. The company plans to increase production of its popular A320 plane, but make fewer of the widebody A330 model.

     
  8.  
    14:03: Chris Johnston Business reporter

    Good afternoon and thanks to Ian Pollock and Tom Espiner for this morning's coverage. We're live until 1800 GMT with the rest of the day's business news and views.

     
  9.  
    13:49: US economy

    It seems the US economy may have slowed down in the last three months of last year. Revised official figures show that the US economy grew at an annual rate of 2.2%. But that was less than the 2.6% rate first estimated in January. And it was also less than the 5% rate recorded in the third quarter of last year - which had been the strongest for 11 years.

    Petrol station in the US
     
  10.  
    13:45: Lloyds Banking Group

    BBC reporter Joe Lynam reports from the bank's news conference. When asked about his tax affairs, the bank's chief executive Antonio Horta-Osorio said they were private but he declares all of his Lloyds income to HMRC - ie not to any overseas authorities.

     
  11.  
    13:28: Tuition fees BBC Radio 4
    Protesting students

    Paul Johnson of the IFS also explained that higher paid graduates would be the beneficiaries of Labour's proposed policy: "There is a small help there for poorer students, through an increase in the maintenance grant, but the £3bn a year reduction in the cost of student loans actually doesn't help the poorer half of graduates," he said. "Half of graduates will not be earning enough to be paying back any less under the Labour policy than the current policy, so the group to whom the £3bn is going are the higher earning half of graduates."

     
  12.  
    13:18: Tuition fees BBC Radio 4

    Labour says it will cut student fees, and pay for it by curtailing the tax relief on pension contributions made by the higher paid. Paul Johnson, of the Institute for Fiscal Studies (IFS), tells the World at One that this was very clearly a tax increase for some. "The top 1% of income tax payers will be affected most - it won't affect many people, but it will affect them a lot."

     
  13.  
    13:15: TalkTalk hack
    Memory chips

    Are you a TalkTalk customer? You should receive an email warning you that scammers have managed to steal account numbers and names from the company's computers. TalkTalk said the scammers had used the stolen data to trick people into handing over banking details.

     
  14.  
    13:11: Greece bailout

    The eurozone has formally agreed to extend Greece's bailout by four months. The European Financial Stability Facility (the eurozone bailout fund) said: "Following this decision, €1.8bn that is still available under the MFFA [the loan agreement] can be disbursed to Greece until 30 June 2015."

     
  15.  
    12:58: Greek economy shrinks
    Attalos arcade in Athens

    Greece's economy shrank by 0.4% in last quarter of 2014 compared with the previous quarter, the official Elstat statistics service has said. The figure has been revised from a first estimate, earlier this month, of a 0.2% shrinkage. That means the Greek economy grew by 1.2% in the past year.

     
  16.  
    12:50: Platinum mining tax
    Chris Griffith

    Business Update on World Service with Russell Padmore has reported on why the world's big mining companies are at loggerheads with the government of Zimbabwe over a new 15% tax on exports of platinum. Impala Platinum is considering closing its Mimosa mine, a joint venture with Aquarius, because the tax could make the operation unprofitable. Chris Griffith, the chief executive of Anglo-American Platinum says: "We continue to engage with the government of Zimbabwe and we are hoping we can turn this around." Listen to Business Update on audioboom.

     
  17.  
    12:39: Greece bailout
    Yanis Varoufakis

    The Greek finance minister Yanis Varoufakis has given this assessment of the latest eurozone deal (which has been approved by the German parliament) to Antenna TV in Greece. "The deal was a fig leaf to conclude the eurogroup and dispense with the fiscal agreement," he said. "We are proud of the level of vagueness," he added. Apparently this vagueness was deliberate "otherwise it would not be approved by parliaments."

     
  18.  
    12:28: Pension changes
    Calculator

    What sort of things does the FCA want pension firms to warn their customers about, when those people think of using their pension pots? Among the issues are the health of the customer, any tax implications of the customer's decision, the effects (if any) on their means-tested benefits, and the possibility that the customer might fall prey to an investment scam.

     
  19.  
    Via Twitter Robert Peston BBC economics editor

    tweets: Labour to cut maximum pension pots, annual contributions & tax relief for £150k+ earners to cover £3.1bn cost of student fee cut

     
  20.  
    12:08: Pension changes

    From 6 April people will have much more freedom to do as they wish with their accumulated pension savings. Now the Financial Conduct Authority (FCA) has told firms in the pension "industry" that they must give their customers personal risk warnings, tailored to each individual, when people retire.

     
  21.  
    11:46: Via Twitter Duncan Weldon Economics correspondent, BBC Newsnight

    tweets: Disposable income per person by region. Can't look at this without thinking: 'the Rhine is kinda important'.

    Europe
     
  22.  
    11:34: House prices
    Image of ONS website

    Want to know how much homes cost in your neck of the woods? The ONS (Office for National Statistics) has recently published this interactive map of house prices for very small areas in England and Wales. You can play with it to your heart's content.

     
  23.  
    11:24: Stamp prices

    They are going to cost more. First and second class stamps will go up by 1p, to 63p and 54p respectively. It happens on 30 March. Large letters will also cost more too. First class ones will be 2p more expensive at 95p and second class ones will cost 1p more at 74p.

    Stamps
     
  24.  
    11:10: Glasgow Rangers
    Rangers fans

    This is embarrassing for the very troubled football club. It has just issued an announcement to stock market investors clarifying no fewer than six previous announcements. Most relate to the stewardship of Newcastle United by Derek Llambias, who is now running Rangers.

     
  25.  
    11:01: Via Twitter Dave Lee BBC technology reporter

    tweets: TalkTalk confirms customer account data stolen; Taking legal action against third-party it says was weak link

     
  26.  
    10:56: Greece bailout

    Andreas Scheuer, a senior conservative who backed extending the current bailout, said that "everyone has a feeling that isn't just positive." He said: "We will have to rely on the Greek government delivering now," adding that "this is one of the last chances we are giving Greece."

     
  27.  
    10:50: House prices
    Homes in Newcastle

    Delving into the Land Registry stats is a fascinating exercise. Average house prices in London hit a peak last August at £462,000, and have been hovering a bit below that point ever since. By contrast, the average home in the north east of England (the cheapest area) costs just £100,000.

     
  28.  
    10:40: Greece bailout
    German Finance Minister Schaeuble

    German finance minister Wolfgang Schaeuble said: "We have to bring Greece into a situation that finance markets trust them again, and that Greece can act without any support, on its own again. It is called competitiveness. And for Greece, there is a longer road to go than for any other European country."

     
  29.  
    10:32: Greece bailout
    German Finance Minister Wolfgang Schaeuble addresses a session of the Bundestag

    The German parliament has voted 542-32 to back Greece's bailout extension.

     
  30.  
    10:29: Via Twitter Gavin Hewitt BBC Europe editor

    tweets: As expected the German Parliament supports the extension of the Greece bail-out. #Greece

     
  31.  
    10:25: Ferries
    Ferry

    Meanwhile, we're sure you're very keen to hear about ferries. Industry body Discover Ferries has said one million more people travelled on ferries in Britain in 2014, up from around 38 million in 2013.

     
  32.  
    10:02: British Gas price cut
    British Gas van

    British Gas is cutting its gas prices by 5% today, as announced in January. Competitor E.On was the first of the big six energy suppliers to announce a price reduction in January, which it did with immediate effect, with price cuts in the month rounded off by EDF.

     
  33.  
    09:50: Lloyds Banking Group
    Michael Hewson

    Michael Hewson, chief market analyst at CMC Markets, says he sees the glass as being "half full" rather than "half empty" for Lloyds. The dividend of 0.75p per share was slightly less than expected - the markets were expecting a penny, he says. And PPI is an "ongoing sore" for the firm. Yet "the direction of travel does appear to be fairly positive", he says. "Loan growth is up 17% year-on-year, and impairments are down."

     
  34.  
    09:42: House prices
    For Sale sign

    The latest figures from the Land Registry represent a continued slowdown in the annual rate of house price inflation. That rate was 7% in December, and January's figure is the fifth monthly decline in a row.

     
  35.  
    09:32: House prices
    For Sale signs

    The Land Registry (for England & Wales) says house prices saw an annual price increase of 6.7%, with prices up 1.3% since December. That left the average house price at £179,492.

     
  36.  
    09:27: Lloyds Banking Group

    Is anyone worth £11m, Mr Horta-Osorio is asked? "It is not up to me to judge that, I think it is important to focus on pay for performance," he replies. "It is the fact that the share price tripled in these three years, that's what makes the [incentive] plan have a much higher value," he explains.

     
  37.  
    09:21: Cash Isa

    Who is offering the best short-term cash Isa at the moment? According to the website Savers Friend it is the Yorkshire bank, paying 2.1% for its fixed-rate, two-year, Isa.

     
  38.  
    09:09: Lloyds Banking Group
    Antonio Horta-Osorio

    Mr Antonio Horta-Osorio says he is "really pleased" his bank has resumed dividend payments: "We went from a very, very negative position in terms of profitability to a position where we generated £7.8bn of underlying profitability, [and] we generated £1.8bn of pre-tax profit," he tells BBC business editor Kamal Ahmed.

     
  39.  
    09:00: Rightmove
    Houses

    It's fascinating to see just how much money you can make running a website that dominates its market. Rightmove's total income for the year was £167m. Of that £96m went to the company as after-tax profit. No wonder the recently launched Onthemarket.com wants to have some of that business.

     
  40.  
    08:50: IAG - Aer Lingus
    Aer Lingus plane tailfins

    On the potential IAG takeover of Aer Lingus, IAG chief executive Willie Walsh tells BBC News that the firm doesn't foresee "many if any competition issues" from the EU competition commission. "We remain very excited about an acquisition. We think Aer Lingus is a good company, and we think Aer Lingus can be a significantly better company as part of IAG," he says.

     
  41.  
    08:40: FTSE 100 market update
    FTSE 100

    The FTSE 100 has opened up slightly, gaining 2 points to stand at 6952. It's not a shock to see that IAG, which saw operating profits nearly double in 2014, has risen over 4%, while shares in engineering firm Meggitt moved downward, falling 1.72%.

     
  42.  
    08:39: William Hill
    Gambling machine

    Annual pre-tax profits fell at the betting business; down 9% to £234m. Shareholders still received a rise in their dividends though, up 5%.

     
  43.  
    08:20: Rightmove
    Houses

    The property website is yet another business rewarding its investors handsomely. Shareholders' dividends will rise by 25% on the back of a 26% rise in pre-tax profits to £122m.

     
  44.  
    08:04: IAG - Willie Walsh BBC News Channel
    Willie Walsh

    IAG chief executive Willie Walsh points out the turnaround in Spanish airline Iberia, which was a drag on IAG from 2011 until the summer. "These are fantastic results, particularly the performance in Iberia, which I think has been a concern for a lot of people over the past few years", he tells BBC News. Iberia made an operating profit of €50m in 2014 compared to an operating loss of €166m the year before.

     
  45.  
    07:48: Lloyds Banking Group

    The bank has now written to owners of 2.7 million past PPI policies inviting them to lodge a claim. That is one reason why it is expecting a further 600,000 fresh claims this coming year.

     
  46.  
    07:42: Lloyds Banking Group
    Lloyds logo

    How much in total has the PPI scandal cost the bank in the past few years? An truly extraordinary £12bn. Not all of that is compensation. The administrative costs of sorting out the payments have been expensive too.

     
  47.  
    07:30: IAG results
    British Airways planes

    IAG raised its 2015 profit forecast by over 20% to 2.2bn euros for 2015, compared to the 1.8 billion euros it had said it was targeting. It says it has been helped by lower fuel costs. It expects to increase its capacity as well.

     
  48.  
    07:27: Lloyds Banking Group

    The bank has had to set aside another £2.2bn to cover the continued cost of repaying customers who were mis-sold payment protection insurance (PPI). That was on top of the £3.1bn the year before.

     
  49.  
    07:21: Lloyds Banking Group
    Antonio Horta-Osorio

    The massive payment to chief executive Antonio Horta-Osorio includes £1m in basic pay and an £800,000 bonus. The rest of the £11m comes from the payout of a "long term incentive plan" which gives him shares in the bank as a reward for steering it out of near insolvency.

     
  50.  
    07:19: IAG results

    Meanwhile, IAG's operating profit for the year to 31 December 2014 is £1.03bn, a 95.3% jump on the previous year.

     
  51.  
    07:15: Via Twitter Kamal Ahmed BBC business editor

    tweets: Breaking: Lloyds CEO Antonio Horta-Osorio total remuneration package will total £11m after shares rise by 193% since 2012.

     
  52.  
    07:10: IAG results

    British Airways owner IAG made a profit before tax from continuing operations of £828m, it says.

     
  53.  
    07:06: Lloyds Banking Group

    The dividend will be 0.75p per share, totalling £535m, which will go to three million shareholders. And that means £130m goes to the government.

     
  54.  
    07:02: Lloyds Banking Group

    The annual results are out. It has announced pre-tax profits of £1.8bn - up from £415m a year ago - and will indeed resume paying a dividend to shareholders.

     
  55.  
    06:50: Lloyds Banking Group BBC Radio 4

    William Wright of capital markets think-tank New Financial tells the Today programme that it was turning out to be a turbulent week for banks: "We've seen continued tax scandals at HSBC, continued restructuring at RBS, all change at the top of Standard Chartered - next week no doubt with Barclays we are going to see more restructuring."

     
  56.  
    06:41: Rising rents
    Houses

    Demand for rental properties is still driving up rents in the private sector. So says Sequence, a network of 300 letting agencies. It reckons that the average monthly rent outside London rose by 5% in the past year - and in London by 7%. "Large cities in particular are seeing a lot of activity as employment increases," it says.

     
  57.  
    06:28: Lloyds Banking Group Radio 5 live
    Lloyds Bank bank branch

    Lloyds is expected to announce profits of around £2bn, but banking analyst Alex Potter tells Wake Up to Money that the dividend resuming is the real indicator for a return to health. "Actually, an awful lot of [investment] funds haven't been able to buy Lloyds shares at all while they haven't been paying a dividend, so, actually just the allowance of those potential shareholders onto the [share] register again is going to be a pretty good thing."

     
  58.  
    06:19: Pension tax relief

    Will Labour suggest cutting pension tax relief for high earners? It seems this may be proposed by Ed Miliband when he speaks later today on how Labour might cut university tuition fees.

     
  59.  
    06:09: IAG results Radio 5 live
    British Airways plane

    We should look forward to hearing strong results for British Airways owner IAG, according to aviation consultant John Strickland. "We should expect to hear a big jump in profitability", he says on Wake up to Money, because the firm is "in a very solid state".

     
  60.  
    06:00: Ian Pollock Business reporter, BBC News

    Good morning. It's Friday. Always a good day as far as I'm concerned. Oh, and the Land Registry's house price figures for England and Wales will be out later this morning.

     
  61.  
    06:00: Good morning Tom Espiner Business reporter

    Some interesting stories coming up today. Expect full year results from Lloyds Banking Group, which is expected to resume paying a dividend to shareholders for the first time since the financial crisis in 2008. British Airways owner IAG is to post its full year results too.

     

Features

Try our new site and tell us what you think. Learn more
Take me there

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.