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Qantas Consolidates Units In Response To Depressed International Market

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Qantas Consolidates Units In Response To Depressed International Market

(Updated Aug. 24, 11:30 ET with details on Qantas financial performance.)

In a sign of just how bad prospects are for international travel to recover, Qantas Airways on Monday announced it is eliminating the position in charge of international business and folding it into the domestic business unit. 

International boss Tino La Spina will depart Sept. 1 after 14 years with the company and his responsibilities will transfer to Qantas Domestic CEO Andrew David, who also oversees Qantas Freight. The Qantas Group said combining the units under a single chief was necessary because it expects the COVID pandemic to keep its international flights grounded until at least mid-2021 and that it will take years to return to 2019 levels.

The Group's regular scheduled international flights effectively ceased in April, replaced by over 100 services operated by Qantas on behalf of the Australian government to cities including Hong Kong, London, Los Angles, Lima, Buenos Aires and Mumbai.

The consolidation underscores industry expectations that international passenger flying will take much longer to bounce back than domestic, which means fewer widebody aircraft in the skies that shippers rely on for frequent, affordable service. The lack of cargo space in passenger planes has left the freight market with about a third less capacity than normal and higher prices.

Qantas executives took no pay during the last fiscal quarter and are receiving about 15% of their salaries this quarter as part of wholesale efforts to reduce cash drain during the crisis.  Cost-cutting included a decision to retire the Boeing 747 fleet six months early.

Last week, the company reported a 91% drop in profit for the fiscal year ended in June, driven by a AU$4 billion ($2.8 billion) drop in revenue during the second half of the year. Revenue dropped 82% in the fourth quarter, a dire situation that was actually worse at many other airlines.

"We've had to make some very tough decisions in the past few months to guarantee our future. At least 6,000 of our people will leave the business through no fault of their own, and thousands more will be stood down for a long time," CEO Alan Joyce said. "Recovery will take time and it will be choppy. We've already had setbacks with borders opening and then closing again. But we know that travel is at the top of people's wish lists and that demand will return as soon as restrictions lift. That means we can get more of our people back to work.

"COVID is reshaping the competitive landscape and that presents a mix of challenges and opportunities for us. Most airlines will come through this crisis a lot leaner, which means we have to reinvent how we run parts of our business to succeed in a changed market."

Qantas' three-year recovery plan aims to cut costs by $10.7 billion.

Qantas said domestic freight demand is strong due to growth in e-commerce. Strong international freight demand is expected to continue, but not at peak levels seen in the previous quarter. Qantas is operating freighers and cargo-only passenger aircraft for the Australian government, which is using its power to consolidate enough exports for Qantas and several preferred airlines to provide air transport amid the ongoing capacity crunch.

Airports Squeezed

Airports around the world are feeling the devastating effects of the coronavirus too. Airports Council International Asia-Pacific on Monday urged governments to replace quarantine requirements with testing and contact tracing protocols to ensure the sector's survival. Preliminary figures released by the group show Asia-Pacific and Middle East airports will lose about 58% of passenger volume by the end of 2020.

The Asia-Pacific region was projected to receive nearly 3.5 billion passengers this year before COVID compared to the latest estimate of just above 1.5 billion. Airport revenues are forecast to decline $27 billion in the Asia-Pacific and $8 billion in the Middle East. 

"To put the revenue loss in perspective, it equates to wiping out the revenues of 27 of the regions' busiest hubs. We are now facing at least a three-year recovery period," said  ACI Asia-Pacific Director General Stefano Baronci in a statement. 

Airports say they have implemented a series of preventive health and hygiene measures to make air travel safe and that governments need to take a more flexible approach to opening borders. 

Over the weekend, Singapore opened its borders to travelers from Brunei and New Zealand by adopting a testing regime without blanket quarantine requirements, a standard airports say other governments should emulate.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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Australia extends funding for airfreight exports

 

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