Qantas cuts 4 pct of workforce, prunes growth plan

SYDNEY Fri Jul 18, 2008 8:05am BST

A Qantas plane prepares for take-off at Sydney's International Airport July 18, 2008. REUTERS/Mick Tsikas

A Qantas plane prepares for take-off at Sydney's International Airport July 18, 2008.

Credit: Reuters/Mick Tsikas

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SYDNEY (Reuters) - Australia's top airline, Qantas Airways Ltd (QAN.AX), will cut 4 percent of its workforce and scrap its growth plan for the coming year, saying the business would be at risk if it fails to offset soaring fuel prices.

The plan to cut 1,500 of its 36,000 workers and scrap plans to hire another 1,200 was Qantas's fifth belt-tightening in three months. It had already raised fares twice and cut capacity twice.

The global airline industry faces what it calls a "perfect storm" of skyrocketing oil prices, with carriers worldwide shedding thousands of jobs and closing down routes as losses mount, threatening some of them with insolvency.

"This is one of the toughest industries out there," Qantas Chief Executive Geoff Dixon told reporters.

As part of the latest measures, Qantas also cut its forecast capacity growth for 2008/09 to nil, from 8 percent before, and said it would shut call-centers in Tucson, Arizona and London.

Dixon said the job cuts were within the airline's budgeting process for 2008/09, but "obviously there will be a cost." More than 20 percent of Qantas' management and head office support jobs will be cut under the proposed restructuring.

Analysts said it was difficult to tell if this would be the end of the belt-tightening.

"Jet-fuel prices are extravagantly high around the world and the unknown is how much people are going to cut back on their air travel in this weaker climate," said Angus Gluskie, portfolio manager at White Funds Management.

Dixon voiced confidence in the airline's ability to weather the storm -- it had reported a doubling of half-year profits in February -- but reacted tersely when asked if trade unions should take the job cuts lying down, given his confidence in the future.

"Our costs have gone up over A$2 billion from year to year and if we do not act, there won't be any unions because there won't be any Qantas," he shot back.

The world's airlines stand to lose more than $6 billion this year if fuel costs remain at current levels, the International Air Transport Association estimated recently.

Qantas' cost-saving plans comes close on the heels of large quarterly losses reported by U.S. airlines AMR Corp AMR.N and Delta Air Line Inc (DAL.N) due to rising jet fuel prices.

Soaring fuel costs has prompted the U.S. airline industry to cut more than 20,000 jobs this year, according to a report by employment consultancy Challenger, Gray & Christmas Inc.

At least seven smaller U.S. airlines have filed for bankruptcy or stopped operating this year, with Julius Maldutis of consulting firm Aviation Dynamics predicting a further 9 or 10 will file for bankruptcy protection this autumn.

SHARES UP

Qantas shares jumped as much as 2.4 percent in a weaker market but closed unchanged A$3.30. Investors said the latest cut-backs might not be the last. The stock has fallen almost 40 percent this year, nearly double the drop in the overall market.

"It's a well managed airline, and they will continue to make profits. It's just a question of how much you are willing to pay for what is a very high-fixed cost and cyclical business," said Sean Fenton, fund manager with Tribeca Investment Partners. "It's an environment where global growth is slowing and fuel prices are remaining stubbornly high."

Australian Transport Minister Anthony Albanese expressed disappointment with Qantas's decision. "Certainly...we want to make sure that the workers are given every support," he said.

Dixon said he hoped this was the last belt-tightening and said Qantas had hedged about 70 percent of its fuel budget for this year at around $115 per barrel of crude oil.

Crude oil has fallen about 12 percent from last week's record of $147.27 a barrel on worries over U.S. demand and easing political tensions over Iran, but it is still trading around $130 a barrel, up nearly 30 percent so far this year.

"We hope it's over and we are moving forward," Dixon said when asked if this would be the last cut-back, but he said life would remain difficult for airlines with oil above $100 a barrel.

He also criticized Australia's plan to curb greenhouse-gas emissions and require fuel-burning industries, such as airlines, to pay for emission permits. "Domestic aviation, including regional aviation, will be quite severely affected," Dixon said.

He said the challenging operating climate made it even more important for airlines to merge and become stronger. "The airline industry has to consolidate," he said.

Qantas also announced on Friday it had reached an in-principle deal with striking engineers, though the terms of the agreement would remain confidential until next week.

($1=A$1.03)

(Additional reporting by Victoria Thieberger, Geraldine Chua, Miranda Maxwell, writing by Mark Bendeich; Editing by Louise Heavens)

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