MIAMI – Qantas (QF) CEO Alan Joyce will sacrifice his AU$23m ($15.5m) salary for the rest of 2020. In addition, upper management and board members will be taking a 30% pay cut.

This is yet another measure taken by QF to help mitigate the significant adverse impact of COVID-19 on passenger demand and financial performance, as the Group has already cut long-range capacity to reduce costs.

As of now, due to the uncertainty surrounding the epidemic fallout, the Group is unable to provide meaningful guidance on the scope of the impact on its earnings for the rest of FY20.

According to QF, the Group is in a strong position, with low debt levels and a long debt maturity profile, $1.9 billion in cash plus a further $1 billion in undrawn facilities with $4.9 billion in unencumbered assets.

In addition, the Board has decided to cancel its off-market buyback announced in February, thus protecting $150 million in cash. However, the interim dividend of 13.5 cents per share will still be paid on 9 April.

Cost reduction actions


In addition to reducing capacity, a number of cost reduction measures will out into action across the Qantas Group, including:

  • Annual management bonuses set to zero for FY20.
  • For the remainder of FY20:
    • Qantas Chairman will take no fees.
    • Group CEO will take no salary.
    • Qantas Board will take a 30% reduction in fees.
    • Group Executive Management will take a 30% pay cut.
  • Freeze of all non-essential recruitment and consultancy work.
  • Asking all Qantas and Jetstar employees to take paid or unpaid leave in light of reduced flying activity.

Because of the recent material drop in fuel price, QF’s total fuel cost is now expected to be $3.74b, providing another benefit for the carrier.

The Qantas Boeing 787 Dreamliner plane arrives at Sydney International Airport after flying direct from New York.

Leading by example


Qantas Group CEO Alan Joyce said, “In the past fortnight we’ve seen a sharp drop in bookings on our international network as the global coronavirus spread continues.”

“We expect lower demand to continue for the next several months, so rather than taking a piecemeal approach we’re cutting capacity out to mid-September. This improves our ability to reduce costs as well as giving more certainty to the market, customers and our people,” said Joyce.

The CEO added, “We retain the flexibility to cut further or to put capacity back in as this situation develops…We’re in a good position to ride this out, but we need to take steps to maintain this strength.”

The CEO noted that when revenue falls, the Group needs to cut costs, and reducing the amount of flying was the best way to do that. “Less flying means less work for our people,” said Joyce, ‘but we know coronavirus will pass and we want to avoid job losses wherever possible.”

The Australian airline is urging its staff to use their paid leave and, if they can, consider taking some unpaid leave given the now many fewer flights. Alas, in addition to a significant 2020 pay cut for the Executive team, annual management bonuses have been set to zero.

As a final note, the carrier has stated that it cannot predict how long this situation will last. No one can. But the measures taken by the Group will help it remains well-positioned to ride out the crisis, at least for 2020.

“We know it will pass, and we’ll be well-positioned to take advantage of opportunities when it does,” the CEO concluded in his announcement.

Summary of Qantas Group network changes


RouteChangeEffective dates*
Asia
Sydney-Tokyo (Haneda)B747 replaced by smaller A33030 March
Melbourne-Singapore  7 return flights per week canceled (QF 37/38)– B787 replaced by larger A330 on 7 return flights per week (QF 35/36)– 20 April– 4 May
North America 
Brisbane-ChicagoRoute launch postponedWas to start 15 April
Brisbane-San FranciscoRoute suspended (3 return flights per week)18 April
Sydney-San FranciscoB787 replaced by larger B74718 April
Melbourne-San FranciscoRoute suspended (4 return flights per week)18 April
Sydney-Dallas/Fort WorthA380 replaced by smaller B78720 April
Melbourne-Los AngelesA380 replaced by smaller B7871 June
Sydney-VancouverSeasonal service suspended (3 return flights per week)June and July only
United Kingdom
Sydney-London (Heathrow)– Flights to operate via Perth (instead of Singapore)then non-stop to London.– Perth-London to become double daily as a result.– A380 replaced by smaller B78720 April
South America
Sydney-SantiagoDelaying planned B787 introduction and continuing with B7471 August

Note: The suspension of the A380 and First Class from Singapore routes will see the Qantas First Lounge in Singapore close temporarily, with customers instead invited to use the adjacent Qantas Business Lounge.

* (until mid-Sept 2020)

Qantas extension of previously announced cancellations


(Until mid-Sept 2020 unless stated)

RouteChange
Sydney-ShanghaiThe route continues to be suspended until at least mid-July (7 flights per week)(sole route to mainland China)
Sydney-Hong KongReduced from 14 to 7 return flights per week
Melbourne-Hong KongReduced from 7 to 4 return flights per week (1 additional cancellation per week from previously announced cuts)
Brisbane-Hong KongReduced from 7 to 3 return flights per week (1 additional cancellation per week from previously announced cuts)

Note: Further capacity reductions will also be made on flights to Japan and New Zealand, with other Asian routes under evaluation.

Jetstar Airways – Summary of New Changes


RoutesChangeEffective date*
Asia
Melbourne-BangkokRoute suspended1 May
Sydney/Melbourne-Ho Chi MinhFlights reduced by over 50%1 May
Japan routesFlights reduced by almost 40%20 May
Brisbane-BaliMinor flight reductions1 May

Note: Further capacity reductions will also be made on flights to New Zealand, with other Asian routes are under evaluation.

*(until end June but may be extended)


Article written by Helwing Villamizar