Smoke Signal: The Stitt view on Qantas

The much anticipated Qantas result for the six months to 31 December 2013 was finally released today.

The pre-tax loss of $250 million is competing (unsuccessfully) for the headlines with the announcement of 5,000 job losses.

CEO Alan Joyce said “the result was unacceptable and comprehensive action would be taken in response”.

That action includes a wage freeze until Qantas is profitable again. This freeze is already applicable to executives and will be immediate for open enterprise bargaining agreements. It is proposed for other EBA-covered staff.

Furthermore, the company is seeking to make $2bn in cost reductions by 2016/7.

Joyce’s chief complaint is that the “Australian domestic market has been distorted by current Australian aviation policy, which allows Virgin Australia to be majority-owned by three foreign-government-backed airlines and yet retain access to Australian bilateral flying rights.” An uneven playing field is the main argument in Joyce’s campaign for some kind of government assistance and there is certainly scope for loosening the ownership restrictions imposed by the Qantas Sale Act.

The latest announcement is bad news for both shareholders and employees of Qantas. But it needs to be put in context. Qantas has made a pre-tax profit every year for more than fifteen years – more than $6 billion over the last ten years. It currently has $2.4 billion cash in the bank and undrawn facilities of more than $630m.

No doubt the Abbott government’s first response to the Qantas announcement will be to blame the carbon tax and the unions. But having declared at every opportunity that “the age of entitlement” is dead and that there will be no more corporate welfare, will the government be true to its rhetoric or will it make an exception (just like it did for the farmers) and grant Qantas a government debt guarantee?

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