Australia’s Biggest Airline Is Slashing $US1.8 Billion Off Its Budget

A Qantas Airlines Boeing 737 plane sits next to a Virgin Australia Boeing 737 plane at the Port Hedland airport in the Pilbara region of western Australia December 3, 2013. REUTERS/David Grey

Struggling Australian carrier Qantas on Tuesday said it was committed to slashing costs by Aus$2 billion (US$1.8 billion) but refused to confirm or deny a report that it will axe 5,000 jobs.

The airline has been battling record fuel costs and fierce competition from subsidized rivals and in December said 1,000 jobs would go while warning it faced a half-year loss of up to Aus$300 million.

Its interim result is due on Thursday and the Sydney Daily Telegraph, citing a Qantas source, said the job losses would be much worse as the airline restructures its finances to convince the government it deserves a debt guarantee.

As well as sacking 5,000 staff, the newspaper said Qantas may sell some of its terminals, while The Australian reported it would accelerate the retirement of older planes and defer new orders.

The airline refused to go into details.

“There is fresh speculation about what things we will or won’t announce on Thursday as part of our half-year results. We are not in a position to comment on that speculation,” the flag carrier said in a statement.

“We have said that we will be making some tough decisions in order to achieve $US2 billion in cost savings over the next three years, which is a consequence of an unprecedented set of market conditions now facing Qantas.”

– Unease over ‘mass sackings’ –

Transport Workers Union national secretary Tony Sheldon said Qantas must come clean on its restructuring plans with staff on edge over potential mass sackings.

“Another day, another rumour of massive job cuts and the sale of planes and terminals,” he said.

“Each baggage handler, check-in staff and ramp worker generates a $US205,000 return to Qantas above the cost of their employment. Sacking them is like a tradesman selling his tools to pay a one-off bill.”

Qantas has said it faces “immense” challenges and has been lobbying the government to ease limits in foreign investment or provide state intervention to help shore up its bottom line.

Canberra has made clear there will be no taxpayer handouts but has flagged support for a relaxation of the Qantas Sale Act, which limits foreign ownership in the airline to 49 per cent, or a possible debt facility.

Qantas chief Alan Joyce argues that the cap is hurting Qantas’s ability to compete by restricting access to capital, particularly against domestic rival Virgin Australia, which is majority-owned by state-backed Singapore Airlines, Air New Zealand and Etihad.

Transport Minister Warren Truss on Tuesday said the conservative government was drafting laws to allow Qantas to be majority foreign-controlled while allowing a single foreign shareholder to own more than 25 per cent.

“The government is philosophically attracted to levelling the playing field,” he said, although Labour and the Greens have vowed to block any legislation in the upper house Senate.

They are against allowing majority overseas ownership, but open to the government providing an assistance package.

Prime Minister Tony Abbott said the government accepted the carrier was having to compete with the “ball and chain” of the Qantas Act.

“But in the end Qantas do have to get their own house in order,” he said.

Following the profit warning in December, Moody’s and S&P both downgraded Qantas’ credit rating to “junk” status, increasing the cost of financing for the carrier and restricting access for investors that do not put their money in lower-rated companies.

The carrier pledged to press ahead with cost cutting regardless of whether the government decides to help.

“We’ve said that we must take steps to reduce our costs regardless of whether the federal government acts on the uneven playing field in the Australian aviation market,” it said in the statement.

Qantas shares closed 0.40 per cent lower at Aus$1.23.5.

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