Qantas to outsource ground handling across Australia

[jb747]

I wonder how much of the back office (the blunt area) has been stood down, or outsourced. Once you outsource all of the airline activities, aren't you simply a travel agency?

I am not totally in favour of this move and I am unconvinced at a $100 million annual saving. But with an obviously less complicated fleet mix there will be changes that make outsource much more attractive.

My take is that it will a $100 million saving on the payroll, but that will be offset by a $110 million per year oursourcing cost.

 

[Must...Fly!]

I wonder how much of the back office (the blunt area) has been stood down, or outsourced. Once you outsource all of the airline activities, aren't you simply a travel agency?



My take is that it will a $100 million saving on the payroll, but that will be offset by a $110 million per year oursourcing cost.

I agree with your sentiments JB. But plenty of airlines make it work...Ryanair are (were...like all) rather successful, despite operating as the former.

I'd say your calculation is probably conservative but it is true that the outsourcing provides for more easily scaled operations at no cost to Qantas. And it does release them of quite a few equipment based and minimum shift length costs.

 

[p--and--t]

I really feel for the staff involved.

They will be going through tremendous emotional turmoil with this announcement on top of the goings on of the last 10 months between bushfires and covid and the economy etc.

However, I can understand where AJ is coming from. He is employed to look after the interests of shareholders. He is not running a gov enterprise, a job making scheme, union or charity. QF is a company and he is CEO with responsibilities to the board.

In addition, I think for many of those impacted, they will not be able to see that this may in fact be a good thing in the end.

I was faced with very similar a couple of decades ago. What I thought was a forever career was constantly being threatened with job cuts. Reorganisations and increasing work pressures created enormous stress; and then I was suddenly terminated with a package - I was devastated. But then being forced into doing something about my situation, I have not looked back and so grateful for being pushed.

What sort of pain these people must have been going through not knowing if or when they will ever get back to work after months of being stood down, the government fully intent on cutting then abolishing job keeper, reports from the industry bodies that they won't really be needed until 2023. Seeing the premiers antics every day, hope of flights being restarted then dashed repeatedly. Living in uncertainty every day, months on end.

Now they know what's happening. Time to move on and make plans for their future rather than being at home, drifting, hoping things will get better.

YMMV

 

[MEL_Traveller]

He is not running a gov enterprise, a job making scheme, union or charity. QF is a company and he is CEO with responsibilities to the board.

no, but the airline did make a profit of running essential services, and has previously had their hand out for government assistance. So they are happy to pay that card when they need it.

If the shareholders are so important, and they are willing to dismiss the potential ill-will from a move like this, why is it passengers who were *allegedly* misled into getting vouchers instead of refunds... propping up the company. Shareholders seem to want all the gain and none of the pain.

 

[p--and--t]

no, but the airline did make a profit of running essential services,

and has previously had their hand out for government assistance.

Please provide references (BTW: I don't see those actions incongruous to the raison d'etre for a commercial company)

 

[MEL_Traveller]

Please provide references (BTW: I don't see those actions incongruous to the raison d'etre for a commercial company)

IIRC, they made $15 million operating the essential flights? Out of a total of ~$500m? But I could be wrong on that.

They've previously held their hand out for government loan guarantees, and they benefited from waived landing fees etc at the beginning of covid.

 

[dajop]

no, but the airline did make a profit of running essential services, and has previously had their hand out for government assistance. So they are happy to pay that card when they need it.

They will only play that card if VA2 doesn't come into being. At the moment, the shareholder's best interests are served by finding ways to stay afloat until either travel starts re-emerging, or if it doesn't until Bain walks away from VA2 (which is exactly when you play that card). QF would be in a worse position if a Bain backed, disciplined VA2 emerged with government assistance (even if QF received similar assistance).

 

[MEL_Traveller]

At the moment, the shareholder's best interests are served by finding ways to stay afloat until either travel starts re-emerging...

Giving staff the option to stand down isn't inconsistent with staying afloat. No wages going out. No cost to the company. And a trained, ready workforce when demand starts again.

If all the borders opened tomorrow, as many people are demanding, would QF be ready? Or are we going to end up with another debacle like off-shoring the call centre.

 

[p--and--t]

IIRC, they made $15 million operating the essential flights? Out of a total of ~$5m? But I could be wrong on that.

I have not seen any published information that substantiates that, but it is oft repeated on attacks against QF. (BTW: That is what companies are established for, to make money - and stay solvent as required by legislation)

and they benefited from waived landing fees etc at the beginning of covid.

Umm, that was a decision made by government that was allegedly to benefit all airlines, but is pointless if you are not flying and AFAIK only really benefited REX to any significant amount.

 

[JohnPhelan]

You should cut the CEO's pay as he only has a partial job to do for quite a period of time

He hasn't been taking any salary since March.

 

[MEL_Traveller]

I have not seen any published information that substantiates that, but it is oft repeated on attacks against QF. (BTW: That is what companies are established for, to make money - and stay solvent as required by legislation)

The information was released by Qantas itself, here: QANTAS GROUP FY20 FINANCIAL RESULTS – NAVIGATING EXCEPTIONAL CONDITIONS

GOVERNMENT SUPPORT​

​

The Group acknowledges the significant industry assistance provided by the Federal Government in response to COVID, reflecting the importance of aviation to the broader economy.​

​

As one of the most heavily impacted companies, the Qantas Group collected $267 million in JobKeeper payments, the majority of which was paid directly to employees on stand down and the rest used to subsidise wages of those still working.​

​

Qantas and Jetstar operated a series of domestic, regional and international flights on behalf of the Federal Government, as well as some freight services, to maintain critical links that had been made commercially unviable by travel restrictions. These flights were operated on a fee-for-service basis, with fare revenue offsetting the cost to the taxpayer.​

​

To 30 June 2020, the total gross benefit of Government support was $515 million and the net benefit (after costs for flights operated) was $15 million.​

​

The nature of ongoing industry assistance means the level of support received in FY21 will depend on the amount of flying activity.​

To me that looks like they have taken $15 million of taxpayer money for their profit?If they'd made million over what they estimated, perhaps fair enough, that could allow for them making some unexpected extra cash. But $15 seems somehow they got the estimates/quotes a bit skewed.

 

[flydoc]

He hasn't been taking any salary since March.

AJ and senior execs were on zero pay March -June, but he’s now on 65% pay until Nov, and other execs on 85%, according to the release at

https://www.asx.com.au/asxpdf/20200824/pdf/44ltc3czj3jzv9.pdf

Back on topic: what other legacy pruning could there be to come at QF?

 

[dajop]

Back on topic: what other legacy pruning could there be to come at QF?

How about an announcement like this?

Qantas today have announced the most comprehensive overhaul of the company in its 100 years of service in preparation for the next 100 years. The company is being renamed Qantas Frequent Flyer to represent the core focus of the new business. In order to achieve synergies and drive cost reductions the company has entered into an agreement with Bain Capital, the new owners of Virgin Australia, Regional Express Holdings Limited (ASX:REX) and Alliance Aviations Services Limited (ASX: AQZ) to operate mainline domestic and regional Australia service on behalf of the airline. These services will operated under the Qantas brand, in Qantas colors with the Qantas service standards our customers know and love. Our agreement with Accor Hotels has expanded to cover the operation of all Qantas Clubs across Australia in addition to First and Business Lounges. We are currently in negotiation with several carriers to operate international services once international travel resumes.

 

[Rug]

He hasn't been taking any salary since March.

Fair enough but he has poor form in the past eith sacking people because of costs but not cutting his pay. Sure he runs an airline but what doed he do exactly? I am sure he has many senior managers contributing.

 

[Seat0B]

How about an announcement like this?

Initial reaction . Followed by . Followed by , and then . Not sure I'd want to fly on that airline.

 

[AustraliaPoochie]

Reduce cost by outsourcing to who/m, probably Dnata, and they (Dnata) are also saying they will let go a lot of their staff and sell off their baggage handling equipment.
If Dnata is reducing staff, and QF is reducing staff, the end result will be longer wait times at the baggage carousel.
Ergo, us/we the people who choose to fly QF will "suffer".
I don't use my plane hold allowance, as I am HLO, but others will.
Also, with all these cost reductions, do our QF airfares go down that much, don't think so.
So, in the end, its all to do with profits.
We just can't win from this, either way, its a lose lose.

 

[Carrots]

Staff in Adelaide have been told 3 months until adios.
Unsurprisingly a fairly glum group from all reports, as you would be.

It's hard not to be cynical and question whether it's just an opportune to continue outsourcing and lowering costs... but then again we are in uncharted waters.

What I am most surprised by is a decision like this doesn't happen overnight, yet it was completely left out of last Thursday's presentation, rather convenient no?

Perhaps deviating somewhat - I find redundancies by corporate to cut costs an interesting dilemma.
Generally in some form or another we all have a vested financial interest in listed corporate entities turning a profit and return to shareholders.
And then on the flip side, corporate entities are becoming more and more vocal in the social responsibility sphere, Qantas being a classic example in recent years. (note - I am not arguing the pros and cons of this, just stating fact)

So there in sits the interesting dilemma - is it not also socially responsible for corporate entities to keep Australians employed?
Is keeping X people employed at the cost retrenching Y people appropriate or not?
I've always found this an interesting conundrum.

 

[jakeseven7]

My take is that it will a $100 million saving on the payroll, but that will be offset by a $110 million per year oursourcing cost.

That's not actually how outsourcing works, but welcome officially to the fold of armchair CEO's on AFF

What sort of pain these people must have been going through not knowing if or when they will ever get back to work after months of being stood down, the government fully intent on cutting then abolishing job keeper, reports from the industry bodies that they won't really be needed until 2023. Seeing the premiers antics every day, hope of flights being restarted then dashed repeatedly. Living in uncertainty every day, months on end.

Totally agree, it is horrifying and also because the antics are so politically motivated in some states it makes me furious.

 

[RAM]

Please provide references (BTW: I don't see those actions incongruous to the raison d'etre for a commercial company)

I have compiled a number of (way-too-long) detailed posts in the two recent (& still going) threads on the Capital raising & 2020 results.

AJ's actions have more often than not had a significantly greater relative benefit for his and a core group of execs/board members remuneration than for Q staff, passengers or shareholders. He's not the $24m man for nothing.

You can trace his activities back to the days at JQ where he shifted (documented at nauseam) airframe maintenance costs to Q international (mostly) as the JQ airframes approached a major service check. Similarly, I've documented, how JQ charges & fees vs Q charges & fees bore no resemblance to either their respective operational costs nor aircraft. Merely cross-subsidisation. Much of this stopped shortly after he left JQ btw.

Both AJ & JS have been treating Q as if they (AJ/JS) were in fact a private equity operation asset stripping to make a quick return & then get out. On an adjusted recurring eps - Q has been one-way traffic for over 7 years now.

Nothing left to sell-off other than QFF.

The cynic in me thinks that AJ the outsourcing ground handling will involve Q receving payment for its equipment in exchange for a long term contract at much higher rates.

Have a look at one of my more recent posts about the long term terminal lease sell-offs (raised around $1bn & funded a large part of the share buybacks, but more importantly created the franking credits to near fully fund that component of the buybacks. Without the leases being cashed in - there could not have been any buybacks even at 1/7th the scale.

After all Q bought back 40%+ of its outstanding shares since 2015 (including last November's ill fated one that had its franking credits 100% provided by the cashing in of the Melb terminal lease for $276m upfront (3 weeks before the 30/6/2019 year end btw).

Busy lad! I wonder of any senior execs had shares vesting prior to any of these buybacks?

After all Q bought back 79.7m shares by Nov 11, 2019 yet the number of shares outstanding from 30 June 2019 to then only fell by 55m or so. By my rough figuring that difference of 24.7m shares was MUCH more than issued under the Q dividend re-investment plan - but I could be wrong...

Q shares outstanding

Nov. 11, 2019	1.491B
June 30, 2019	1.546B
June 19, 2019	1.571B
June 3, 2019	1.579B

 

[RAM]

Staff in Adelaide have been told 3 months until adios.
Unsurprisingly a fairly glum group from all reports, as you would be.

It's hard not to be cynical and question whether it's just an opportune to continue outsourcing and lowering costs... but then again we are in uncharted waters.

What I am most surprised by is a decision like this doesn't happen overnight, yet it was completely left out of last Thursday's presentation, rather convenient no?

Perhaps deviating somewhat - I find redundancies by corporate to cut costs an interesting dilemma.
Generally in some form or another we all have a vested financial interest in listed corporate entities turning a profit and return to shareholders.
And then on the flip side, corporate entities are becoming more and more vocal in the social responsibility sphere, Qantas being a classic example in recent years. (note - I am not arguing the pros and cons of this, just stating fact)

So there in sits the interesting dilemma - is it not also socially responsible for corporate entities to keep Australians employed?
Is keeping X people employed at the cost retrenching Y people appropriate or not?
I've always found this an interesting conundrum.

Spot on.

In isolation - then it is easy to argue why it makes 'business' sense. However, when many companies do it then it actually achieves a stagnant economy. Oddly enough, ex-resources, that's exactly what Australia (and many OECD countries) have been experiencing for more than a decade. Perhaps this is the reason that the net migration for Australia has been the largest in the developed world since 2000 (by more than 40% to next largest, and more than 2x the median rate). Australia's per capita GDP (ex-resources) has fallen consistently since before 2000. Effectively profitless growth as the cost of supplying (less than half in most cases) the required infrastructure for the imported population far outstrips the economic gains they generated. You'd be surprised at the number of dam failures, kms of rail line that requires trains to drop speed to as low as 10kmh due to its near-failure state etc etc. Ever wonder if the rate of water main failures has been steadily increasing in Australia?

Back to out-sourcing....

This adverse impact is magnified if the outsourcing goes to overseas locations OR the profits are transfered overseas so next to no Australian tax is paid by the Australian based vehicle. Replacing an existing income with a smaller income reduces domestic income economy-wide, and the profits get transferred out of Australia etc etc.

A good example of even 'leading Australian companies' following the Bermuda sandwich approach was the prosecution of BHP for transfer pricing its profits to HK, as a 'marketing expense'.

EG: Remember Qatar earns more in just 1 year from exporting less LNG/annum than the Australian & Qld Govts will earn in total over the first 25 years of the Qld LNG exports that came online a few years ago now. Meanwhile the domestic price of gas has quadrupled. But the spin sounded good!

EG: Japan effectively went bankrupt in the early 1990s due to its property bubble which wiped out an estimated 50+% of the entire Japanese private savings. If interested - do a search on 'Money Politics' Japan.