-------------------------------------------------------
QANTAS plans to hack even further into its cost base after slashing forecast earnings by 25 per cent as surging oil prices continue to play havoc with the airline industry.
The national carrier has put its 37,000 workforce on notice, warning that unless fuel prices ease further sacrifices will have to be made on top of the airline's $3 billion five-year cost-cutting program.
In recent weeks Qantas has issued about 2000 redundancy slips. The airline's warning of further cost cutting came after it forecast a 25 per cent slump in full-year pre-tax profits to around $670 million.
Qantas said this was at the lower end of analyst forecasts, some of which were as high as $895 million.
Qantas said the profit slump would include $153 million in restructuring costs, some of which stemmed from the airline's recent closure of its heavy maintenance base in Sydney.
Qantas said costs resulting from the recent retrenchment of 1000 management staff would be factored into next year's result.
Chief executive Geoff Dixon said in a media statement the airline's already ambitious program to slash $3 billion in annual costs by mid-2008 may not be enough and "further restructuring will be required" if oil prices remained high.
The downgrade fuelled pessimism for Qantas's profit outlook for the next financial year. Macquarie Bank analyst Paul Huxford warned "the market continues to have unrealistic earnings expectations with respect to 2006-07".
Qantas chief financial officer Peter Gregg declined to elaborate on areas targeted for cost cuts.
Given the airline's $3.2 billion a year staff bill - its biggest cost component - analysts expect more lay-offs and further cuts in overtime pay.
Unions fear Qantas will focus on hiring cheaper staff through its low-cost subsidiary Jetstar.
Mr Gregg told the Herald Qantas "was treading water", given the $1.5 billion in cost cuts already achieved through the so-called "sustainable future" program had been wiped out by recent fuel price increases.
"This is a business that has faced fuel bill rises of $2 billion in two years," Mr Gregg said. "I'd dare you to [find] a company in Australia that has that problem. We're going to look for efficiencies and we don't take any joy in removing people from jobs."
Since the launch of "sustainable future" during the SARS crisis in 2003, Qantas has raised its cost-cutting targets on three occasions.
Mr Gregg said he had "no idea" about speculation that Qantas's full-service operations may soon lease aircraft and crews from its low-cost Jetstar subsidiary.
There is speculation the airline may lease Boeing 787s from Jetstar when the new jets are delivered from 2008, in an attempt to drive down labour costs.
"Realistically Qantas will do what it needs to do to continue to operate," Mr Gregg said. "Whether or not Jetstar provides wet-leasing capacity to Qantas, I think that would be some time away."
Qantas's full-year profit is also going to be marred by the continuing poor performance of its 44.5 per cent-owned Singapore subsidiary Orangestar, which operates Jetstar Asia and Valuair.
Mr Gregg said the airline, which reported a first-half $27 million loss, was "stabilising".
Comment Preview