Covid-19 forces Qantas to cut capacity, delay A350 order as CEO gives up pay for this year

Sydney

QANTAS Airways Ltd will cut its international capacity by nearly 25 per cent over the next six months and delay an order for Airbus A350 planes as part of sweeping changes in response to a coronavirus-led plunge in passenger demand.

The Australian airline also said on Tuesday it is cancelling plans for an A$150 million (S$137 million) off-market share buyback to preserve cash.

Qantas' chief executive and chairman will take no salary for the rest of the current financial year, the management team will receive no bonuses and all staff are being encouraged to take paid or unpaid leave.

"We are using every lever we can to avoid redundancies," Qantas chief executive Alan Joyce told reporters in Sydney. "We think we can do that into September with these cuts."

Airlines around the world are experiencing a collapse in demand due to the coronavirus, which an industry body last week estimated could lower passenger revenue by as much as US$113 billion this year.

Qantas shares fell as much as 7.2 per cent in early trade on Tuesday but rebounded to close 7.2 per cent higher, compared with a 3.1 per cent rise in the broader market.

"This is a significant but appropriate response," Jefferies analyst Anthony Moulder told clients of the action taken by management.

The airline said it could no longer provide guidance on the financial impact of the coronavirus, which at the time of its half-year results on Feb 20 it had estimated could result in a A$100 million to A$150 million hit to underlying earnings before interest and tax this financial year.

The carrier is now grounding the equivalent of 38 planes, more than double the 18 it had announced last month.

Qantas' capacity reduction for the June quarter will rise to 17 per cent, up from 4 per cent at the time of its interim results. That includes plans to ground eight of its 12 A380 superjumbos, with two remaining flying and the other two in maintenance.

Sydney Airport Holdings Pty Ltd, Australia's largest airport, said provisional data for the first nine days of March indicated a 25 per cent fall in international passengers and a 6 per cent decline in domestic passengers.

Qantas had been expected to place an order for up to 12 A350-1000 planes capable of the world's longest flights from Sydney to London by the end of the month.

Airbus had set that deadline on the basis the production slots were potentially valuable and could be sold to other airlines, Mr Joyce said.

"In the current environment that doesn't seem to be the case. Nobody is ordering aircraft," he noted. "We have asked Airbus for a delay in the decision. We would rather wait for the coronavirus issue to be out of the way before we put a firm aircraft order in for the A350."

Airbus did not respond immediately to a request for comment.

Mr Joyce said the airline remained hopeful of pilots voting for a proposed pay package for the flights.

Last month, Qantas said it would hire other pilots to fly the A35s if a deal was not approved. The union has not yet made a formal recommendation to Qantas pilots.

Memos last week from two leaders, viewed by Reuters, advised pilots to reluctantly approve the company's offer, but the pair do not represent the entire union panel. REUTERS