Photo credit: Qantas
While the cutting of 6 000 jobs by Qantas has understandably been the headline-grabber since the big announcement was made on Thursday, the business story linked to this has been less analysed so far.
As part of the process unveiled by airline CEO Alan Joyce to keep Qantas viable in this most torrid of times, it will raise as much as $1.9-billion.
This is a substantial amount of money in anyone’s terms and will come from to institutional investors, who will get a discount of about 13% on the current stock price, and through a separate share sale plan offered to existing investors.
According to Bloomberg, this is the first time the airline has needed to raise equity in a decade. Indeed, if you’d suggested a year or so ago that the airline needed to raise equity, you may have been looked at strangely.
In 2017, after a three-year turnaround plan by Joyce that involved, among other things, shedding 5 000 jobs, the financial situation at Qantas was looking very healthy indeed. It was so flush that it even returned a substantial $3-billion to its shareholders.
Recently there were plans to launch new super-long-haul routes between Sydney, London and New York. The airline was even on a recruiting drive and the world looked rosy.
The virus changed all that. “We’ve never experienced anything like this before, no one has,” Joyce said on Thursday. “We’re facing a sudden reversal of fortune that is no one’s fault. That is very hard to accept.”
A Bloomberg report puts the reversal of Qantas’s fortunes into perspective: “The brutal overhaul – a 20% reduction of the workforce – shows how swiftly fallout from the virus can overrun even one of the world’s strongest airlines,” it says.
“As recently as May, Qantas said it had enough cash to hold out until December 2021. But with the global pace of infections accelerating, airlines worldwide are now expected to lose more than US$84-billion in 2020 alone and face a years-long recuperation.”
Now Joyce and his executive team are working on a new three-year plan that must be designed to accommodate a much smaller airline operating a very limited international network and a slightly busier, but still unremarkable, domestic schedule.
A leaner, sadder Qantas will not be alone in its previously unimagined and unwanted new world of commercial aviation.
A report last week from S&P Global Ratings, one of the world’s bi three credit rating agencies, expects it will take until at least 2023 for airlines to just get back to where they were in 2019.
“While consumers may be permitted to fly, ongoing and uncertain restrictions and the loss of confidence by passengers will likely keep air travel below 2019 utilisation levels through [until] 2023,” the report warned.
“More broadly, we expect consumers will make permanent shifts in how they work, shop, and spend their leisure time even after a vaccine becomes available.”