Pain in the Game: Qantas Over JobKeeper Scheme 

Summary

• Qantas is in the news for a dispute over the JobKeeper subsidy, with one of its employees moving to Fair Work Commission to deal with the conflict.
• The airline has entered a Frequent Flyer alliance with BNPL sector player, Afterpay.
• Qantas has adopted a three-year strategy to accelerate its recovery from the COVID-19 pandemic and return to growth in changed market, with the plan targeting benefits of AUD 15 billion.
• The airline has completed AUD 1,360 million fully underwritten placement and opened AUD 500 million share purchase plan.

Since the beginning of coronavirus crisis, we have heard a lot about Virgin Australia Holdings Limited (ASX:VAH), which saw its worse during the unprecedented crisis and went into voluntary administration. Not only the Australian second largest airline but the entire global aviation industry was hit hard during the pandemic with most of the carriers being grounded.

That said, despite the tough time, Qantas Airways Limited (ASX:QAN) stood taller in terms of handling the crisis at least in comparison to the domestic rival Virgin Australia. The latest is Virgin Australia got a new owner, whereas Qantas is implementing recovery plans.

On 6 July 2020, Qantas and Afterpay announced plans to roll out an exclusive new partnership, enabling Qantas Frequent Flyers to earn up to 5,000 Qantas Points when membership number linked with the Afterpay account. The collaboration would deliver huge advantage to the program’s large portion of ‘frequent buyers’, according to Qantas Loyalty CEO Olivia Wirth.

Qantas in Dispute Over JobKeeper Payments

Recently, Qantas was in the news for not following the correct approach while paying employees as per the JobKeeper scheme. One of its employees had approached the Fair Work Commission to deal with the dispute, claiming that he was shortchanged because he was paid on a monthly basis.

The commission found that the employee's application was a dispute about the operation of Part 6-4C of the FW Act (Fair Work Act 2009). The commission mentioned that dealing with this issue does not necessarily require exercising judicial power.

The commission stated that the airline applied its mind for issuing wages to employees, making payments what QAN understood as obligations and what it considered to be reasonable. Though the commission suggested the airline to reverse its decision regarding payment to the complainant, it didn’t make any ruling, considering that different considerations may be required when making decisions towards what was reasonable for other employees.

As per the airline, there is no unfairness from its side between monthly and fortnightly paid workers, as the nature of payment methods are different. Monthly paid workers have annualised wages averaged over 12 monthly pay dates, with payment dates that provide for payment in advance and arrears.

The airline also mentioned that the approach of Mr Mazzitelli, the Qantas' employee who had approached the commission, would put an unreasonable and excessive administrative and financial strain on the Group at a time of already severe financial stress due to the unprecedented crisis. Qantas also highlighted that such an approach would require the adoption of new payroll systems for payment to be calculated for monthly paid workers.

Reportedly, Qantas’ airport staff union is planning to take legal action against the airline, if the airline fails to change how it pays to employees as per the JobKeeper scheme. Few media reports have indicated that employees are not happy with the airline's way of calculating their wages.

Qantas' Proactive Measures to Accelerate Recovery

On 25 June, Qantas released its post-COVID recovery and equity raising plans. The airline has adopted a three-year strategy for the post-pandemic recovery phase. It aims to build a robust platform for future revenue and long-term shareholder value, while retaining the maximum number of employees.

Plan’s immediate focus is on:

• Rightsizing the workforce, fleet and other costs as per the demand projections;
• Restructuring for cost savings and efficiencies;
• Recapitalising through an equity raising program to boost the Group’s financial resilience during the recovery phase.

Over three years, the plan is aiming for benefits worth AUD 15 billion. Through productivity improvements, the plan targets to deliver AUD 1 billion annually in ongoing cost savings from FY23 onwards.

Plan’s key actions would include reducing pre-pandemic workforce by at least 6k roles across all parts of the business and continuing stand down for 15k employees. Moreover, it covers the retirement of six remaining 747s, six months before the schedule. Other plans include grounding up to 100 carriers for one year and some even for longer period, especially the international fleet.

Commenting on recovery plans, Qantas Group CEO Alan Joyce stated that the airline had entered the crisis in a much better position as compared to other airlines. The airline has better chances for recovery in the domestic market, but international flying would take years before recovering completely from the virus crisis.

Related: Is there Light at the End of Tunnel for International Flights in Australia?

Mr Joyce added that Qantas would require to position itself for several years during which revenue would be much less, and these restructuring steps, few of which are very painful decisions, are necessary to recover from the losses successfully.

The airline has been left with very few choices; however, it remains committed to providing as much support to the affected employees. The airline is trying to save as many jobs as possible through stand-downs and giving voluntary instead of mandatory redundancies where it is possible. Moreover, the airline is providing large severance payouts for the employees who have worked with Qantas for extended periods.

The plan offers flexibility under a range of conditions that include a faster rebound or a slower recovery.

Equity Raising through Institutional Placement and SPP

QAN also announced an equity raising plan, with the following rationale:

• Support and accelerate the Group’s recovery plan
• Strengthen balance sheet and improve financial flexibility
• Position the Group to capitalise on opportunities aligned with its strategy

On 26 June, QAN updated the market with successful completion of a fully underwritten placement, raising ~AUD 1,360 million with the issue of approximately 372.7 million new shares to institutional investors at an offer price of AUD 3.65 per placement share. The Group managed to attract interest from both existing shareholders and new investors.

On 2 July, the Group announced the opening of its Share Purchase Plan (SPP), which is being targeted to raise AUD 500 million, and will be free of commissions, brokerage, and transaction costs. The offer gives qualified shareholders the opportunity to subscribe for new fully paid ordinary shares in QAN worth up to AUD 30,000.

Following completion of the equity raising program and excluding the SPP proceeds, pro-forma net debt stood at AUD 4.7 billion as at 31 May 2020 and total liquidity position expected at AUD 4.6 billion.

On 6 July 2020, QAN closed the day’s trade at AUD 3.780, down by 1.047 per cent, with a market cap of AUD 7.12 billion. The last three-month return of the stock was noted at 25.25 per cent.

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