Qantas’s $2 billion cuts mean cloudy outlook for SMEs, but there could be a silver lining

The announcement by Qantas that it is axing 5000 jobs as it fights to regain profitability brings mixed signals for the future of SMEs dependent on the airline giant.

Amid a half-year statutory loss of $235 million, down 315.6% on the previous corresponding period’s $109 million profit, the iconic Australian business also said it would continue to review its systems to cut operational costs.

Qantas chief executive Alan Joyce said in a statement to the ASX the results were unacceptable and action would be taken.

“We are facing some of the toughest conditions Qantas has ever seen,” he says.

“Australia has been hit by a giant wave of international airline capacity, with a 46% increase in competitor capacity since 2009 – more than double the global increase of 21% over the same period.”

It announced that the 5000 job cuts over the next three years were part of a $2 billion cost reduction strategy, which will also include more than 50 aircraft being deferred or sold and $1 billion in capital expenditure reduction.

The company will also undertake a structural review, in terms of its leases and high-value assets.

Economist Roy Green told SmartCompany that while Qantas did not signpost immediate plans to cut businesses from its supply chain, as it contracts its operations, this could unfold.

However, he thinks it may not be all bad news for SMEs related to the company, with the potential to pick up work that Qantas chooses to outsource rather than manage in-house. The SMEs could also be impacted by the flood of potential employees.

“When the 5000 staff leave Qantas they could enter businesses related to the Qantas supply chain,” he says.

“These businesses could be looking for people with those specialist skills.”

Green says some of the staff leaving could also look for opportunities to get involved in running a franchise as they seek a new career.

University of Melbourne professor and director of the Centre for Workplace Leadership, Peter Gahan, agrees that as Qantas looks to squeeze cost savings, suppliers could pick up work.

“As they look to see what they can outsource, this is a potential upside,” he says.

“There are also potential threats for SMEs in the sector…it is a good time for suppliers to identity the opportunities to fit into the scope of work that Qantas could need.”

Whole Kids founder Monica Meldrum has been supplying wholesome children’s snack foods to Qantas for six years. She told SmartCompany this morning that she was “not at all worried” about the future relationship of her business to Qantas. Her business employs 12 staff and has an ongoing contract with the airline.

“When we pitched to Qantas six years ago it was against a lot of big brand FMCG companies,” she says.

“Our costs were a bit higher… (but) they wanted to support a small Australian business.”

Meldrum says she has been through the global financial crisis with Qantas, and expects to ride the next wave also. Her niche product of allergen-free foods is in demand, and she says despite the cost cutting Qantas remains focused on its customer experience.

Yesterday Prime Minister Tony Abbott refused to offer Qantas a debt guarantee, declaring the government was only willing to lift the foreign ownership restrictions Qantas is under with the Qantas Sales Act, The Australian Financial Review reports.

Qantas is restricted to a maximum of 49% foreign ownership under the legislation.

The prospect of changing the law has angered some industry bodies, as work and contracts could be sent overseas.

Electrical Trades Union national industrial officer Matthew Murphy said it would end the legal requirement to maintain many maintenance jobs in Australia.

“This is the real game plan, with thousands more jobs likely to be sent overseas on top of the 9000 positions already slashed during the tenure of Alan Joyce.”