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Qantas threatens to bulldoze its way to higher profits

Brendon Lau
Sydney Airport

The flying kangaroo is going full throttle into its long-haul flight project and is threatening to leave its pilots behind unless they come to the party.

This is significant for Qantas Airways Limited (ASX: QAN) as “Project Sunrise” is a key earnings and dividend growth driver for the group.

Management is trying to negotiate an enterprise bargaining agreement with the union representing its pilots. Progress may have been slower than what Qantas would have liked although its decision to clear Project Sunrise for take-off came sooner than I expected.

Bypassing pilot union

Qantas is warning the union that if it doesn’t agree to terms soon, it will go direct to its pilots with an offer. If its pilots reject the offer, Qantas will hire new pilots to fly the routes, according to the Australian Financial Review.

There are two key reasons why the airline is fast tracking its plans to offer non-stop flights to New York and London.

Competitors nipping at its heels

The first is competition. The airline noted that trans-Tasman rival Air New Zealand Limited (ASX: AIZ) is working on plans for a direct flight from Auckland to New York. I won’t be surprised if Virgin Australia Holdings Ltd (ASX: VAH) is also closely looking at launching a similar service to turn its fortunes around.

The new services are tipped to be a lucrative venture for the airlines as analysts believe they can charge a premium for the convenience. UBS estimated that Qantas’ average revenue per available seat kilometre (RASK) on the new flights will be close to 30% higher than on other regular flights.

Airbus playing hardball

The second reason why Qantas is so eager to get the project off the ground is because of aircraft manufacturer Airbus. Qantas will need new long-range aircrafts and it plans to order several A350-1000 planes from Airbus.

But Qantas said that Airbus can’t wait. The European manufacturer is warning that unless the airline signs a binding agreement for the purchase, it will reassign its engineers to other projects.

Foolish takeaway

These public threats from Qantas to fly off with or without its pilots may be timed to strengthen its bargaining position with the Australian & International Pilots Association.

The company is probably also eager to put out some good news given how the coronavirus is impacting on the travel sector.

Management complained that reaching an agreement with the union on Project Sunrise is made more difficult because the union changed its negotiation team several times.

Qantas is offering to pay captains on the new flights a base of $395,000 a year. First officers will get $261,000 and second officers $129,000 annually.

The union is concerned that the long flights pose safety and health risks to its members and the travelling public. But it said it is still continuing to negotiate with Qantas in good faith.

The post Qantas threatens to bulldoze its way to higher profits appeared first on Motley Fool Australia.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020