Wednesday, March 30, 2011

Qantas to slash costs and raise fuel surcharges By Ewin Hannan and Damon Kitney

 QANTAS will slug customers with more fuel surcharges over coming months if high fuel prices continue to hit the airline's profitability.

                                                                                                                                 Picture: Greg Wood
Qantas is facing a double blow of high fuel costs and fewer passengers.

 After announcing plans to cut management jobs, reduce international and domestic capacity and retire aircraft early, Qantas chief executive Alan Joyce said yesterday that further fuel levies were a possibility. He said the fuel bill for the second half of of the financial year would be $2 billion.  
 It comes as the local aviation industry is battling a crippling combination of soaring fuel prices, an unprecedented series of natural disasters and an associated drop-off in leisure travel.
 This has led all the local carriers to cut back capacity for the remainder of the year.
 Tiger and Virgin have already scaled back the number of seats on offer, and Qantas yesterday revealed it would scale back its domestic growth in the second half from 14 per cent to 8 per cent.
 On international routes it will reduce capacity growth in the second half from 10 per cent to 7 per cent.
 It is also reviewing its staff costs by reducing management headcount and annual and long-service leave balances.
 Mr Joyce refused to nominate how many managers would be made redundant, saying details of the "first phase" of cuts would be announced in coming weeks.
 In comments likely to anger airline unions currently in dispute with the company, he said he could not guarantee that the cuts would not spread to the airline's wider workforce.
 "Unfortunately, if fuel prices remain high for a long period of time, and economies go back into recession, we could be into a more difficult period than we have ever been in our history," he said.
 "During the global financial crisis, while we had economies that were thrown into negative territory in terms of recession, we had a very low fuel price. It came down to $30.
 "We are seeing fuel prices of over $100, $130 a barrel as a result of supply issues, not demand issues.
 "If that was to push some of the economies back into recession, we could see a double-whammy in the aviation industry, in very weak demand and a high fuel price, and we have not seen that before."
 The airline revealed yesterday that natural disasters, including Queensland's floods and cyclones and the Christchurch and Japan earthquakes and tsunami, would have a $140 million impact on its annual results.
 Its budget-offshoot Jetstar remains committed to the Japanese market, despite the suspension of up to four return weekly services from Australia following the earthquake and tsunami.
 The carrier is in advanced talks with Japan Airlines to explore a domestic joint venture in Japan, but the final negotiations have now been delayed indefinitely by the devastating Japan disaster.
 Jetstar is also committed to its domestic New Zealand services, which also have been hit hard by the Christchurch earthquake and prompted the airline to cut three daily Jetstar domestic New Zealand services to Christchurch.
 Yields in the domestic market in Australia have also tightened because of the increase in capacity this year, but they should be helped by moves by Virgin and Qantas to reduce capacity.
 Jetstar's Available Seat Kilometres (ASK's), which measures and airline's passenger carrying capacity, are up 20 per cent domestically so far this year.
 However, like Virgin, Jetstar is heavily exposed to the leisure travel market.
 The latest February operating statistics released yesterday showed there was a noticeable impact for Qantas and Jetstar from the natural disasters.
 Jetstar was particularly affected, with load factors falling 4.9 percentage points to 77.8 per cent in the domestic business and 4.6 points to 75.1 per cent in the international business.
 RBS analysts yesterday maintained their buy recommendation on Qantas, pointing to its strong hedging position protecting it from further potential spikes in the oil price.
 "The capacity reduction measures announced today indicate Qantas is proactively looking at all opportunities to position it for a potentially higher oil price in the longer term," the broker said.
 Qantas shares closed almost 2 per cent higher at $2.19. The shares fell to a 12-month low of $2.05 earlier this month.
 The Centre for Asia Pacific Aviation said the Qantas announcement was "reminiscent of the dark days of the global financial crisis".


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