Qantas will scale up its aggressive cost reduction program following Wednesday's warning that a combination of redundancy payouts and a A$1 billion ($737.8 million) additional impost from rising fuel prices will see its full-year earnings fall by 27% (ATWOnline, June 22). In a statement to the Australian Stock Exchange, CEO Geoff Dixon indicated that further job cuts may be necessary despite the progress made with the carrier's five-year, A$3 billion cost and efficiency improvement agenda.
Virgin Blue's unhedged exposure to escalating jet fuel prices undermined its net earnings for the first half of the financial year, with the carrier reporting an 8.5% fall in profit to A$68.2 million ($52.4 million), reflecting a 33.7% rise in the cost of fuel over the six-month period to March 31. CEO Brett Godfrey said the A$49 million in additional fuel expense was offset partially by the benefits of Virgin Blue's new corporate business strategy and improved productivity, which contributed to a 6.1% increase in revenue to A$935.9 million.
As expected, Australia's Qantas Group moved to rationalize its various airline brands, with leisure operator Australian Airlines being absorbed into the mainline from July and Jetstar International, the overseas arm of Qantas domestic LCC Jetstar, launching operations in November.
OzJet, Australia's first premium-only airline, suspended scheduled operations after only three months, citing its failure to break the stranglehold of Qantas and Virgin Blue on the business travel market. It cancelled its Sydney-Melbourne service and will not proceed with plans to establish flights to Perth next month. About 70 employees lost their jobs. The airline is expected to continue a limited charter operation, scaling down its 737-200 fleet from four to two and keeping approximately 30% of its staff.
Qantas shelved plans to establish intra-Asia freight services through a Thai-based joint venture amid deepening concerns about rising fuel prices and the medium-term outlook for air cargo. Executive GM-Associated Businesses Grant Fenn said the airline has "put back indefinitely" the start of flights by 49%-held Thai Air Cargo.
The Australian government, as expected, yesterday rejected Singapore Airlines' plans to offer service on the transpacific route to the US, bowing to a concerted campaign by Qantas to limit competition on its most profitable route and ruling that there would be minimal benefits to Australia.
Air New Zealand will go ahead and outsource the heavy maintenance of its long-haul fleet after all following the failure of unions to secure adequate support for a compromise proposal that would have kept the operation in-house. The airline had accepted the union's proposal late last month (ATWOnline, Jan. 31).
ANZ CEO Rob Fyfe said he was "extremely disappointed" by the decision that will result in the loss of 507 maintenance jobs.
Qantas is considering acquiring a share of Indonesian budget carrier Adam Air to strengthen its position in the high-growth Southeast Asia market. Adam Air CEO Gunawan Suherman confirmed that Qantas CEO Geoff Dixon and CFO Peter Gregg were in Jakarta last Friday to discuss the acquisition of 20%-30% of the operation. According to Gunawan, Qantas is planning to establish Jakarta as a second Asian hub after Singapore. Adam Air began flying in December 2002 with 737s and currently operates 20 aircraft to 39 destinations, including Malaysia and Singapore.
Air Canada intends to challenge Qantas between Los Angeles and Sydney next year, operating fifth freedom services as part of a daily Toronto-Sydney service that will commence during the first half of 2007 when its new 777-300ERs and dash 200LRs begin arriving.
Air Canada said it will use authority contained in the recent open skies agreement between the US and Canada and will apply to Canadian and Australian authorities for permission to operate the route.
Australia's business-only airline OzJet is showing further signs of stress after only two months, announcing a two-for-one fare deal designed to overcome slow business during the domestic holiday season.
The giveaway offer comes as the fledgling carrier struggles with threadbare loads on the three 737-200s it operates on the busy business route between Sydney and Melbourne. Launched Nov. 29, Ozjet also has halved its schedule to four return flights per day but plans to return to full service at the end of January.
Qantas is set for the most aggressive expansion in its history after revealing plans to acquire up to 115 787s valued at almost $15 billion at list prices for its mainline brand and the launch of its new long-haul, value-based product Jetstar International.
OzJet, Australia's first all-business-class airline, entered the domestic market amid signs that the price war of recent years is set to shift to the premium sector. The startup's launch was greeted by business fare discounts by Qantas and a more aggressive campaign by Virgin Blue for the corporate market, underpinned by the introduction of its Velocity frequent-flier scheme. Former racing team head Paul Stoddart's OzJet is offering eight flights a day between Sydney and Melbourne using two 737-200s configured with just 60 seats each.
Virgin Blue delivered a more upbeat earnings forecast for the recently completed financial year as it prepares to introduce a fresh strategy aimed at attracting more business-oriented premium traffic. In a brief statement to the Australian Stock Exchange, the budget airline said it is expecting a net profit of A$105 million ($78.5 million) for the year to last Sept. 30. While that is still A$54 million short of the previous year, it is considerably better than the August forecast of a fuel-based decline of A$90-A$100 million.
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