Qantas fights back with $9bn gamble

Qantas is under threat to stave off losses from international operations and is responding with a $9 billion investment plan.
Qantas Airways, Australia's biggest airline, will announce its international business restructuring plan on August 24. Ian Waldie / Bloomberg News
Qantas Airways, Australia's biggest airline, will announce its international business restructuring plan on August 24. Ian Waldie / Bloomberg News

Qantas is embarking on a US$9 billion (Dh33bn) gamble to invest in aircraft and launch subsidiaries as it comes under pressure from Middle East and Asian rivals.

With its international operations forecast to lose $210 million this year, the Australian flag carrier is planning to unveil a premium airline in Asia that will operate under a different name.

It will also launch a budget carrier in Japan to be called Jetstar in partnership with Japan Airlines and Mitsubishi. The Jetstar brand is a Qantas subsidiary.

"We need fundamental change," said Alan Joyce, the chief executive of Qantas, who also announced plans to buy up to 110 Airbus A320 and A320neo jets. The aircraft will cover the airline's fleet renewal and growth for the next 10 to 15 years.

"Right now 82 out of every 100 people flying out of Australia are choosing to fly with an airline other than Qantas, not including Jetstar," Mr Joyce told a news conference in Sydney yesterday.

Qantas is also evaluating loss-making international routes and it is speculated its services to places such as Los Angeles and New York could be on the chopping block. Qantas will announce the airline's international business restructure next Wednesday, with other routes such as Buenos Aires, Honolulu and Mumbai also under threat.

Gulf airlines have increased services to Australia and the head of Etihad Airways, James Hogan, has said Qantas's rivals will swoop in should the Australian airline cut any international routes. "If they do dilute or marginalise their international flying, that's a great opportunity for us … and we're happy to fill the gap," Mr Hogan told The Age newspaper.

"As Qantas starts restructuring their network, it presents even further opportunities for us to strengthen our foothold in the market." He said Gulf and Asian airlines out of Australia "will have a stronger consumer offering - whether it's leisure or corporate".

Mr Joyce said Qantas's international operations have a "proud history". But the carrier "is suffering big financial losses and a substantial decline in market share."

Mr Joyce has cut costs and jobs since taking the helm at Qantas in 2008, with growth increasingly focused on the budget offshoot Jetstar, which he ran previously.

"To do nothing, or tinker around the edges, would only guarantee the end of Qantas International in our home Australian market. That would be a tragedy," he said, adding that the international operation's cost base was about 20 per cent higher than its major rivals, including those in the Middle East.

The Qantas plan refocuses its offshore business squarely on Asia, a region that should account for more than half of global airline profits this year, according to the International Air Transport Association.

Qantas also delayed the delivery of its final six A380s for up to six years in a move aimed at conserving capital and bolstering its balance sheet. The airline said it would retire four Boeing 747s and would make no change to its existing order of Boeing 787s. Mr Joyce said the new premium airline was expected to be launched next year with an initial fleet size of 11 A320s. It may be based in Kuala Lumpur or Singapore and would not be majority owned by Qantas, he said. China was also reported to be being considered.

Qantas has an existing relationship with Malaysia's AirAsia , which this week agreed to swap shares with Malaysian Airline System as part of a partnership deal.

The Australian carrier will also cut 1,000 jobs at home as it shifts its focus to the world's fastest-growing aviation market, triggering threats by unions to block the move and a government pledge to scrutinise the plans.

"It's a prudent move," Jason Teh, a portfolio manager at Investors Mutual, said of the plans. (His company does not own Qantas shares.)

"That's a way to get your costs down. If you know your return on capital's going to be thin, share your capital base. The international business is more cyclical and poses more competitor threats than their domestic business."

* with agencies

Published: August 17, 2011 04:00 AM


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