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| Qantas to cut costs by A$1.5 bn to counter slump |
| Bloomberg / Sydney Aug 20, 2009, 00:57 IST |
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Qantas Airways Ltd, Australia’s biggest airline, will embark on a A$1.5 billion ($1.24 billion) cost-cutting programme after its first loss in six years.
Shares of the Sydney-based carrier rose to a nine-month high after Chief Executive Officer Alan Joyce, 43, said he will deploy more fuel-efficient aircraft and change flight schedules as part of the three-year plan in response to a 8.7 per cent drop in passenger revenue.
Qantas “is hostage to the global environment,” said Sean Fenton, who helps manage $324 million at Tribeca Investment Partners in Sydney. “Targeting costs is all they can do right now when the demand conditions are still pretty weak.”
Qantas joins premium-class rivals Singapore Airlines Ltd and Cathay Pacific Airways Ltd in slashing expenses to manage the biggest drop in overseas travel since 2003’s SARS outbreak. Singapore Air, the world’s second-largest carrier by market value, may post its first loss in 24 years on falling sales and Hong Kong-based Cathay is considering ripping out some premium- class seats as demand plunges.
Qantas rose 9 cents, or 3.5 per cent, to A$2.69 at the 4.10 pm close of trading in Sydney, their highest level since November 11. The stock has gained 2.3 per cent this year, compared with an 18 per cent rise in the benchmark S&P/ASX 200 index.
Premium air travel in June fell 21.3 per cent from year-ago levels, less than May’s 23.6 per cent drop, as carriers slashed prices to fill seats, according to the International Air Transport Association.
For the second half ended June 30, Qantas had a loss of A$93 million, compared with net income of A$351 million a year earlier. The Sydney-based company reported full-year profit of A$117 million today.
“The next fiscal year will probably be just as tough, with no profits in the absence of further cost cutting,” said William Seddon, an analyst who helps manage $250 million with White Funds Management in Sydney. “They’ve done well to deliver an okay result.”
Qantas shares have risen 17 per cent since Joyce, the former head of its Jetstar discount carrier, succeeded Geoff Dixon in November and stepped up efforts to reduce costs.
The carrier expects to curb costs and fuel use by flying more direct routes and cutting the time airplanes take to taxi from the gate to the runway, Joyce said in an interview today in Sydney. Among other steps to reduce expenses and streamline services, the carrier will consider introducing passenger check- in via text messaging. “We don’t see an impact on what we deliver to the customer, in fact we are going to invest in more lounges and new aircraft types,” Joyce said.
Qantas carried 7.2 million passengers overseas in the past year, 11 per cent less than a year earlier. Revenue per passenger fell 8 per cent.
The second-half loss was the company’s first since 2003. It’s only the second time the carrier has been unprofitable for a six month period since first selling shares in 1995.
Annual passenger revenue fell to A$11.6 billion. Freight sales dropped 20 per cent to A$764 million.
“Cutting prices and maintaining service quality are important, but for that high-yielding business segment to recover, that really needs economic growth to drive demand,” Fenton said.
Asia-Pacific international travel demand fell in 12 of the past 14 months, according to IATA, as the spread of swine flu exacerbated a decline in passengers.
Qantas offered two-for-one business-class fares on some international routes to lure passengers after airlines such as Malaysian Airline System Bhd. and Cathay won premium customers through similar offers. Qantas also cut return fares from Sydney to Los Angeles to less than A$1,000, a third of last year’s price.
The airline’s namesake carrier, its biggest unit, posted full-year earnings before interest and tax of A$4 million compared with A$1.358 billion a year earlier.
The company’s fuel bill fell 2.7 per cent to A$3.6 billion as the global recession cut prices.
Jet kerosene prices have fallen by more than 40 per cent in the past 12 months and stood at $76.75 a barrel on Tuesday in Singapore, according to Bloomberg data. They touched a record $181.85 in July 2008.
Qantas has 80 per cent of its expected 2010 fuel costs hedged at a worst case price of $89 a barrel, it said today.
Jetstar had a 4.9 per cent rise in earnings to A$107 million as budget-conscious passengers switched from its full-service carrier.
Earnings at Qantas’s frequent flyer program rose 77 per cent to A$226 million. An initial share sale of the unit is “off the agenda,” Joyce told reporters on a conference call today.
Qantas has more than 65 per cent of Australia’s domestic air-travel market, compared with about 30 per cent for second- ranked Virgin Blue Holdings Ltd.
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