Qantas May Axe Routes, Seek Ventures to Stem Overseas Loss
July 12, 2011, 3:20 AM EDTBy Robert Fenner
(Updates with closing share price in sixth paragraph.)
July 12 (Bloomberg) -- Qantas Airways Ltd. may cut routes and seek tie-ups with competitors as Australia’s largest carrier works to reverse losses at its international business, according to analysts.
The airline may stop flying to South Africa and South America to focus on routes to London and Los Angeles, said Neil Hansford, chairman of Strategic Aviation Solutions, a Sydney- based industry consultant. It may also shift Hawaiian services to the Jetstar budget unit, he said.
Qantas Chief Executive Officer Alan Joyce has promised a “ruthless” review of operations after forecasting two years of annual losses at the international unit following a loss in market share. The airline is losing travelers as Singapore Airlines Ltd. and Dubai-based Emirates lure business class customers with newer planes and free rides to airports.
“Qantas international has stood still for decades and everyone caught up and overtook them,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “When I fly with them for business it doesn’t feel like the others.”
The Sydney-based carrier’s share of travelers to and from Australia has fallen to 19 percent in April from 35 percent in 2001, according to data compiled by the Australian government. It has maintained a two-thirds share of the domestic market for almost a decade.
Qantas fell 4.9 percent, the most in almost four months, to A$1.84 at the 4:10 p.m. close of Sydney trading. The stock has slumped 28 percent this year, compared with a 5.3 percent decline in Australia’s benchmark S&P/ASX 200 index.
“Making Cuts”
Qantas’s plans to revamp its international business include “making cuts where we need to make them,” Joyce told the Australian Broadcasting Corp.’s “Inside Business” program on July 10. The airline will announce its strategy to turn around the long-haul business with annual earnings on Aug. 24.
Joyce has said he will inject some of the savings squeezed from the international network into the luxury end of the division to win back corporate customers. The strategy’s two other elements involve addressing partnerships with other carriers and targeting expansion in Asia.
Thomas Woodward, a Sydney-based spokesman for Qantas, declined to comment beyond Joyce’s public statements.
Forging alliances with carriers such as Malaysian Airline System Bhd. will help Qantas add destinations without having to fly all its own jets and provide the infrastructure, according to the Center for Asia-Pacific Aviation.
“Big Opportunity”
“Qantas need to look at alliances,” said Derek Sadubin, chief operating officer of the Sydney-based consultancy. “The Asian market is something that Alan Joyce is very much focused on. It’s the big opportunity for Qantas.”
The carrier flies to eight countries in Asia. Its only African destination is Johannesburg, and in South America it serves Buenos Aires with its own jets. The airline also operates to Los Angeles and Dallas/Fort Worth in the U.S. and London and Frankfurt in Europe.
Qantas forecast on June 22 an A$200 million ($214 million) loss at the international arm for the year ended June 30 and a bigger loss this year. The airline has scaled back capacity- growth plans twice this year, including scrapping plane orders.
In addition to the task of winning back travelers, Joyce also faces challenges from rising fuel costs, natural disasters such as floods in Queensland and the tsunami in Japan that curbed travel, and a record-high Australian dollar that makes it more expensive for tourists to visit.
Industrial Action
He also has to deal with a looming strike threat from long- haul pilots. The Australian & International Pilots Association, which represents the long-haul pilots, yesterday voted to take its first industrial action at the carrier since 1966, while the engineers union plans disruptions across the network in support of higher wages.
With a reputation built on safety, including no fatalities in the jet age, Qantas is also limited by Australian laws in any bid to pare in-flight staffing. The rules stipulate that there has to be at least one flight attendant for every 36 passengers on most commercial flights. Pilot roles are determined by the type of aircraft.
Strategic Aviation’s Hansford said the carrier may drop routes where it doesn’t get a high proportion of business class or premium economy passengers, leaving it with likely destinations including Los Angeles and London.
Focusing on the U.K. and U.S. also enables Joyce to tap into the networks of airlines such as British Airways and AMR Corp.’s American Airlines, both fellow members of the Oneworld group of carriers.
“The money is made at the front end of the plane,” said Hansford. “If it’s a leisure destination, it makes more sense to use Jetstar. Jetstar can make somewhere like Hawaii viable.”
--Editors: Vipin V. Nair, Nicholas Wadhams.
To contact the reporter on this story: Robert Fenner in Sydney at rfenner@bloomberg.net
To contact the editor responsible for this story: Vipin Nair at vnair12@bloomberg.net
