Turbulence Ahead For Qantas – US-FOREX.US
HONG KONG -
Since Qantas Airways cannot see through the clouds ahead, the flying kangaroo has turned on the emergency navigation system and readied a cost-cutting parachute to lighten its load for a safe landing.
Because “high levels of volatility in the economic outlook, industry capacity, passenger demand, fuel prices and exchange rates continue,” Qantas Airways
said Tuesday that it could not provide a clear business picture or any profit guidance for its investors, even though it has spotted signs of passenger volume improvements in the second half of 2009.
Its vision blurred by uncertainties on all fronts, Qantas announced its latest cost-reduction program, aimed at saving 1.5 billion Australian dollars permanently over three years. The Australian airline plans to save 500 million Australian dollars in the current 2009/2010 financial year.
Chief Executive Alan Joyce said the fresh round of cost-trimming measures “will focus on Qantas’ operations and improving efficiencies across a range of areas, including sales and distribution, fuel conservation, aircraft utilisation and schedule, and procurement.” Joyce didn’t rule out the possibility of further layoffs.Rising fuel costs are still the major operational burden troubling the airline. “We are also keeping a close watch on oil and fuel prices,” Joyce said. “While well below the record levels seen in 2008, they remain volatile and are trending upwards. For 2010, the Qantas Group has hedged 80 per cent of fuel costs at a worst-case price of 89 per barrel.”
The largest air-carrier in Australia on Tuesday reported its annual profit fell 87% to 181 million Australian dollars for the year ended this June. The figure beat market estimates of around 140 million Australian dollars, and was near the top range of Qantas’ own profit forecast of 100 million- 200 million Australian dollars , which was revised in April when the airline revealed its second major cost-cutting scheme.
Nevertheless, after deducting the 288 million Australian dollars of pre-tax profit booked for the half-year out from Qantas’ full year account, the airline lost 107.0 million Australian dollars in the six months ended this June.
“During the second half, the environment deteriorated, with domestic and international competitor capacity continuing to grow and demand in key markets softening quickly as the global slowdown hit,” said Chief Executive Alan Joyce, adding, “This was compounded by one-off events during the year, including protracted industrial action, H1N1 influenza and the costs associated with introducing the new Qantas A380.”
These one-off items caused real pain to Qantas. The strikes staged by the aircraft engineers union resulted in a maintenance backlog costing 130 million Australian dollars . The impact of the swine flu epidemic: 45 million Australian dollars . Introduction of the new Qantas A380 brought a bill of 37 million Australian dollars .
The half-yearly loss in the second half marked Qantas’ first loss in six years, matching the forecast of International Air Transport Association , which projected in June that the entire aviation industry could lose 9 billion in 2009, with an operating loss of 1.7 billion. The Geneva-based association estimated that most airlines around the globe will sink under the profit horizon the first time in six years since the industry posted an operating loss of 1.4 billion and a net loss of 7.5 billion in 2003.
To make sure it can fly through the financial turbulence, Qantas has been making bold efforts to layoff unnecessary workers and to ground planes to reduce over-capacity. Since the middle of last year, about 3,250 workers were sacked, nearly 10% of Qantas’ global workforce of 34,000 full time staff.
In June, Qantas canceled orders for 15 Boeing
787-9 aircraft and delayed the delivery of 15 smaller 787-8 aircraft by four years. To fully utilize its idle planes, Qantas announced Tuesday that it would lease four additional A330-200 aircraft on six-year terms to its low-cost subsidiary, Jetstar, for long-haul international travel, with the first to be delivered in November 2010.
