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Qantas announces further response to rising fuel costs

30-Mar-2011 9:56 AM

Qantas announced (30-Mar-2011) a range of measures aimed at re-positioning the airline and offset high oil and jet fuel prices and the impact of significant natural disasters in key markets including Japan, New Zealand and Australia. CEO Alan Joyce said the measures include reductions in domestic and international capacity, retirement of aircraft, reduction of management positions and ongoing fuel surcharges. Mr Joyce said it was too early to estimate the likely impact of these significant events on the Qantas Group’s result for FY12, but said the diversity of the Qantas Group would assist the business to manage this volatility in the market, by providing greater flexibility than many of the Group’s competitors. Qantas warned its result for the 2HFY2011 will be affected by several significant events, including:

  • The A380 Rolls-Royce engine incident and fleet grounding - will have a AUD25 million impact in 2HFY2011 in addition to AUD55 million impact in the 1HFY20Y11 (full year impact of AUD80 million); and
  • A number of significant natural disasters in Japan, New Zealand and Australia which are currently estimated to total approximately AUD140 million.
    • Queensland floods - AUD60 million;
    • Cyclones (Yasi and Carlos) - AUD20 million;
    • Christchurch earthquake - AUD15 million;
    • Japan earthquake and tsunami - AUD45 million

In light of these events, the airline has reviewed operations and will implement a number of measures that will cut costs and increase revenue, including:

  • Reducing Qantas Group domestic capacity growth in 2H2011 from 14% to 8% and reduce of Qantas Group international capacity growth in 2H11 from 10% to 7%;
  • Suspending up to four return weekly Jetstar services from Australian to Japan from 01-Apr to end of Aug-2011. Qantas will suspend Perth-Tokyo Narita services from 08-May, and downsize Sydney-Tokyo Narita equipment from B747-400 to A330;
  • Reduce three daily Jetstar domestic New Zealand services to Christchurch and one Melbourne-Christchurch daily service, all from 01-Apr;
  • Accelerate the retirement of two B767-300ER aircraft;
  • Reduce labour costs, which includes initiatives to reduce management headcount and annual and long service leave balances. Mr Joyce said Qantas wants "to limit redundancies wherever possible and will be using a range of initiatives to manage the reduction in capacity including annual and long service leave. At this stage only management positions will be made redundant,” Mr Joyce said;
  • Qantas has already increased domestic airfares and international fuel surcharges in Feb- and Mar-2011 in response to rising fuel prices. Jetstar also increased fares in selected domestic and international markets in Feb-2011 and increased ancillary revenue, including baggage charges. Qantas said that in spite of the increase in fuel surcharges and fare increases, Qantas will not recover the full impact of current and forecast fuel prices;

Qantas: “The significant and sustained increases in the price of fuel is the most serious challenge Qantas has faced since the Global Financial Crisis. The price of Singapore Jet Fuel has risen from around USD88 per barrel in September 2010, to more than USD131 per barrel today. Qantas fuel costs for the second half of FY2011 will be AUD2.0 billion. There has never been a time when the world faced so many natural disasters, all of which have come at a significant financial cost to the Qantas Group. We need to act decisively to respond to rising fuel costs and natural disasters, just like we did during the Global Financial Crisis, to ensure the ongoing sustainability of our business.” Alan Joyce, CEO. Source: Qantas, 30-Mar-2011.

Qantas: “Our portfolio of businesses – Qantas Airlines, Jetstar, QantasLink, Qantas Frequent Flyer and Qantas Freight – allows us to succeed no matter what challenges we face – from economic cycles to fuel price rises and natural disasters,” Alan Joyce, CEO. Source: Qantas, 30-Mar-2011. [more]