Qantas slashes capacity as downturn bites - predicts profits to fall by two thirds


Qantas has announced, as expected, that it is to cut more capacity as the global economic slowdown has continued to affect passenger demand. This has been reflected in a "decline in booking intakes, mainly international". Qantas last week held a massive international seat sale covering much of the first five months of 2009.

Qantas will manage the capacity cuts by not taking up the planned lease of two A330-200 aircraft and changing the flying patterns of existing aircraft between now and mid-2010 - removing the equivalent of grounding ten aircraft (six B747-400s, three B767-300s and an A320-200).

The airline will also halt all planned domestic market growth for Qantas and Jetstar.

This last step is particularly problematic for the Group. The airline's strategy after September 11, the Bali bombings and SARS was to inject marginal international capacity into the still-buoyant domestic market. Ansett's demise in 2001 also facilitated this movement. At that time, there was almost a perfect match between the international oversupply and the domestic undersupply. But this time around, the domestic market is by all accounts also moribund, so the main strategy in this environment is to ground aircraft, rather than reposition them.

The carrier is shrinking its capacity to maintain load factors and earnings in a market that is quickly souring. Qantas' capacity in the first six months of calendar 2009 will be 4% below the equivalent period in 2008.

Meanwhile, two more A380s will be delivered next month. Qantas Group will not be unhappy now to have experienced lengthy delays in delievry of both the A380 and the B787.

Outgoing CEO, Geoff Dixon said that as a result of the slower demand Qantas now expected its profit before tax for the 2008/09 financial year to be around AUD500 million - levels not seen since the SARS-affected 2003 - and two thirds below the record AUD1,408 million set in 2007/08.

Qantas Group profit before tax: 2004 to 2009 (financial years ended 30-June)

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The announcement follows a speech by Mr Dixon yesterday in which he pressed for government understanding of the need to amend the "outdated" Qantas Sale Act, which restricts foreign ownership in the airline to below 50%.

Mr Dixon stated, "the future of aviation will not and cannot look like the past. For years now I have been saying that airline consolidation is an inevitable part of the industry's future". He added, "consolidation will complete the modernisation process begun back in the early 1990s" and stated that Qantas "will certainly need the understanding of the government, the parliament and regulators to achieve this".

Falling profits and a weak outlook could help the incoming Qantas team press for the regulatory changes they desire.

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