Qantas to cut costs as Asian venture stalls

Qantas

QANTAS has highlighted the complexity involved in launching an ultra-premium airline in south-east Asia, indicating that any substantive progress on talks to get it airborne is months away at best.

The airline group, whose operations include Jetstar, has unveiled a cost-cutting drive over the next 18 months, which will reduce spending by $700 million.

Qantas will consolidate maintenance and catering operations, retire older aircraft earlier, and ditch two more international routes, as it strives to lower its cost base to make it more competitive against foreign rivals.

The airline confirmed that 500 jobs would be axed, but indicated the final toll would be significantly higher.

After its pre-tax earnings for the first half of $202 million came in above its own guidance and the expectations of analysts, shares in Qantas surged 6 per cent to $1.655, their biggest one-day rally in six months.

Despite stripping more costs from its operations, Qantas is making slow progress on its much-hyped plans for a premium airline in south-east Asia, as part of a possible joint venture with Malaysia Airlines. It has long been touted as a key to turning around Qantas’ international operations.

Qantas chief executive Alan Joyce, playing down expectations, said the plans for a premium airline were ”hugely complex” and were ”not just on the perceived quality of the [airport] hub”.

”There are a lot of other factors that come into it and I can guarantee that they are all being considered, along with the capital requirement on this, before we make a decision,” he said.

Qantas had previously said it expected to reveal details early this year, but yesterday Mr Joyce declined to give a timeline. He would not comment on the progress of negotiations with Malaysia Airlines and other parties, including AirAsia’s founder Tony Fernandes, but insisted Qantas was not walking away from its plans.

Qantas is adopting a so-called ”capital-light option” similar to its Jetstar joint venture in Japan, which will see the Australian airline inject just $64 million over three years. It means Qantas expects to chip in less than $100 million into an ultra-premium carrier, likely to be based in Kuala Lumpur.

Qantas’ net profit fell 83 per cent to $42 million for the first half, which it blamed largely on a $194 million bill for the industrial action and grounding of its entire fleet last year, and a $444 million rise in fuel prices.

It has not given guidance for this financial year because of ”the high degree of volatility and uncertainty”.

As part of attempts to stem losses from its international operations, Qantas will ditch the Singapore-Mumbai and Auckland-Los Angeles routes from May. It will also reduce capacity on other routes, including Sydney-Bangkok, Sydney-Perth and Melbourne-Perth by replacing large aircraft with smaller planes.