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AEROSPACE
Qantas cuts staff, flights over fuel costs, disasters

by Staff Writers
Sydney (AFP) March 30, 2011
Australian flag carrier Qantas said Wednesday it will slash capacity and jobs as it grapples with disasters and surging fuel costs in its "most serious challenge" since the global downturn.

The announcement comes as the airline is already facing threats of strike action from thousands of members over pay, jobs security and contract workers.

Chief executive Alan Joyce said there had "never been a time when the world faced so many natural disasters", with earthquakes in Japan and New Zealand and Australia devastated by floods and cyclones.

The calamities had come at "significant financial cost" he added, with Australia's wild weather bringing an Aus$80 million ($82.5 million) bill and Japan's quake and tsunami costing Aus$45 million.

New Zealand's killer earthquake last month wiped another $15 million off the bottom line.

Meanwhile, a surge of almost 50 percent in the price of fuel since September from $88 a barrel to $131 a barrel had left the airline under significant financial pressure with second-half fuel costs estimated at Aus$2 billion.

"The significant and sustained increases in the price of fuel is the most serious challenge Qantas has faced since the global financial crisis," Joyce said.

"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."

The carrier hiked airfares and other charges earlier this year in response to rising fuel costs but said it would not be able to recover "the full impact of current and forecast fuel prices."

The airline's shares were 1.86 percent higher at Aus$2.19 in afternoon trade on a broadly higher market.

Qantas posted a four-fold increase in net profits to Aus$241 million for the six months to December 2010, despite an Airbus A380 engine explosion that sent shudders through the industry.

Qantas grounded its entire A380 superjumbo fleet after the November blast in an episode Joyce said was expected to cost Aus$80 million in the 2011 financial year.

Qantas' domestic and international capacity would be slashed and services to Japan either suspended or downsized, while flights to New Zealand's earthquake-hit Christchurch would also be reduced to cut costs.

Management positions would be trimmed and two ageing Boeing 767 jets retired early, the airline said.

Qantas is already facing strike action over wages and the use of cheaper contract workers, with about 9,000 employees including pilots, refuellers, baggage and transport staff and engineers threatening to walk out earlier this month.

Staff want a four percent pay rise with additional superannuation payments, as well as job security clauses.

Wednesday's news came after the airline struck an upbeat tone in its half-year results last month, saying pre-tax annual profits would be "materially stronger" than 2010's Aus$377 million as demand recovered, especially for business travel.

It outlined plans to boost its fleet by hiring or extending leases on 31 aircraft and buying 10 Fokker 100s for domestic flights.

Analysts questioned whether Qantas could meet such confident forecasts before the oil price spiked, and CMC Markets strategist Ben Le Brun said there were now significant global political and economic headwinds to contend with.

"They are going to have to do anything they can if they want to keep earnings within the guidance they have made," Le Brun told AFP, saying the forecasts may have been "a little bit optimistic".

"The Middle East and North Africa crisis doesn't look like its going to find a solution overnight."



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