tip off

Forget the jets, Qantas bets on domestic market

It seems to be taking a while for the penny to drop, but the newly created separate Qantas international division no longer has any new jets on order.

In a softly, softly speech announcing the airline group’s first full-year loss (of $245 million after tax) since privatisation in 1995, and a continuation of a three-year-old dividend drought for shareholders, CEO Alan Joyce spoke enthusiastically about the Boeing 787 Dreamliner for which Qantas international as of this morning no longer has any orders.

Joyce explained he has saved shareholders from a capital expenditure commitment of $8.5 billion, and also confidentially negotiated another $US 400 million payback from Boeing, on top of the $200 million compensation it paid the airline under previous management for delays to the Dreamliner.

The Qantas group will take 15 early model 787-8s from the second half of next year, but give them to Jetstar instead, which will base and crew them in Singapore, under Singapore employment agreements. I’ve reported the details of that deal more fully on Plane Talking.

What the plan means for Qantas as a whole is that Qantas International, as a division in its own right, can take all or none of the reinforced plastic Dreamliners on which Qantas under Geoff Dixon as CEO pinned its future ambitions but at fixed prices and fixed dates from 2016 that are covered by options or purchase rights.

In fact, Qantas has now been reorganised in stages into a domestic full-service unit with a regional and resource industry sections, and a domestic and transborder low-cost franchise in Jetstar, and an unloved loss-making international division with 12 A380s and nine museum-piece refurbished 747s that are expensive to fuel and maintain.

The international division could return to profitability under a recovery plan that Joyce first outlined more than a year ago and this morning said would bring benefits from 2015. Or, as has been discussed elsewhere, it could be cut free and offered back to the state.  It lost $450 million, as foreshadowed by Joyce two months before the end of the financial year.

Joyce has been highly critical of the performance of the international full-service carrier since he took control of Qantas and declined to comment further this morning on negotiations with Emirates to form a commercial relationship.

Qantas international has been bleeding market share to foreign carriers and to Virgin Australia, at a time of unprecedented growth in overseas services, including traffic originating from newly emerging economic growth centres Qantas doesn’t serve, including Perth to China and the Middle East.

Joyce was bullish on the outlook for Qantas domestic operations and Jetstar as a whole, and said that capacity on the interstate routes, where the carrier is locked in a fierce fare and perks war with Virgin Australia, could rise by between 9-11% in the first half of this financial year, or by less, as circumstances required.

That is one of the largest ambit calls yet made in domestic aviation, and whether it makes Virgin Australia blink remains to be seen.

However, the crucial part of the financial results briefing for Australian travellers concerns the fate of Qantas as a long-haul airline.  There is no precedent for an arrangement by which an airline management says it can resuscitate an ailing international division relying entirely on options rather than firm orders to modernise its operations, at a time when every move to downsize by Qantas has been cause for its competitors to upsize.

The softly spoken language used to massage the media this morning is in stark contrast to implications of the fleet restructuring, which could hypothetically enable the now separately managed international division to withdraw from the cruel world in which it flies the Australian flag, and offer to return its assets and liabilities to the state.

1
  • 1
    John Bennetts
    Posted Thursday, 23 August 2012 at 9:47 pm | Permalink

    Yet Qantas still pretends that it is not in breach of the Qantas Sales Act.

    That’s BS.

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