In what is but a preview of more detailed measures to deal with surging fuel prices and natural disasters in Queensland, New Zealand and Japan, Qantas has announced cutbacks in fleet growth, suspension of some flights by its main brands, and unspecified management job losses.

Yet it is the use of the word “repositioning” in the first line of its ASX statement, as in “Qantas has today announced a range of measures to reposition the business as it responds to high oil … and the impact of natural disasters …” that has spread social media alarm through Qantas staff.

The “repositioning” word has been circulating for a while within Qantas as an indication that management has a more radical strategy in mind to “rescue” the business, and fears that fuel costs and other calamities will be the cover for deep restructuring are bubbling over.

While Qantas has spelled out approximately $140 million in natural disaster impacts on top of a known $80 million cost from the Rolls-Royce engine explosions that lead to a prolonged A380 fleet grounding, it is fuel, $US131 a barrel measured by Singapore Jet Fuel prices today compared to $US88 last September that is causing the most havoc and uncertainty.

Qantas has not quantified these factors in terms of impact on full year to June 30 earnings in today’s ASX statement, unlike the recent sharp downgrade by Virgin Blue for many of the same reasons to a loss of between -$30 million to -$80 million for its financial year guidance.

Qantas group CEO Alan Joyce sounded like he was channeling Virgin Blue CEO John Borghetti in the statement.

“There has never been a time when the world faced so many natural disasters, all of which have come at significant financial costs to the Qantas group,” he says.

“We need to act decisively to respond to rising fuel costs and natural disasters, just like we did during the GFC, to ensure the ongoing sustainability of our business.”

Joyce also emphasises that despite hedging, and increased fares and raised fuel levies, “Qantas will not recover the full impact of current and forecast fuel prices”.

This is a reminder of the danger to airlines at large from high fuel costs. They have the potential to render continued services unviable if they climb much higher toward an oil price of $US200 a barrel, even without trying to factor in the consequences for leisure and business activity as everyday effects on household spending and economic activity in general kick in.

In his statement Joyce tries to be optimistic, pointing to a portfolio of airline brands, the loyalty program, and freight, that “allows us to succeed no matter what challenges we face, from economic cycles to fuel price rises and natural disasters”.

But economic cycles and fuel prices rises don’t quite work that way, and the statement leaves unspoken the strategic weaknesses of Qantas in terms of aged, inefficient fleet and network failings that its major competitors are already using to drive in backwards in terms of market share and competitive financial performances.

Joyce knows this of course. That is why there is much more to come in terms of “repositioning”.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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