Tychon Aiyash blog

Qantas cuts to deal with fuel costs, disasters

Qantas Airways will add fewer new flights, retire aircraft early and shed managers in response to natural disasters in key destinations and rising fuel costs that it says pose the biggest threat to its business since the global financial crisis.

Recent natural disasters in Japan, New Zealand and Australia are expected to cost Qantas $140 million in the six months through June, Australia's national carrier said Wednesday.

That comes on top of a $25 million hit that Qantas expects in the same period from the temporary grounding of its superjumbo A380 fleet after a midair engine explosion over Indonesia in November. The airline said the incident cost it $55 million in the first half of its financial year.

Rising oil prices amid widespread unrest in North Africa and the Middle East are also pressuring the airline.

"The significant and sustained increases in the price of fuel is the most serious challenge Qantas has faced since the global financial crisis," Qantas CEO Alan Joyce said in a statement. He said the airline's fuel costs for six months to June 30 will be $2 billion.

Other airlines, including Delta and American Airlines, have been raising fares and trimming services to deal with rising costs. For Qantas, the problems are compounded by recent disasters in both of the markets where it operates domestic services — Australia and New Zealand.

An earthquake in February devastated the New Zealand city of Christchurch, while Australia's tourist destination state of Queensland was hit by a massive cyclone in the same month and suffered its worst flooding in decades. Qantas has also been hurt by this month's earthquake and tsunami that decimated northeastern Japan.

"There has never been a time when the world faced so many natural disasters, all of which have come at a significant financial cost," Joyce said. "We need to act decisively to respond to rising fuel costs and natural disasters ... to ensure the ongoing sustainability of our business."

Qantas said it would reduce costs and increase revenue by cutting growth in domestic seat capacity in the second half of 2011 to 8 percent from 14 percent and cutting international capacity growth to 7 percent from 10 percent.

Qantas and its budget stablemate Jetstar will suspend four weekly flights from Australia to Japan from April to August, and downsize the planes Qantas flies from Sydney to Japan from Boeing 747s to Airbus 330s.

Also, Jetstar will reduce flights to Christchurch from other New Zealand cities and from Australia.

Qantas will also send two B767 planes into early retirement, and reduce the number of managers.

The company has already increased fares twice since February on domestic and international flights to offset extra fuel costs.