Qantas made a loss of A$252 million (US$225.3 million) during the second half of 2013, a deterioration it attributes to an unprecedented increase in market competition.
“Australia has been hit by a giant wave of international airline capacity, with a 46 per cent increase in competitor capacity since 2009 – more than double the global increase of 21 per cent over the same period,” said Qantas chief executive officer Alan Joyce.
In response to the airline’s downturn in fortunes, Qantas has announced a A$2 billion (US$1.7 billion) cost reduction programme that will see the carrier implement fleet and network changes, and the consolidation of business activities and procurement savings.
Manpower will additionally be reduced by 5,000, with the majority of cuts to come from management and non-operational roles within the company.
A380 order deferred
One of the airline’s major cost-cutting initiatives is the deferment of new aircraft deliveries and the accelerated retirement of many of its fleet’s less fuel-efficient members such as the B767’s and non-reconfigured B747.
Australia’s flying kangaroo currently has eight remaining A380’s on order, but this will be deferred, with an ongoing review of delivery dates to meet potential future requirements. The company is also halting the delivery of the final three B787-8’s that its low-cost subsidiary Jetstar Airways has in the pipeline.
Jetstar future uncertain
The delivery of the final three B787-8 Dreamliners for Jetstar Airways have been deferred
Indeed, Qantas’ financial woes have made a major impact on the growth of Jetstar. This has extended beyond the shores of Australia to its sister airline, Jetstar Asia.
“When it comes to Jetstar in Asia, we need to take the right decisions in accord with current market circumstances and our balance sheet. In Singapore, growth has been suspended by the Jetstar Asia board until such time as conditions improve,” said Joyce.
Considering the growing competition in the low-cost carrier market, this could potentially have long-term implications to the profitability of Jetstar Asia, especially with the growing number of LCC brands emerging in Asian markets such as Thailand and Taiwan (see here).
Withdrawal of routes
The new business class seat on Qantas' A330
Qantas will also withdraw underperforming routes over the next 12 months to better utilise its new streamlined fleet. First on the agenda is the cancellation of its Perth-Singapore service, expected to cease operations in the first quarter of 2015.
Passengers wishing to fly between the two destinations will have to travel on the daily service from Singapore Airlines. However, Qantas’ partner Emirates will soon deploy its A380 superjumbo onto the route (it currently operates services with the smaller Boeing 777-300ER), meaning that there would still be a sizable international carrier presence in the capital of Western Australia.
The accelerated retirement of the non-reconfigured B747’s will mean that Qantas’ Brisbane-Singapore and Sydney-Singapore services will soon be operated by A330’s. This signifies a reduction of more than 50 seats, and the loss of the premium economy cabin that the B747 currently offers. The capacity reduction will, however, be offset once again by partner Emirates, which operates two daily flights to Brisbane (including one through Singapore) and a thrice daily service to Sydney.
With the A330’s poised to become the mainstay of Qantas’ international services, many of the airline’s domestic flights will see increased utilisation of narrow-body aircraft such as the B737-800. The A330’s domestic presence will be limited to East-West operations and peak services on the Sydney-Melbourne-Brisbane triangle.
Jetstar will transfer its own A330’s to Qantas as it gradually replaces its mid-to-long-haul aircraft with the B787 Dreamliner.
For more information, visit www.qantas.com.au