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Qantas CEO Joyce Will Target Chinese Travelers With Five Separate Airlines

Qantas Airways Ltd. (QAN), seeking to revive unprofitable international operations, is counting on five different airline units to win travelers in China, a country 60 times bigger than its home market of Australia.

The company is forming a premium carrier in Southeast Asia and a budget venture in Japan that will give it bases closer to China, Chief Executive Officer Alan Joyce, 45, said in an interview in Sydney yesterday. The two new airlines, which begin flights next year, will add to Qantas’s existing operations in Vietnam, Singapore and Australia.

“There is a huge opportunity for Qantas within the Asian markets,” Joyce said. Having premium and low-cost units serving China and the rest of the region is “critical,” he said.

Winning sales in the world’s most populous country is central to Joyce’s plans to turn around overseas operations now losing about A$200 million ($207 million) a year because of competition from Middle East carriers on European routes. Delta Air Lines Inc. and American Airlines also added flights to China, where international air travel may grow 11 percent a year through 2014, according to the International Air Transport Association.

“I really think it is hard to overestimate China’s potential,” said Peter Harbison, chairman of the Sydney-based CAPA Centre for Aviation, an industry adviser. The country’s size and rising intra-Asia trade provide “unbelievable upside internationally,” he said.

Plane Orders

Sydney-based Qantas, Australia’s largest airline, will order as many as 110 Airbus SAS A320s, including 78 of the revamped neo version, to support the new Southeast Asia premium carrier and the Japan budget venture. It announced the new international airlines last month alongside plans to pare flights to Europe and shed 1,000 jobs in Australia.

The workforce cuts have bolstered calls by unions for job- security agreements. The company was today told by the Transport Workers Union that up to 3,800 workers, including catering staff and baggage handlers, will go on strike for four hours from 5 a.m. on Sept. 20. Qantas is assessing the impact the stoppage will have on operations, it said in an e-mailed statement.

BHP Billiton Ltd. (BHP), the world’s biggest mining company, has also had periodic strikes in Queensland state since June amid disagreements with coking coal workers. Australia’s Labor government changed employment laws after coming to power in 2007, enabling more group-based agreements and implementing measures meant to stop any erosion of working conditions.

‘Emboldened’ Unions

“A lot of businesses in Australia are very worried about the industrial-relations challenge,” Joyce said. “The union movement is emboldened and is very aggressive at the moment.”

Still, the carrier may reach agreements with labor leaders by year’s end, Joyce said. The engineers union said today it was unlikely that target would be met.

“Our problem is we need them to come to the table and talk to us about job security and what we can do,” Peter Somerville, general manager of the Australian Licenced Aircraft Engineers Association, said by phone today. “Any agreement on these matters in the time frame Alan Joyce gave is unlikely.”

An accord with pilots will only be possible if Qantas guarantees that flights won’t be outsourced to other companies, said Richard Woodward, vice president of the Australian & International Pilots Association.

Qantas fell 0.3 percent to A$1.49 at the 4:10 p.m. close of Sydney trading. It has declined 41 percent this year, compared with a 28 percent drop for the Bloomberg World Airlines Index, which tracks 30 stocks.

Jetstar China

Qantas’s low-cost budget arm Jetstar has led the company’s growth in China by offering flights to eight cities from its hub in Singapore. The budget carrier’s Vietnam unit also plans to add China flights, Joyce said. The main Qantas airline flies to Shanghai and Hong Kong from Australia.

Chinese services now represent more than 10 percent of Qantas’s international revenue, compared with “low single digits” five years ago, Joyce said. The Dublin-born CEO founded Jetstar in 2004, four years after joining Qantas. He previously had stints at Aer Lingus Group Plc and Ansett, which was Australia’s No. 2 carrier before collapsing 10 years ago.

Qantas plans to make a decision on whether to base its new premium airline in Singapore or Kuala Lumpur within two months, Joyce said. Singapore has the advantage of a bigger business travel base, while Kuala Lumpur may offer less competition and the chance to work with Malaysian Airline System Bhd. (MAS) and AirAsia Bhd., he said.

Like all of the company’s overseas operations, Qantas will work with a local partner on the new premium unit to comply with international rules governing airline ownership. The Jetstar Japan venture will be part-owned by Japan Airlines Co. and Mitsubishi Corp.

To contact the reporter on this story: Robert Fenner in Sydney at rfenner@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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