Qantas Targets Ventures, Asia Demand After International Losses
Qantas Airways Ltd. (QAN) said it plans to form long-haul ventures with other airlines and target Asian expansion after predicting losses of more than A$200 million ($212 million) on international routes next fiscal year.
“Qantas International is a great airline, but currently it is a poor business,” Chief Executive Officer Alan Joyce said today in a speech in Canberra. “To do nothing about it would threaten the future of the whole company.”
Australia’s biggest carrier today forecast an increase of as much as 46 percent in overall pretax profit for the year ended June as domestic services, budget unit Jetstar, and a frequent flyer program offset losses on overseas routes. Qantas’s market share on international services has tumbled to about 20 percent from 35 percent in 2001 because of competition from Emirates Airline and Singapore Airlines Ltd.
“Rivals can feed and disperse traffic over their increasingly powerful hubs in southeast Asia or the Middle East,” Derek Sadubin, chief operating officer at the Centre for Asia-Pacific Aviation, said in a Bloomberg TV interview. Qantas “will be looking to shift costs where they can.”
The carrier will announce plans the for its long-haul unit on Aug. 24, alongside its full-year earnings, Joyce said. The airline today forecast an A$200 million loss at the international arm for the year ended June 30 and a bigger loss for the next fiscal year.
Overall pretax earnings this fiscal year will be about A$500 million to A$550 million, including compensation of A$95 million from Rolls-Royce Holdings Plc after an engine explosion on an Airbus SAS A380 last year disrupted flights, it said in a statement.
The carrier closed little changed at A$1.83 in Sydney trading. It has dropped 28 percent this year, compared with a 4.5 percent decline for the benchmark S&P/ASX 200 index.
Qantas has twice this year scaled back capacity growth plans, including scrapping plane orders, as natural disasters and rising fuel prices damp demand and push up costs.
A cloud of volcanic ash, which forced flight cancellations in Sydney today and a shutdown of routes to New Zealand, has cost the airline A$21 million since disruptions began last week, it said. Earthquakes in Japan and New Zealand earlier this year will have an A$185 million effect.
The airline plans to deepen ties with other members of the Oneworld alliance, including forming ventures, Joyce said, without elaboration. The carrier already cooperates with British Airways on Europe-to-Australia routes and it’s working on a trans-Pacific accord with American Airlines. Other carriers in Oneworld include Japan Airlines Corp. and Cathay Pacific Airways Ltd. (293) Malaysian Airline System Bhd. will join next year.
“If they can turn a A$200 million loss this year into a profit of a similar size, it translates to a big boost to earnings,” said Don Williams, chief investment officer at Platypus Asset Management Ltd. in Sydney, which has A$1.8 billion under management.
“The future will be about travel both to and within Asia,” Joyce said. “Our customers want to be doing business in Asia and so do we.”
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