QANTAS TO CUT US$750M FROM SPENDING PLANS

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By admin June 15, 2011 13:11

QANTAS TO CUT US$750M FROM SPENDING PLANS

It is one of those days when it is hard to decide what to put on the top of the news, so please make sure you refer to the top of the European section for a large Air France order set for Paris and a political aspect.

Australia’s flag carrier Qantas Airways is suffering badly from depressed share price. Its price war with other carriers on domestic routes, maintenance worries, engine blowouts and strike action have all taken their toll. On top of this traffic is showing signs of leveling off across domestic services with expectations now put at 5.5% annual growth from 8%. All this has lead to warnings that the company’s credit rating may be in danger. No wonder then that management have hit the reset button and announced today that they are to cut spending by A$700 million (US$750 million) through the cancellation of 12 narrowbody aircraft orders and the reduction of aircraft leasing costs by A$300 million. The news made no impact on share price, remaining flat at A$1.88 at the close.

Spending will be slashed by A$400 million (US$426 million) — A$100 million from the second half of the current financial year, which ends this month, and A$300 million from 2011/12. Aircraft lease plans will be reduced by As$300 million, according to CEO Alan Joyce, with Qantas now expecting to take delivery of 34 aircraft in 2011-12 instead of the 43 previously announced. Orders for 12 narrow-body jets will be cancelled or deferred, including three anticipated in the second half of this year.

The airline suffered about A$80 million in losses due to flooding and cyclones in Australia earlier this year, followed by a A$15 million hit from New Zealand’s Christchurch earthquake. The earthquake and tsunami in Japan caused another A$45 million in losses and now the Chilean volcano threatens even more losses. This, on top of the A380 Rolls-Royce engine problems has seen a terrible run of events for Qantas to deal with over the past 12 months. Given these facts it has to be said that the airline is performing well.

It estimated that before-tax profits for the financial year ending in June would be “materially stronger” than the 2010 figure of A$377 million.
Meanwhile in an update to a story we ran back in February 2011, budget airline IndiGo, run by InterGlobe Aviation, will launch its international operations in September with highly competitive ticket prices that could trigger a fare war on the South-East Asian and West Asian routes. We reported that Indigo was planning a fare war back in February, now with the announcement today that the airline will offer 25,000 tickets at Rs.9,999 each for flights to Singapore, Bangkok and Dubai (current average is Rs15,000) we have been proved right. The prices have been advertised as a launch offer but Airline Economics understands that the fares will not increase; they will only become more expensive if you book closer to flight date in line with most other airlines. The advertised fares will remain at low levels and thus a price war will begin in the region this summer. We expect fares to reduce by 20-20% on the routes that Indigo is attacking. AirAsia, Tiger and Air Arabia will come under pressure first followed by Jet Airways, Air India and Kingfisher and then SIA, Emirates and Thai. Look out for SpiceJet – If Indigo does well and carves out a market then SpiceJet would be mad not to get in on the action and develop a similar plan.

IndiGo’s first international flight on September 1 will be Delhi-Dubai, which will be followed by Delhi-Bangkok, Delhi-Singapore, Mumbai-Dubai and Mumbai-Bangkok.

The no-frills model with paid food on board will be retained. But as the flights are international, alcohol will be sold on board.

In the second phase, IndiGo plans to launch Mumbai-Muscat, Delhi-Kathmandu, Kolkata-Dhaka, Kolkata-Bangkok and flights from Kochi after October depending on clearances from the aviation ministry.

Some 15% of IndiGo’s total flights will be international by the end of the fiscal year. The airline plans to increase its fleet from 39 to 55 Airbus A320s in that time with 320 daily flights from the current 259.

The IndiGo launch will mark the start of international services at Delhi’s Indira Gandhi International Terminal 1D, which is dedicated to serving low-fare carriers.

admin
By admin June 15, 2011 13:11
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