- Qantas will launch new premium carrier in Asia and budget airline in Japan
- Qantas: Big changes needed to addresslosses and decline in market share
- Airline also announced fleet overhaul and plans to cut 1,000 of its 35,000 workforce
- Qantas International is losing about A$200m (US$208m) a year
(FT) -- Qantas Airways said it would launch a new premium carrier in Asia and a budget airline in Japan as part of a wide-ranging overhaul to improve the fortunes of its lossmaking international operations.
Unveiling the Sydney-based carrier's restructuring, Alan Joyce, chief executive, said on Tuesday that fundamental changes were needed to address "big financial losses and a substantial decline in market share" at Qantas International.
"Our cost base is around 20 per cent higher than that of our key competitors. To do nothing, or tinker around the edges, is not an option," Mr Joyce said.
The airline warned this year that it was facing its toughest environment since the global financial crisis when it cut its route network in the face of high fuel prices.
Qantas on Tuesday also announced a fleet overhaul and plans to cut 1,000 of its 35,000 workforce. But news of the jobs cuts immediately inflamed tensions with local unions.
The Australian Council of Trade Unions said Qantas was treating workers with "blatant contempt" and described the changes as "one of the darkest days" in the airline's history.
Meanwhile, the Australian Licenced Aircraft Engineers Association said the Qantas Sales Act that came into force when the airline was privatised in the early 1990s required the group to maintain the majority of its facilities in Australia. The union said it was considering legal action over the airline's plans to move more of its operations offshore.
Qantas said Jetstar, its budget airline, would join forces with Japan Airlines and Mitsubishi Corp, a trading company with interests in transport logistics and aircraft leasing, to launch Jetstar Japan. Qantas is considering Singapore, Malaysia or possibly China as the base for its new premium carrier in Asia. It said the location of the new Asian carrier, which will not carry the Qantas brand, would be announced at a later date.
Jetstar Japan is the third new budget airline to be created in the last year in Japan, a country whose high airport landing fees and cumbersome regulations had long been a barrier to low cost carriers. Now deregulation, an expansion of airport capacity in the populous Tokyo area and the bankruptcy last year of the incumbent carrier Japan Airlines (JAL) are creating a belated boom for low cost carriers.
Jetstar, Mitsubishi and JAL, which is shedding many of its own domestic routes as part of a restructuring, will each own one third of the venture, which plans to operate 24 aircraft within several years and may eventually expand service to nearby countries in Asia. JAL and Jetstar executives said they expected to be able to offer domestic flights from Tokyo's Narita and other airports for about 40 per cent less than fares on full-service carriers.
Among other changes, Qantas will replace Buenos Aires with Santiago as its new entry point into South America, restructure its joint services agreement with British Airways to strengthen the airlines' Singapore hub, and continue to develop its alliance with American Airlines for services between Australia and Dallas/Fort Worth in the US.
Mr Joyce said the first objective of the group's new five-year plan was to return Qantas International, which is losing about A$200m (US$208m) a year, to profit.
Losses at Qantas International have deepened as Middle Eastern and Asian carriers, including Emirates and Singapore Airlines, have expanded in Australia. Qantas said it now carried only 18 out of every 100 passengers leaving Australia.
Profits from Qantas's domestic operations, which have a 65 per cent market share, its fast-growing Jetstar unit and its frequent flyer programme have subsidised losses at Qantas International for years. Group profits have been hit recently by higher fuel and wage costs.
Mr Joyce said Qantas wanted to move from being Australia-based international airline to "participating in regional Asian opportunities, and in the world beyond."
Analysts said Qantas was re-positioning its business to gain greater access to Asia's fast-growing travel market.
Andrew McCusker at Goldman Sachs said the shake-up at the Australian carrier was only the first phase of a wider transformation plan.
He said higher unit costs at Qantas International compared to competitors was one of the big issues that needed to be tackled. "It is important to note that the remainder of the business continues to perform relatively strongly," Mr McCusker added.
Qantas also announced changes to its aircraft fleet. It plans to buy up to 110 A320 aircraft, which are better suited to short haul flights, and will delay delivery of six A380s, its long range jet. It will also retire four of its 26-strong fleet of Boeing 747s.
Qantas shares rose 6.5 cents to A$1.595 during the Sydney session, valuing the group at A$3.6bn, but ended down 0.3 per cent at A$1.525. The group is expected to report underlying full-year pre-tax profits of A$500m to A$550m later this month.
Additional reporting by Jonathan Soble in Tokyo
� The Financial Times Limited 2011
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