QAN 1.13% $7.15 qantas airways limited

fall in traffic forces qantas cuts

  1. 636 Posts.
    Fall in traffic forces Qantas cuts
    Mar 28
    Jane Boyle

    Qantas is expected to announce today that it will cut international capacity by 15 to 20 per cent over the next three months and make permanent job cuts in response to falling traffic due to the Iraq war.

    The carrier's move to accelerate cost-cutting comes as airlines in the United States, Canada and Europe slash tens of thousands of jobs and remove capacity to cope with the downturn.

    Qantas shares fell 15¢ to $3.32 yesterday in a weaker sharemarket amid fears that it may miss its full-year profit targets.

    Salomon Smith Barney analyst Jason Smith told clients that the prospect of a 15 to 20 per cent fall in traffic on some key routes, due to a prolonged conflict in Iraq, appeared increasingly likely. Qantas's profit before tax could fall by between $80 million and $120 million this financial year if forward bookings came under pressure, he said.

    Mr Smith forecast profit before tax of $908 million compared with $630 million last year.

    First-half fiscal 2004 profits could also be affected and market forecast downgrades could put short-term pressure on the share price, he said.

    However, he said the airline's fundamentals were "excellent" with the stronger $A, well-hedged fuel costs and a program in place to cut costs by $1 billion over three years.

    Qantas has already cut capacity by 6 per cent, and after the new reductions capacity for the next three months will be 15 to 20 per cent below levels the airline had initially planned.

    Japan, the UK and Europe are among the worst affected routes.

    Qantas has already started an accelerated leave program to reduce staffing levels temporarily by the equivalent of 2500 full-time positions, and a temporary hiring freeze.

    It will also announce permanent staff reductions through attrition, and has previously warned that it may make redundancies if conditions worsen.

    What Qantas does with its surplus capacity will have major consequences for its domestic rival Virgin Blue.

    Qantas has seven Boeing 767-200s that it can retire early, seven BAe 146 regional jets on leases that it can opt not to renew and, if the downturn in traffic turns out to be catastrophic, 13 737-300s and six 747-300s that it could retire to reduce capacity.

    However, it is juggling the need to maintain flexibility for a potential sharp improvement in traffic when the war ends and so may opt to redeploy capacity in the domestic market, which would put significant pressure on domestic yields and make life tougher for Virgin Blue.
 
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