Major International Investment Key To Qantas' Turnaround Plan

Major International Investment Key To Qantas' Turnaround Plan August 17, 2011 - 05:00 PM ET By Jay Boehmer Within Australia, Qantas commands a 65 percent domestic traffic share, is solidly profitable and by most measures dominates the commercial aviation landscape. To and from its home market, however, the carrier's dominance has steadily waned. Seeking to rebuild dwindling market share, reverse financial losses and strike back at emboldened foreign competitors, Qantas this week sketched out a five-year plan to build what CEO Alan Joyce called "a global, multi-brand enterprise." Though its turnaround plan has yet to be fully unveiled, this week Qantas announced the proposed launch of two new Asia-based airlines, heightened cooperation with alliance partners, fleet-renewal and product-enhancement efforts and cost-cutting measures, including the elimination of 1,000 positions and the deferral of aircraft. Calling the carrier's international operations "a steadily fading business, suffering big financial losses and a substantial decline in market share," Joyce this week during a presentation for media and investors said that "the issues are neither cyclical nor temporary." He detailed the challenges: Qantas, not including its Jetstar subsidiary, carries only 18 percent of international traffic out of Australia; competitors are "piling in" from all sides, with a particularly aggressive set of Middle Eastern and Asian airlines; and the carrier's cost base is 20 percent higher than its "key" international competitors. Joyce, however, noted that the Qantas Group as a whole is a "large, stable and profitable enterprise," with its core domestic operations "performing very strongly and generating good profits." Building New Asian Airlines Calling Asia the world's "largest, fastest-growing and most profitable aviation market," Joyce sees an opportunity to make the region the carrier's next focal point. First up, Qantas expects by the end of 2012 to launch Jetstar Japan with co-owners Japan Airlines and Mitsubishi Corp., with inaugural service between Tokyo Narita and Osaka. Billing itself as a low-cost operator, the carrier expects to launch with three 180-seat, single-cabin Airbus A320s and grow to as many as 24 aircraft in its "first few years." The partners are evaluating domestic service to other cities in Japan, including Sapporo, Fukuoka and Okinawa, and eventual short-haul international flights to Asian markets. Joyce also confirmed plans "to invest in a new, premium, full-service airline based in Asia," which would operate under a new brand and launch with an initial fleet of 11 A320 aircraft. Other details, including the airline's launch date, base of operations, partners and routes, have yet to be revealed. Extending Reach Through Partnership In other major regions, including Europe, the United States and South America, Qantas is deepening its Oneworld ties through its newly coined "gateway strategy," eliminating some routes served by its alliance partners. Joyce also pointed to closer coordination with Qantas joint business partner British Airways, a pending joint venture with American Airlines and further reach into Latin America with Lan as near-term efforts. Qantas and British Airways early next year will consolidate some services under their long-held joint venture. For example, Qantas early next year will stop serving London from Bangkok and Hong Kong, while British Airways will drop services to Sydney from Bangkok. Still, the carriers claimed the combined network would be preserved, as "Qantas will fly Australia-Bangkok and Australia-Hong Kong, while British Airways will operate Bangkok-London and Hong Kong-London, maximizing the airlines' respective network strengths." British Airways plans to add three weekly London-Hong Kong services for a total of 17, and switch from Boeing 777 to 747 aircraft for its London-Sydney service, which connects in Singapore. Qantas in April 2012 plans to abandon service to Buenos Aires and commence three weekly flights from Sydney to Santiago, Chile, where it can tap into the network of Oneworld partner Lan. Joyce called Santiago an "exciting hub city for booming South America, as well as an important destination for Australian business." The gateway strategy already has taken root in North America, where Qantas and Oneworld partner American Airlines await the U.S. Department of Transportation's approval of their request for antitrust immunity. DOT already has given the nod to a competing joint venture between Delta and Australia's Virgin Blue Group. If DOT does the same for AA and Qantas, the carriers plan to coordinate on fares, schedules and corporate deals for travel between the United States and Australia and New Zealand. Furthering cooperation with AA, Qantas in May dropped its Sydney-San Francisco route and launched service between Sydney and American's hub in Dallas, "opening a gateway to 52 destinations in north and central America with our partner American Airlines," according to Joyce. Investing In Product, Buying Aircraft And Reducing Headcount • Qantas this week also announced plans to take delivery of as many as 110 new Airbus aircraft through 2020. From next year until mid-2015, Qantas expects to add at least 28 current-generation A320 aircraft to the group's fleet. From then until 2020, Qantas expects to take an additional 78 next-generation A320s. Aircraft will be allocated to domestic and international Jetstar services, Jetstar Japan operations and Qantas' other planned startup. Qantas also deferred delivery of six Airbus A380s to coincide with the retirement of six Boeing 747s during the next six years. • "As a result of aircraft retirements, network changes and more efficient practices," Joyce expects Qantas to shed 1,000 "redundant" jobs, including management, pilot, cabin crew, engineering and airport administration positions. "We expect the majority of these redundancies will be voluntary," Joyce claimed. • Among AUD$400 million (US$418 million) in international product investments, Qantas this year will begin retrofitting the interiors of nine Boeing 747s to match the look and feel of A380 cabins. The carrier also plans to refresh lounges in Los Angeles, Singapore and Hong Kong.