Australian airlines shift to survival mode

Qantas.

Australia’s major airlines are clipping their wings.

Capacity cuts and consolidation will be the overriding themes for major Australian airlines next year, as they struggle to stave off worse impacts of a global recession.

At the Qantas annual general meeting in Brisbane, Qantas chairman Leigh Clifford said while the company was better positioned than its rivals, the future business conditions remained extremely uncertain.

“It is impossible to predict how long the crisis will last or what specific implications it will have for economies around the world, for the Australian economy, and for the Qantas Group in particular,” Mr Clifford said.

“What we do know is that the Qantas Group must deal with high degrees of volatility in both the fuel price and in foreign exchange values.

“But few airlines can be better placed than Qantas to manage through this volatile era,” he said.

In the last fiscal year Qantas achieved a record profit before tax of $1.4 billion, a 46 per cent increase on the preceding year, but it recently slashed its forecast pre-tax profit for 2008/09 to $500 million.

In addition to 1,500 redundancies made in July, the carrier announced further capacity cuts last week, flatlining capacity growth.

Dixon wins big upon his departure

Headline-making Qantas CEO Geoff Dixon officially stepped down at the meeting, delegating impending challenges to Alan Joyce.

“The future of Qantas is certainly in very safe hands,” Mr Dixon said.

“Nevertheless, Alan takes over at yet another challenging time. I wish it were otherwise.”

He said while there was a real need for discipline in the short term, the long-term investment in new routes, fleet, product and service should continue, and reiterated the importance of consolidation in securing the carrier’s future position.

“I leave Qantas very confident indeed of its soundness as a business, the depth of talent in its management and people, and the scale and quality of its operations.

“The next step forward for Qantas will be to participate in consolidation of the aviation industry. The goal will be to position Qantas for the full modernisation of the industry, and enable this great Australian company to succeed as a great global enterprise,” he said.

Meanwhile, Mr Dixon’s exit was met with investors’ revolt over his final paycheque of $12.2 million. 

The company’s remuneration report also faced a considerable 40 per cent protest votes.

Qantas remuneration committee chairman James Strong attempted to play down the figure, saying it involved shares calculated at about $5 but the values now almost halved.

Virgin Blue expects the most difficult time ahead

Another Australian carrier Virgin Blue has tightened its belt as it expects the most challenging time to date.

”We expect the operating environment for the 2009 financial year to be the most difficult Virgin Blue has yet experienced,” chairman Neil Chatfield said at the annual general meeting.

The company over the last few months completed a strategic review of the business and accelerated a fuel mitigation program including commencement of a $50 million group-wide cost-savings program.

It would cut its capital spending by 12 per cent in the second half of the 2008-09 financial year, and curb its planned capacity growth, deferring aircraft deliveries. A freeze on all executive salaries has also been agreed.

In the 2007-08 fiscal year, the airline posted underlying net profit after tax of $140 million and revenue of 2.3 billion, up 8.4 per cent on the preceding year. 

V Australia, consolidation

Despite the immense challenges in the near future, the airline has high hopes for its new long-haul offshoot V Australia, set to be launched on 28 February 2009. The subsidiary will enable the company to offer flights on the less competitive Sydney-Los Angeles lane.

“Looking forward, we remain enthusiastic about the launch of V Australia.

“Despite launching in less than optimal circumstances, the fact remains that the Australia to US market has limited competition and we remain convinced of the potential of V Australia in the medium to long term,” he said.

In line with Mr Dixon’s view, Mr Chatfield said the current market conditions would fuel the industry’s move towards mergers.

“During the past few months, industry rationalisation on a regional and global scale has gained momentum.

“We expect this to continue and believe that economic conditions will driver further need for consolidation, including merger activity, across the industry,” he said.

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