Qantas cancels buyback, raises fares – Virgin follows

Qantas has announced that it is taking steps to maintain its profitability in the face of rising fuel prices by raising fares and cancelling its share buy-back.

The chief executive officer of Qantas, Geoff Dixon, said the group’s successful fuel hedging program, the benefits of its Two Brand Strategy and efficiency gains through the Sustainable Future Program had enabled it to manage higher fuel costs to date.

“We remain confident of meeting our guidance for a 2007/08 result of at least 40 per cent higher than the 2006/07 reported profit before tax,’’ Mr Dixon said.

“The continuing rise of jet fuel prices is of concern, however we have hedged 34 per cent of our 2008/09 needs at a price of US$90 per barrel WTI, of which the majority is in the first half of the fiscal year and is predominantly in options. But if high fuel prices persist beyond this point it would be of increasing concern.”

Mr Dixon said the company was taking immediate steps to minimise the impact of the fuel cost rise, including an increase in domestic and international airfares sold in Australia from 9 May 2008.

The fare increase will apply to all Qantas and QantasLink routes across all fare classes. Domestic fares will increase by approximately 3.5 per cent, whilst international fares will increase by approximately 3 per cent.

Jetstar is reviewing its fare levels and increases to Qantas fares sold outside Australia are also under consideration.

“Qantas is working hard to counter the rise in fuel prices with further efficiency improvements through an extension of its Sustainable Future Program, as well as a hiring freeze and cutbacks to non-essential expenditure,” Mr Dixon said.

“However, an increase in base fares is now necessary to partially bridge the widening gap between the actual increase in the cost of fuel and the amount we offset through surcharges or non-fuel cost improvements. We will continue to monitor fare and surcharge levels and review our network and schedule to optimise capacity.”

Mr Dixon also said that the company is to suspend its share buyback. Since the buyback commenced in September 2007, Qantas had already returned more than $500 million to shareholders.

Virgin Blue has also announced it will increase one-way Australian domestic fares between AUD$5-$10, based upon flight sector length. Pacific Blue Trans-Tasman and short haul international fares will increase between $5-$15. New Zealand domestic fares currently remain under review.

In a statement to the Australian Stock Exchange on 11 April, 2008 after jet fuel prices escalated to in excess of US$135, the airline said that continuing to absorb excessive fuel costs was an untenable position should fuel prices remain at that level. Jet fuel has since continued to increase and has now reached US$144 per barrel.

The new fares will come into effect progressively from Tuesday 6 May 2008 giving travellers time to get in and make bookings at current pricing levels.

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