Faced with Australia's first tax on carbon emissions next year, Qantas will also increase airfares at home to compensate for the levy, the Sydney-based carrier said. The cuts to international expenses are part of a strategy to be announced Aug. 24 to turn around the long-haul business, Chief Executive Officer Alan Joyce told the Australian Broadcasting Corp.
"We need to make significant changes to our international services," Joyce said on yesterday's "Inside Business" program, without providing details. The plan includes adopting "an honest and fairly aggressive view on the performance of the international network and making cuts where we need to make them," he said.
Qantas forecast on June 22 a A$200 million ($214 million) loss at the international arm for the year ended June 30 and a bigger loss in the fiscal year starting July 1. Competition from Emirates Airline and Singapore Airlines Ltd. has slashed the airline's market share in international services to about 20 percent from 35 percent in 2001.
Qantas shares fell 2.3 percent to A$1.955 at 12:29 p.m. in Sydney. The stock has dropped 23 percent this year compared with a 3.2 percent decline in Australia's benchmark S&P/ASX 200 index.
Carbon Tax
Joyce's potential revamp of the international unit comes as he adjusts domestic operations for the government's new tax to reduce carbon-dioxide emissions.
Australian Prime Minister Julia Gillard expects to raise some A$27.8 billion in three years by making polluters pay an initial charge of A$23 a ton of carbon dioxide, then lifting the price by 2.5 percent a year plus inflation, she said yesterday.
The tax, which will be applied to domestic air services, will increase the excise on aviation kerosene to 10.16 cents per liter in the year ending June 2015 from the current 3.556 cents per liter, the government said in a statement. International flights will not be subject to the extra tax on fuel.
The new tax will increase Qantas's fuel bill by as much as A$115 million in the 12 months ending June 2013. Qantas is planning a "full pass-through to customers" of the higher costs, the company said in a stock exchange statement today.
The Australian and International Pilots Association will announce the outcome of a ballot of its members today that may include voting in favor of the first strike action by the carrier's long-haul pilots since 1966.
Invest in Luxury
Joyce said he'll inject some of the savings squeezed from the international network into the luxury end of the division. The other two elements of the turnaround strategy involve addressing partnerships with other carriers and targeting Asian expansion, Joyce said on the television program.
In its June 22 forecast, Qantas said it was planning for an increase of as much as 46 percent in overall pretax profit for the year ended June 30 as domestic services, budget unit Jetstar and a frequent-flyer program offset losses on overseas routes. The international business is the company's weakest and delivered required returns only three times in the past 15 years, Joyce said at the time.
Qantas has scaled back capacity growth plans twice this year, including scrapping plane orders, as natural disasters and rising fuel prices damp demand and push up costs.
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