Qantas Responds to Rising Fuel Costs and Natural Disasters

Qantas has unveiled a range of measures to reposition the business as it responds to high oil and jet fuel prices and the impact of significant natural disasters in Japan, New Zealand and Australia.

The measures include reductions in domestic and international capacity, retirement of aircraft, reduction of management positions and ongoing fuel surcharges.

“The significant and sustained increases in the price of fuel is the most serious challenge Qantas has faced since the Global Financial Crisis,” said Qantas Chief Executive Officer, Mr Alan Joyce. “The price of Singapore Jet Fuel has risen from around US$88 per barrel in September 2010, to more than US$131 per barrel today. Qantas fuel costs for the second half of FY11 will be $2 billion ... There has never been a time when the world faced so many natural disasters, all of which have come at a significant financial cost to the Qantas Group ... We need to act decisively to respond to rising fuel costs and natural disasters, just like we did during the Global Financial Crisis, to ensure the ongoing sustainability of our business.”

The Qantas Group’s result for second half of FY11 will be impacted by a number of significant events, including:

- A380 Rolls-Royce engine incident and fleet grounding - $25 million in second half of FY11 in addition to $55 million in the first half of FY11; and
- A number of significant natural disasters which are currently estimated to total approximately $140 million.
- Queensland floods - $60 million
- Cyclones (Yasi and Carlos) - $20 million
- Christchurch earthquake - $15 million
- Japan earthquake and tsunami - $45 million

Mr Joyce said it was too early to estimate the likely impact of these significant events on the Qantas Group’s result for FY12.

Qantas is also implementing a number of measures which will reduce costs and increase revenue in order to protect the interests of employees and shareholders including:

- Reduction of Qantas Group domestic capacity growth in 2H11 from 14% to 8% and the reduction of Qantas Group international capacity growth in 2H11 from 10% to 7%;

- Suspension of up to four return weekly Jetstar services from Australia to Japan (from 1 April to end of August); the suspension of Qantas services between Perth and Narita (from 8 May); and downsizing of Qantas aircraft between Sydney and Narita from a Boeing 747 to an Airbus 330;

- Reduction of three daily Jetstar domestic New Zealand services to Christchurch and one Melbourne to Christchurch daily service (all from April);

- Fleet changes with the early retirement of two B767 aircraft; and

- Review of manpower costs which will include initiatives to reduce management headcount and annual and long service leave balances.

“We want to limit redundancies wherever possible and will be using a range of initiatives to manage the reduction in capacity including annual and long service leave. At this stage only management positions will be made redundant,” Mr Joyce said.

Qantas has already increased domestic airfares and international fuel surcharges in February and March this year in response to rising fuel prices. Jetstar also increased fares in selected domestic and international markets in February and increased ancillary revenue, including baggage charges.

In spite of the increase in fuel surcharges and fare increases, Qantas says it will not recover the full impact of current and forecast fuel prices.

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