No-frills kangaroo ready to hop
Wed "Sydney Morning Herald"
No-frills kangaroo ready to hop
By Scott Rochfort
October 15, 2003
Qantas is expected to formally outline the launch of its own low-cost domestic airline as soon as tomorrow, in a bid to slash labour costs and counter Virgin Blue's burgeoning share of the domestic aviation market.
Since Qantas's chief executive Geoff Dixon first flagged the idea two months ago, speculation has mounted that the Flying Kangaroo will announce its low-cost plans before shareholders at its annual general meeting in Adelaide tomorrow.
With Qantas remaining tight-lipped on the make-up of the airline, the only point made clear is that, like its low-cost international carrier Australian Airlines, the domestic carrier will be operated as an independent business unit, with its own union agreements.
Speculation over the new airline, and Qantas's two-year plan to slash its cost base by $1 billion (half from labour), heightened yesterday after the airline sent another batch of middle to senior managers for ground handling training in Los Angeles.
Citigroup Smith Barney analyst Jason Smith said it was feasible the carrier could commence services within nine months.
"We think they are committed to the low-cost carrier," Mr Smith said, adding that the Qantas-offshoot would probably initially compete against Virgin on low-yielding leisure routes.
If the low-budget concept were successful, Mr Smith said, the airline could then expand into key business routes such as Sydney-Melbourne.
Aside from giving Qantas more bargaining power against the 14 unions with which it deals, Mr Smith said any announcement of a second low-cost domestic carrier could impede Virgin Blue's plans to list on the stock exchange early next year.
Mr Smith said the formation of any low-cost carrier would be justified "as long as it covers its cost of capital".
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