Fri "The Australian"
Qantas no-frills team for new airline
By Steve Creedy and Terry Plane
October 17, 2003
Qantas has recruited former executives from aggressive European no frills operator Ryanair to help it with ambitious plans to establish a low-cost carrier by next May.
The executives will work with the new airline's executive general manager, 37-year-old Alan Joyce, to establish the carrier as a separate business under its own brand.
Qantas is negotiating with Airbus, Boeing and aircraft lessors to buy Boeing 737-800 or A320 aircraft and expects to have at least 23 by mid-2005.
It will decide within six weeks about whether to establish the new airline using the former Impulse operations bought in 2001 or start an entirely new company.
"This will be a true low-cost carrier - lean, highly competitive and with the standards of safety and reliability associated with Qantas," Qantas chief executive Geoff Dixon said.
The new airline's aggressive growth strategy surprised analysts and industry observers.
"Twenty-three aircraft by 2005 is faster than Virgin's rate of expansion," said Centre for Asia Pacific Aviation managing director Peter Harbison.
Mr Harbison said it was inevitable that the new carrier would cannibalise existing Qantas operations. It was also bad news for Virgin Blue's planned float, expected later this year or early next year.
"That will not only make it difficult for Virgin to float but it will make it quite difficult for it to expand," he said.
But Mr Dixon did not believe the new carrier would take sales away from mainline operations, saying Qantas could "chew gum and walk at the same time".
He also denied the move was aimed at Virgin, saying he expected a 15 to 20 per cent growth in the leisure market.
"This is the biggest and fastest growing segment of the industry," he said. "It's not aimed at Virgin, it's aimed at growth."
Qantas said it would pick a location for its headquarters within six weeks but it would not be Sydney-based. It would also get Melbourne advertising agency Dewey & Horten to work on naming, branding and advertising.
Earlier, Qantas chairwoman Margaret Jackson said the board's approval of the low-cost carrier demonstrated Qantas's "ongoing commitment to ensure our ongoing competitiveness".
Ms Jackson said the airline's "Sustainable Future" program, which aimed to reduce costs by $1 billion over two years, had so far identified $800 million in cost savings, with $350 million targeted for this financial year.
Ways of achieving the savings included simplifying and reorganising the aircraft fleet through the progressive retirement of Boeing 767-200s, transferring A330s to international operations and flying one widebody aircraft type, the 767-300, on domestic operations.
Mr Dixon also revealed Qantas would reconsider its appeal against the Australian competition watchdog's rejection of its proposed alliance with Air New Zealand if it was also rejected by the New Zealand Commerce Commission next week.
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Fri "The Australian"
Virgin Blue float faces delay
By Byron Kaye
October 16, 2003
QANTAS Airways Ltd's decision to set up a low cost airline could delay the float of Richard Branson's Virgin Blue Airlines Pty Ltd by three months, according to analysts.
Australia's biggest airline revealed today its directors had approved the establishment of a discount domestic airline to take on Virgin Blue, with the new operation to be launched next May.
The announcement came just a few months before the partial float of Virgin Blue, loosely touted for the end of this year, and analysts said Virgin Blue could now be forced to rethink competition risks associated with the public offer.
"It probably pushes out the timing of what was already going to be a very accelerated float beyond Christmas (and) puts it probably late in the first quarter of next year at best," said Peter Harbison, managing director of research firm the Centre for Asia Pacific Aviation.
"The slender chance of getting it done before Christmas is probably knocked on the head by this."
He added the timing of the float was not critical, given Virgin was already cashflow positive and did not urgently need to raise new capital.
Shaw Stockbroking research director Scott Marshall said the news would impact the Virgin Blue's operations, and float, but not necessarily delay it.
"If the current prospectus assumes 30 per cent market share, then there will possibly be not a lot of impact on the Virgin forecasts," he said.
Virgin Blue's share of the domestic market is nearing 30 per cent, Mr Marshall said, a threshold Qantas does not want to see crossed.
"The only reason Qantas would launch a discount airline is to offer an alternative to Virgin, so yes of course it would have an impact on Virgin," he said.
"It's more a matter of how to establish the discount airline without impacting the rest of Qantas."
Virgin Blue spokesman David Huttner said: "If they are trying to imitate us, we appreciate the recognition that we have the much more sustainable business model.
"If Qantas believe that this would have any impact on our float plans they will be disappointed."
Qantas chief executive Geoff Dixon said the new carrier had nothing to do with the float of Virgin Blue.
"I can assure you that the board of Qantas and the management of Qantas don't sit down and make decisions just to try to spoil the float of another company," he said.
"I think Qantas is a pretty robust company...and I believe that we are capable though with our financial strength and with our board and management...to be able to compete with Virgin."
Mr Dixon described Virgin as a good competitor.
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Fri "Sydney Morning Herald"
Qantas buys big for no frills fleet
By Scott Rochfort and Wendy Frew
October 17, 2003
Talk of a prolonged and bloody domestic airfare war intensified yesterday, after Qantas confirmed plans to launch its own budget domestic airline in May next year along with a massive order of new aircraft.
Amid speculation that yesterday's announcement was meant to spoil Virgin Blue's planned listing on the stock exchange, Qantas chief executive Geoff Dixon said:"This is not aimed at Virgin. It's aimed at growth."
Mr Dixon also scotched talk of a looming price war, saying: "I don't accept your premise that this is a discount price war. I don't know what Virgin will do; they are a pretty unpredictable competitor."
With the former Ansett and Aer Lingus executive Alan Joyce heading the new airline, analysts were surprised at the projected size of the new carrier, which Qantas said would have at least 23 aircraft by mid-2005. This compares with the estimated 80-odd Qantas planes now in use on domestic routes.
Amid projections such a fleet could snare 18 per cent of the domestic aviation market, resulting in a massive cannibalisation of Qantas's current domestic network, Mr Dixon said he didn't expect any job cuts or trouble from the unions, arguing the new airline would create growth and jobs.
Virgin controls an estimated 30 to 35 per cent of the domestic market.
Considering it has taken the growth-hungry Virgin more than three years to build its fleet to 35 B737s, some analysts remained circumspect over the prospects for the new carrier. Virgin's early growth spurt was aided by the collapse of Ansett.
Virgin also shrugged aside speculation it was thinking of buying another 11 aircraft on top of the 42 Boeing 737s it expects to have in the air by mid-2004.
Some analysts said such a move could lead to a severe over-capacity in the domestic market.
"We're always happy to look at new opportunities," said Virgin Blue's head of strategy, David Huttner.
It is understood the 11 new aircraft were cancelled orders, which one analyst said were being offered at a bargain basement price.
ABN Amro analyst Bruce Low said it was feasible Qantas could retire its ageing - and inefficient - fleet of 21 B737-300s while its new budget airline built up its fleet of A320 or B737-800s. The aircraft could cost up to $1.5 billion, unless the airline chose to lease the aircraft.
With Qantas still deliberating on whether to use the shell of the former budget airline Impulse it acquired in 2001 or establish a "greenfields" company, Mr Dixon said the new base of the yet-to-be-named airline would be chosen within six weeks.
Virgin's David Huttner said the new airline would not affect Virgin's operations or growth plans.
"It's clear that Qantas recognises that Virgin Blue has the most sustainable and profitable business model," Mr Huttner said.
Qantas shares fell 4c to $3.58 after hitting an eight-month high of $3.68 before the news.
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Last edited by Wirraway; 17th Oct 2003 at 00:26.