Jetstar to Europe & USA
Wed "Sydney Morning Herald"
Qantas expands cut-price strategy
By Scott Rochfort
August 24, 2005
Qantas has embarked on a long-term plan to split the national carrier in two in an attempt to slash costs, and has announced plans to add a fifth fuel surcharge in 16 months to counter rising oil costs.
By next year Qantas's low-cost offshoot, Jetstar, plans to fly to Asia, and possibly Europe and North America.
The move comes just days after Qantas said Jetstar would some day be "just as important as the main line" airline.
It is thought Jetstar will fly to areas deemed barely profitable by Qantas and which are dominated by economy-class passengers, such as Bali, Honolulu and even Rome, a route Qantas abandoned in 2003. Qantas will stick to the main routes frequented by business-class passengers, such as Sydney to London.
Jetstar's ascendancy is seen as a key plank in Qantas's plans to cut $3 billion in costs by 2008. Jetstar's international expansion could replicate Qantas's moves domestically, where Jetstar has replaced Qantas's services to leisure destinations such as the Gold Coast and Hamilton Island.
Qantas's chief financial officer, Peter Gregg, said Jetstar was likely to fly to the smaller destinations in countries Qantas already served. He declined to say which long-haul aircraft Jetstar would use but said it could take 12 months to get regulatory approval. He did not rule out using Qantas's fleet of four A330-200s.
Qantas had to ditch its plans to fly the A330-200s into Asia two years ago. This was because the floor on the jets was too thin to install business-class SkyBeds.
Mr Gregg denied talk in aviation circles that Qantas had made a huge error in ordering the aircraft. He said Qantas had planned to use them without SkyBeds domestically, but had changed its mind after Ansett collapsed in September 2001.
He added: "There's no problem putting the SkyBed on." However, this would cost $20 million in strengthening the floors and "writing off" the interiors.
There is speculation Qantas has been keen to offload the aircraft on to its low-cost operations, given the huge cost of upgrading them.
Qantas "reluctantly" announced its fifth fuel surcharge since May last year. It also warned that further job cuts would be needed to counter the rising cost of oil, now about $US65 a barrel. It said that from September 2 domestic one-way fuel surcharges would rise from $20 to $26, the international surcharge from $60 to $75 and the trans-Tasman surcharge from $40 to $46.
Despite the airline having 90 per cent of its fuel bill hedged around $US49 a barrel until December 31, it warned its oil costs would rise by $1.25 billion this financial year. The airline has left Jetstar's one-way charge at $19, prompting speculation that its low-cost rival Virgin Blue may hold off raising its $19 levy.
Air New Zealand also announced a new fuel surcharge yesterday, including a 4.5 per cent boost to domestic fares. The surcharge means the cost of flights to and from Australia will rise by $9.15.
Qantas is expected to waste no time slashing the further $1.5 billion in costs it announced last Thursday, on top of its current $1.5 billion three-year cost-cutting program.
After announcing plans on Monday to replace 96 customer service jobs with e-ticket machines, Qantas's chief executive, Geoff Dixon, said: "As far as we're concerned we're going to keep on making changes."
He denied Qantas would wait for the Government to conclude its review of airline policy. The review could result in the lifting of the 49 per cent foreign ownership restriction on the airline.
==========================================