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Roo axes leisure offshoot
From: By Steve Creedy
April 11, 2006

QANTAS'S first Asian expansion play has proved a failure, with the flying kangaroo expected to announce today the axing of its Cairns-based leisure brand, Australian Airlines.

Australian's distinctive ochre planes will be repainted and returned to Qantas mainline operations from mid-year as the company concentrates on launching its low-cost Jetstar International.
It is understood Qantas officials believe Australian's demise was necessary to wipe the slate clean and allow it to concentrate on its twin-brand philosophy.

The decision to drop the Australian brand will be announced at a press conference in Melbourne today which will also reveal Jetstar's international routes to Asia.

Job losses among the airline's staff of more than 400 are expected to be negligible, with most staff being absorbed by the mainline operations.

The five all-economy Boeing 767s will be converted to two-class configurations and the airline is expected to retain Australian's base in Cairns.

Qantas announced in February it was restructuring its management and that it would group its flying businesses under the Jetstar and Qantas brands.
Jetstar is about to formally seek approvals to fly the routes from November and to change its air operators certificate to fly widebody, two-class A330 aircraft.

A Jetstar spokesman said the strategy would be targeted at Asian and Asia-pacific destinations 10 hours or less from Australia.

"They are a mixture of new markets for the Qantas Group and seeking to put capacity into markets that we see have high growth potential," he said.

But Australian has also been struggling for some time and failed to reach the growth targets initially set for it.

Launched in October 2002, the all-economy airline was designed to operate on routes considered too marginal for Qantas to fly profitably.

Australian's launch plans had envisaged the carrier would operate 12 aircraft within two years but its plans were undercut by the combined effects of the SARS epidemic, terrorism and war.

Revised expectations called for a sixth Boeing 767 to be added by last year but high fuel costs torpedoed even that modest expectation.

Its lower cost base also failed to prevent a 2005-2006 first-half loss before interest and tax of $6.9 million.

That compared with a profit of $8.5 million in the first half of 2004-2005.

Capacity fell by 1.9 per cent after the airline cancelled flights to Bali and suspended services to Sabah, in east Malaysia, while traffic fell by 7.2 per cent and passenger loads dropped 3.9 percentage points.

Today's announcement comes as Air New Zealand has threatened to walk away from talks with Qantas if it cannot conclude a deal on trans-Tasman co-operation this month.

The airlines are reportedly close to finalising a code-sharing deal on the Tasman but comments over the weekend by Air NZ chief executive Rob Fyfe suggest frustration at the pace of negotiations.

Sources close to the negotiations report that it has come down to a single sticking point.

Mr Fyfe repeated comments at the airline's half-yearly results that progress was slow.

"The process has been going on for some time and we haven't moved at the pace I would like," he told Auckland's Sunday Star-Times.

"We will get to the point where I will move on.

"I would be hopeful that we'll make a decision this month whether there's an opportunity to do something with Qantas or there's not."

Mr Fyfe also indicated the airlines' plan could involve significant capacity cuts.

He noted each flew five Auckland -Sydney services a day, typically at the same times and with passenger loads of 60 to 70 per cent.

He suggested that if the airlines pooled their aircraft and together flew eight times day, they would reduce costs and produce better profits and improved pricing to customers.

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