Qantas Cuts Capacity in Response to Oil Prices

[Grant Smith]

Originally Posted by Adam P.

Morning Granny, doncha love shiftwork!

Certainly beats fighting off traffic... And it's fuel efficient too (keeping it on topic )

[Nigel C]

Originally Posted by Adrian C

I heard a prediction today that oil might ultimately crack $200 a barrel. If that happens, we might be studying The Flintstones' approach to public transport.

Not everyone is convinced it will hit, or stay at $200 a barrel.

From www.news.com.au on the 25th May

Oil price 'a bubble waiting to burst'

May 25, 2008 04:21am

DESPITE all the gloom, oil prices are predicted to fall 30 per cent within 12 months, giving motorists much-needed relief.

Many economists argue that the present oil market is a bubble waiting to burst, much like the tech-stock boom in 2000.

They say the price is being boosted by speculators, and point to a Persian Gulf chock-full of supertankers, chartered by oil-rich governments to hold fuel they cannot sell.

Oil retreated slightly from its record high of $US135 a barrel last week and economists tip it will fall to around $US100 in six to 12 months.

However, it may top $US150 before that happens.

With the Australian dollar expected to reach parity with the US dollar by September, the currency will continue to provide a buffer against petrol getting much higher.

"If we see pull-back in the oil price in the longer term, it's likely to be better news for motorists," CommSec equities economist Savanth Sebastian said.

"There is speculation in financial markets, which is what's driving the price further upwards. The expectation is that it's unsustainable at these prices and should work its way back down."

"We believe the long-term forecast for oil is below $US100 a barrel. We could see prices get down to $US80/$US90 a barrel."

ANZ head of international economics Amy Auster said ANZ had forecast oil to fall to $US106 by the end of 2008.

"It would be a pretty significant decline. From $US130 a barrel to $US100 a barrel is a 30 per cent decline," she said.

[Grant Smith]

I wonder what Tom Petrovski at CommSec thinks about this... Tom?

[Rhys Xanthis]

Originally Posted by Grant Smith

I wonder what Tom Petrovski at CommSec thinks about this... Tom?

its actually Piotrowski

http://youtube.com/watch?v=BcyY8xd6eho

hehe

[BradR]

Even $100 would remain a problem for a lot of airlines who have based their current business models on oil being no more than $85.

Brad

[Michael Morrison]

Originally Posted by BradR

Even $100 would remain a problem for a lot of airlines who have based their current business models on oil being no more than $85.

Brad

Mainly US airlines who still think it will be $60 per barrel!

Southwests fuel hedging is an example. They have hedged at $60 per barrel until july next year - after that they have no hedging.... presumably as they didnt think it would stay this high.

[Chris Tully]

Current price of jet fuel in Singapore sits at USD$166.00

Virgin isn't in the best of positions at the moment:

VIRGIN Blue is set to become a bigger thorn in the side of its 62.7% owner Toll Holdings, with one broker warning the airline is not only losing money, but could need an injection of funds if fuel prices remain at current levels.
UBS's research arm has slashed its forecast for Virgin of $60 million net profit next financial year to a $40 million loss, warning the carrier's capital position could become "strained" if jet fuel prices remain at about $US160 a barrel.
"We believe Virgin Blue is currently losing money, and we forecast a full-year loss in (2008-09) on our $US150 per barrel jet fuel assumption," UBS analyst Simon Mitchell says in a note to clients.
"At the current spot (price), a loss-making scenario looks even more certain."
The benchmark Singapore jet fuel price hit an all-time high of $US173.55 last Tuesday before ending the week slightly below $US160 a barrel. The doubling in jet fuel prices over the past 12 months has been compounded by refining margins rising even more than oil prices.
UBS says one problem for Virgin Blue is the huge amount of capacity set to come into the market, with the huge number of aircraft orders by Jetstar, Virgin Blue, Qantas and Tiger set to increase the number of seats in 2008-09 by 9%.
"The key problem for the airline is the lack of pricing power in the domestic market, given rampant capacity growth," the broker said. The increased capacity is expected to reduce the ability of airlines — especially those heavily exposed to the leisure segment such as Virgin Blue and Jetstar — to cut their fares.
Virgin Blue is this week expected to follow the lead taken by Qantas and Jetstar, cutting capacity on loss-making routes.
Unlike Qantas, however, which has been able to retire older aircraft that have already been fully depreciated, Virgin Blue's relatively new fleet gives it less flexibility.
Despite Jetstar announcing plans to "ground" one of its jets and cancel one order, the low-cost Qantas airline is still set to triple its fleet with a short-haul jet order of about 60 aircraft.
UBS says the strain on Virgin Blue's balance sheet would be exacerbated by the $2.3 billion of debt it needs to fund the 33 jets it has on order. This includes the $800 million needed to pay for six Boeing 777s for its V Australia long-haul airline.
If jet fuel remains at about $US160 a barrel, UBS warns that Virgin Blue could need fresh capital in 2009-10. This would no doubt be a major headache for Toll boss Paul Little, who only recently shelved attempts to sell the stake in Virgin Blue that Toll inherited from its takeover of Patrick Corp in 2006.
Virgin Blue shares hit an all-time low of 68¢ last Thursday, well down from their high of $2.75 in February last year. The UBS note follows a JPMorgan report that said Virgin Blue was the listed transport stock most vulnerable to oil prices.


http://business.theage.com.au/virgin...0601-2khu.html

[Chris Tully]

Qantas annouces reductions and exits on the ASX.

QANTAS ANNOUNCES INTERNATIONAL SCHEDULE CHANGES

SYDNEY, 5 June 2008: The Qantas Group today announced changes to its international services as it continues to manage the impact of high oil prices.

The Chief Executive Officer of Qantas, Mr Geoff Dixon, said the changes, which follow last week’s announcement regarding domestic services, included market exits, capacity cuts and the replacement of Qantas services with Jetstar services on a number of routes.

Mr Dixon said the cost of fuel had changed the way the Qantas Group had to do business over the next two years.

“We have to look closely at each individual market, including the number of frequencies we operate and which of our flying businesses is better suited to serve those destinations.”

Mr Dixon said Japan and South East Asia would be the most affected markets by the schedule changes.

“The Japan-Far North Queensland market has also been particularly difficult for Qantas for a number of years. At current fuel prices, the Group would lose more than $100 million operating to Japan under our existing schedule.”

Mr Dixon said Qantas would engage the tourism industry at seeking better ways of offering viable options for inbound tourism into the future.

Mr Dixon said the changes to the Japan schedule included:

The withdrawal of Qantas’ thrice-weekly Melbourne-Tokyo (Narita) A330 return services from September 2008;

A reduction in Qantas’ Sydney-Tokyo (Narita) A330 return services from nine to seven return services per week from September 2008;

Jetstar’s withdrawal from the Cairns-Osaka-Nagoya route from December 2008;

The replacement of Qantas’ 14 weekly B767 Cairns-Tokyo (Narita) services with a daily Jetstar non-stop A330 two-class service from December 2008; and

The introduction of new Gold Coast-Tokyo (Narita) services five times per week, operated by Jetstar with two-class A330s from December 2008, in addition to Jetstar’s daily Sydney-Gold Coast-Osaka services.

Mr Dixon said that under the new schedules, the Qantas Group would continue to offer significant capacity – more than 11,500 seats per week – between Japan and Queensland.

To support the schedule changes, Jetstar would need to free up A330 aircraft and, as a result, would:

Withdraw from its Sydney-Kuala Lumpur operation to make available an A330 aircraft; and

Replace its existing three weekly A330 services that operated between Sydney and Ho Chi Minh City with five A320 return services on the new route of Sydney-Darwin-Ho Chi Minh City from September 2008.

He said Jetstar would also replace Qantas on:

The Perth-Denpasar route, with up to four Jetstar A320 services taking over from Qantas’ B737-800 services from December 2008; and

Perth-Jakarta, with three Jetstar A320 return services per week replacing the existing three Qantas B737-800 services from December 2008.

Mr Dixon said Qantas would close its pilot base in Cairns, with around 40 Cairns-based pilots returning to Sydney or other bases.

“Qantas will maintain its existing cabin crew base in Cairns to service domestic operations, and Jetstar will establish a new base for pilots and cabin crew in Perth from October,” he said.

Mr Dixon said that as a result of the international schedule changes, there would be a small number of job losses in Cairns and Japan. These were in addition to those flagged in last week's announcement, which were expected to be in the low hundreds, and would also be managed initially on a voluntary basis.

He said in addition to the Asian flight changes, Qantas would reduce its B747-400 Sydney-Los Angeles services from 17 to 15 per week, following the commencement of A380 flights on the route at the end of the year.

“Using the larger A380s on a spread of our USA services will enable us to grow Melbourne-Los Angeles capacity and maintain our total current capacity levels from Australia to the USA.”

Mr Dixon said Qantas had done everything possible to mitigate the effects of the schedule changes we have been forced to make.

“We will continue to work with individual markets and look for opportunities as conditions improve to address capacity issues and reinstate services where and when we can.”

[Ben O]

So if MEL-NRT is cut plus the 2 daytime SYD-NRT A330 flights wonder what QF will do with the free A330 capacity?