Guest Airmail Posted October 16, 2003 Share Posted October 16, 2003 Qantas To Launch Local Budget Offshoot In May By Lilly Vitorovich ADELAIDE, Australia -(Dow Jones)- Qantas Airways Ltd. Thursday confirmed it will launch a domestic budget airline in May next year amid increasing competition from Virgin Blue, which is putting the final touches to its A$1.4 billion share offer. Qantas chief executive Geoff Dixon said the flag carrier is in talks with Boeing Co. (NYSE:BA - News) , Airbus and aircraft lessors about buying an unspecified number of 737-800 or A320 planes for the new division. Speaking after the company's annual meeting, Dixon said the low-cost operation will expand to a fleet of 23 aircraft by mid-2005. Virgin Blue, which has grown its domestic market share to around 30% since beginning operations in August 2000, will have 42 planes when the Qantas rival is launched. "This will be a true low carrier - lean, highly competitive and with the standards of safety and reliability associated with Qantas," Dixon said. Qantas' cost base is 35% higher than Virgin Blue's and the company is under pressure to cut costs as the no-frills Brisbane-based rival prepares to enter the trans-Tasman market to New Zealand next year. Virgin Blue, which counts U.K. businessman Richard Branson and Australian transport group Patrick Corp. (AU.PRK) as its two biggest shareholders, wants to grow its Australian market share to 50% in the next few years. Qantas must protect its local operations to help minimize any future shocks offshore after being hit hard by the war in Iraq and SARS. In August, the nation's biggest airline posted a second half net loss of A$9 million, but still managed to post a A$343 million net profit for the 12 months to June 30, mainly due to its solid local performance. Dixon expects the new airline to boost the leisure market by just under 20% but declined to provide any startup costs, staffing numbers, or market share estimates. "We believe that we can make the airline profitable reasonably quickly," he said. Qantas' decision to start a domestic low cost carrier, which was flagged at the group's 2002-03 results presentation in August, comes just a year after launching its international offshoot Australian Airlines. Australian Airlines is now in profit despite the outbreak of SARS in Asia earlier this year, Dixon said. It is in "exceedingly good shape," considering it was launched just prior to the outbreak of SARS, he added. Virgin Blue wished Qantas well with its new venture. "We wish Qantas the best of luck in their endeavors," said a spokesman. Outlook Looking Brighter Qantas was cautiously optimistic about the new 2004 fiscal year with forward bookings "pretty much back" to where they were before Iraq and SARS, said company chairwoman Margaret Jackson. "As I said at the full year results announcement, conditions in the aviation industry remain challenging, however Qantas expects to improve on its performance in 2003-04 while continuing to invest in its fleet, its product, and its service," Dixon said in his speech to shareholders. The domestic budget carrier will be run by former Aer Lingus and Ansett Australia executive Alan Joyce. The 37 year-old will work together with a small team, which includes a number of former senior executives from Europe's low cost carrier Ryanair, on setting-up the airline. "His experience is principally in fleet and network planning and business improvement and he was actively involved in Aer Lingus' low cost strategy," Dixon said. Dixon said the new airline will choose the location of its headquarters within the next six weeks, adding it won't be in Sydney where Qantas' head office is based. While Qantas shares fell four cents to A$3.58, they have made sharp gains in the past few weeks and some analysts are tipping a 12 month price target of A$ 4.00 as travel markets recover. Link to comment Share on other sites More sharing options...
Guest CDB Posted October 16, 2003 Share Posted October 16, 2003 ""This will be a true low carrier..." Dixon said." That a typo or did he actually say that by accident? Link to comment Share on other sites More sharing options...
Mitch Cronin Posted October 16, 2003 Share Posted October 16, 2003 Proud as a peacock aren't you. We just lost 24 mechanics in yyz today... 4 off our crew. And here you are puffing out your chest. Link to comment Share on other sites More sharing options...
Guest Patrick Bergen Posted October 16, 2003 Share Posted October 16, 2003 Hi Mitch, I don't get the corealation between a low cost carrier startup and losing mechanic positions. I am fully sympathetic though having been on the pointy end of the stick of layoffs. Link to comment Share on other sites More sharing options...
Mitch Cronin Posted October 16, 2003 Share Posted October 16, 2003 Sorry Patrick... the correlation has to do with the motive of the poster, and the timing of that motive (though that may be due to blissful ignorance I suppose)... I'd better stick to that much only here, but see my above post for more... Cheers, Mitch Link to comment Share on other sites More sharing options...
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