Qantas Airways has hacked into its overly ambitious expansion plans for the second time in three months as weak growth and high fuel cost carve a hole through the company’s operations.
The airline says it will slash the planned expansion of its domestic capacity by taking delivery of fewer aircraft in this year and next in response to a weak domestic market.
The airline group told the ASX yesterday that including full service Qantas and low-cost subsidiary Jetstar, it now expects to increase domestic capacity by just 5.5% in the 2012 financial year, down from its previous target of 8% growth.
That 8% forecast was a cut from the 14% target set earlier in the year, as announced in a statement from the airline on March 30 which detailed a round of sharp cuts, including cutting the increase in international capacity in the June half from 10% to 7%.
There was no mention of international capacity in yesterday’s statement which included as its centrepiece a $700 million reduction in capital investment over the next 13 months.
As a result, Qantas now expects to take delivery of 34 aircraft next financial year, instead of 43 as previously planned.
Including Jetstar, it will cancel or defer orders for 12 narrow-body jet aircraft, including three planes in the current half of this financial year (they are on the phones as we read this).
Qantas has orders for 23 Boeing 737-800 and 44 Airbus A320 aircraft over the next couple of years, according to the aviation websites.
The airline has already said the orders for wide-bodied Airbus A380 and Boeing 787 Dreamliners are unchanged.
Qantas’s chief executive Alan Joyce said in the statement that the airline was ‘‘well-placed to retain our profit-maximising 65 per cent domestic market share’’.
The airline has repeatedly said it will vigorously defend its dominant share of the domestic market.
Qantas said it had cash on hand of more than $3 billion and that gave it ‘‘flexibility to reinstate or further reduce capital investment as appropriate’’.
Qantas shares fell to $1.855 at the close yesterday, down 3c or 1.6%. That’s their lowest level since July 2008.
Shares in rival, Virgin Australia, which is building domestic capacity, especially in the business sector, dropped 0.5 cents to 29.5 cents.
Qantas said it would cut capital expenditure by $100 million for the current second half of the 2010-11 financial year, meaning a lot of phone calls and red ink from its accountants over the next two weeks.
A further $600 million will come next financial year by way of reducing capital expenditure and aircraft lease commitments.
But the airline has not altered its profit forecasts for this financial year.
It has previously said it expects underlying profits before tax for 2010-11 to be ‘‘materially stronger’’ than the previous year.
That’s despite saying in the March 30 statement:
"The Qantas Group’s result for second half of FY11 will be impacted by a number of significant events, including:
"A380 Rolls-Royce engine incident and fleet grounding – $25 million in second half of FY11 in addition to $55 million in the first half of FY11; and
"A number of significant natural disasters which are currently estimated to total approximately $140 million.
"Queensland floods – $60 million, Cyclones (Yasi and Carlos) – $20 million, Christchurch earthquake – $15 million, Japan earthquake and tsunami – $45 million.
"Mr Joyce said it was too early to estimate the likely impact of these significant events on the Qantas Group’s result for FY12."
