LIFE AFTER SQ006 - Orient Aviation

n e w sBUSINESS ROUND-UPExecutive clear-out at QFAs its profit levels dipped for the firsttime in nearly six years, Australia’sQANTAS AIRWAYS moved to improvecompetitiveness, including a clear-outof executive and middle management ranks,big staff cuts and a network rationalisation.The action came as chief executive designateGeoff Dixon prepared to take over fromJames Strong, who has led the airline since1993. At his final press conference Strongannounced a 22% drop in first half after-taxprofits to US$139.9 million.While it continues to be one of the bestperforming airlines in the Asia-Pacific, Qantashas been unable to fully counter the multipleimpacts of increased domestic competition,rising fuel prices, the weakening of the Australiandollar and increased airport chargesacross its network. Revenue did rise 13.1% to$2.65 billion in the six months to December 31,but yields on its mainline routes deterioratedas a result of competition with new no-frillscarriers Impulse and Virgin Blue. And eventhough an aggressive fuel price hedgingstrategy generated savings of $135.2 million,the carrier’s fuel costs still increased by $62million.Dixon said staff would be trimmed by5% overall, with 220, or 25% of executiveand middle management positions, leavingwithin two weeks. Another 1,250 non-operationalpersonnel will exit the airline in thenext six months, mainly through attrition andvoluntary redundancy.Some poor performing internationalroutes, the first being all services to China andCanada, will be dumped. Suspensions will beannounced shortly. The aircraft, B767-300s,will be redeployed on Australian domesticroutes, lifting capacity by 11%.Dixon said there was little to indicate tradingconditions would improve in the secondhalf of the year. The past 12 months had seenthe environment, in Australia and overseas,change dramatically as a result of competitionfrom lower cost airlines, government-sponsoredpolicy changes and higher costs.“We have three major competitors in thedomestic market with the start-up of Impulseand Virgin, and Ansett being absorbed intothe foreign-owned grouping of Air New Zealandand Singapore Airlines,” said Dixon.“We must improve our productivity peremployee to better match our major competitorsand bring our domestic airline costs closerto the two new domestic airlines.”The action represented a negative side ofthe rapid liberalisation of the aviation industryby governments in Australia, he added.Ansett sinksAirNZ’s profit hopesAfter a gloomy 2000 during which it wasbattered by Qantas Airways in the Australiandomestic market, Ansett Australia lossesvirtually put paid to any profitability at theAIR NEW ZEALAND ANSETT GROUP mighthave hoped for in its first six months as acombined company.Ansett Australia’s poor performance sank AirNew Zealand’s profit hopesAfter-tax income plummeted 97% toUS$8.8 million in the half year to December31, hit by the Ansett woes, fuel costs rising72.9% and a plunging New Zealand dollar.The airline group had a pre-tax operatingloss of $14.9 million, down 126% on the sameperiod in 1999.While revenue rose 147% to $1.5 billionany comparison with sales in the equivalentsix months is meaningless; this was thefirst time the financials of Air New Zealandand Ansett have been on the same balancesheet.Air NZ chairman Sir Selwyn Cushingwould not itemise Ansett’s specific contributionto the drop in income, but he and newchief executive, Gary Toomey, left no doubtthe contribution was significant. Sir Selwyneven conceded Air NZ may have paid toomuch last June to acquire the 50% of Ansett itdid not already own. But he said the purchaseof Ansett was “absolutely necessary” to thefuture strategic growth of Air NZ.Sir Selwyn said this has been “one of themost challenging periods faced by Air NewZealand and Ansett”, with trading performanceimpacted by:• fuel prices at 10-year highs.• New Zealand and Australian dollars atall-time lows against the U.S. dollar.• increased competition in Australia withthe arrival of two new low-cost airlines(Impulse and Virgin Blue) and big capacityincreases on Australian main trunk,trans-Tasman and Pacific routes by majorcompetitors.• a new Australian tax system that had impactedon consumer spending patterns.• drop in domestic demand caused by theSydney 2000 Olympics which outstrippedgains from international Olympic traffic.The integration of Ansett and Air NZ hadprogressed at a slower pace than anticipated,with projected savings from the union failingto meet expectations, he said. Sir Selwynsaid based on current trading and marketconditions, the outlook for the second half“is uncertain”. There is potential for furtherdeterioration in operating results in theshort-term”.PHILIPPINE AIRLINES (PAL) has reportedan unaudited net third quarter loss endingDecember 31 of 539.7 million pesos (US$10.5million), more than three times its deficit in thesame period of 1999. The flag carrier blamedincreased fuel costs during a traditionally leanperiod. PAL said it registered a net income of299.25 million pesos (US$5.8 million) in thenine months ended December 31, comparedwith a loss of 121.64 million pesos (US$2.4million) in the same period a year earlier.High fuel costs took their toll on THAI AIR-WAYS INTERNATIONAL’S (THAI) first quarterresults. THAI’s operating profit was 1.76 billionbaht (US$40.5 million), down 60.2% on 4.42billion baht recorded in the same period lastyear. Fuel and oil costs were 3,166 millionbaht higher and foreign exchange losses were1,506 million baht compared to 6,849 millionbaht in 1999.March 01 | Orient Aviation | 15