16 August 2011

Qantas Shows Effects Of Increased Competition

For some time Qantas has been suffering on its premium branded services. The flagship brand is still viable - especially when compared to other airlines who are in a lot worse shape than QF. However Alan Joyce is not waiting for markets to improve. He is moving decisively to address the carrier's ills.

QF suffers from high costs. Across the board it has one of the highest cost structures. Its home market where most of the costs are situated is now at record highs of the Aussie Dollar. Its fuel is more expensive in its home market. Its labour costs are very high. Of course it has a high percentage of GDS distribution costs.

Add to this situation increased competition. Specifically from the GCC based carriers who have been steadily gaining market share on the Kangaroo route. Domestic competition from a resurgent but still struggling Virgin also doesn't help. While Jetstar goes from strength to strength - the uber brand still languishes. And yes Tiger (partially owned by Singapore interests) will be competition.

So today Qantas announced something that would have been unthinkable even just a few years ago. It is cutting routes to London. While the choice still remains - BA will pick up some of the traffic - Qantas is going to cut back even further and refocus the business.

Gone will be a lot of the freebies. Gone will be some of the gas guzzling 747s that will get parked. The last few A380s will be deferred at the back end of the order. In the mean time a whole new round of Airbus narrow body aircraft will be purchased. A320NEOs. But wait - they are not in the QF fleet which has Boeing 737NGs.

Along with 1000 redundancies - this does not auger well for the QF Brand.

The group is fine. Jetstar announcements today are also looking good with the JV in Japan and the increased presence in Singapore. Interestingly, speaking about Singapore, you can almost see SQ getting a little nervous and then perhaps they too will be interested in competing more heavily with QF Group. But wait doesn't Singapore Inc have an interest in some of Jetstar?

Yes competition does get interesting


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