July 10, 2011
Australia's Qantas Airways will make cuts to its loss-making international operations under a new business strategy to be announced next month, chief executive Alan Joyce said in an interview.
The new strategy, to be announced on August 24, would include "an honest and fairly aggressive view on the performance of the international network and making cuts where we need to make them," Joyce told the Australian Broadcasting Corporation (ABC).
Joyce also said he believed the Australian division of competitor Tiger Airways would operate again in Australia's domestic market despite its current grounding by safety regulators.
In an interview broadcast on Sunday, Joyce said the current loss-making model of Qantas' international business was not sustainable over the long term. It has been supported, he said, by profitable domestic operations and the creation of the low-cost Qantas subsidiary, Jetstar.
The new business strategy, he said, would focus on "four pillars" of investment, partnerships, restructuring of the international network and exploiting the rapidly growing Asian air market.
Efforts to turn the international business around had been hampered by "some very outrageous demands" from unions, Joyce said. He also said Qantas did not intend to abandon its international operations, just make them profitable.
"The issue has been there for some time," Joyce told ABC Inside Business. "The international business has not been performing at the levels it needs to and over the years we've compensated by having a very strong domestic business, having a very strong frequent flying business, by the creation of Jetstar we've created a new business, and all of these businesses have helped subsidise the international operations.
"However, we don't believe that situation is sustainable going forward and we need to make significant changes to our international services as a consequence to the under-performance of the business today."
The Qantas chief said the grounding of Tiger Airways' Australian division had not had a significant impact on either Qantas or Jetstar. Tiger Airways only represented 5 percent of the Australian domestic market and Joyce denied either Qantas or Jetstar had increased prices in response.
However, Joyce said he believed the grounding was a significant blow to the Tiger Airways brand. Key stakeholder Singapore Airlines could not afford to take it out of the Australian domestic market altogether and would seek a way to get Tiger Airways operating there again, he said.
"I can't see an alternative for Tiger redeploying a lot of the aircraft into Asia at this stage and I think there's a big issue in Tiger's business model being successful if it only has Singapore as a base. They need to show that it can work in multiple areas," Joyce said.
"I think their success in Australia has been non-existent to date and I think they need to get the business back into operation here and for them to be perceived as a pan-Asian brand."
Tiger Airways Australia was grounded by Australia's Civil Aviation Safety Authority on July 2, which cited concerns about safety. The company is a wholly-owned subsidiary of Singapore-based Tiger Airways Holdings, which is about one-third owned by Singapore Airlines.