Qantas Cuts Jobs and Flights to Curb Rising Costs

Submitted by Craig Strzelecki on 29 May, 2008 - 09:22

Qantas today lost its credit ratings by Standard and Poor's as it announced its drastic steps of cutting down jobs as well as its services. Qantas shall soon be limiting its flight services on less frequent routes.

According the Standard and Poor's, credit ratings for Qantas stood negative as it feared that the escalating fuel costs shall affect company’s earnings and also have its impact on the cash inflow.

Qantas announced cut in its domestic as well as international flights owing to the rising fuel prices. It also limited its services on its budget subsidiary, Jet star, indicating that boom in low-cost travel were over. It announced that it would prefer to ground its aircrafts rather than fly them on less profitable routes.

The company would also be reviewing its non-fuel costs to curb the escalating expenditures due to hike in fuel prices. It shall cut its airline capacity by 5 percent. Qantas is Australia’s largest airline that also includes its budget airlines, Jetstar. It now plans to cut down its size of fleet and curb its non-fuel costs due to surging fuel prices. Air New Zealand also announced that it expects reduced profits in current year owing to exorbitant hike in fuel prices. Airlines shall also freeze pay packages of its senior employees.

Qantas shall also reduce its international flights to as much as grounding six planes. It also raised its ticket prices of domestic flights by 3.5 percent and hiked its international fares by 3 percent.

Currently, the fuel bills costs around 35 percent of the total costs for the air carriers. Jet fuel prices have more than doubled over the past year and reached a record $173.55 a barrel in Singapore.

Qantas reflected marginal gains at the Sydney share trading after its announcement on cuts and curbing rising variable costs. It jumped 4.9 percent to close at A$3.45 which is its biggest gain in last two weeks. Moreover, risk of Qantas defaulting on its bonds has increased considerably. According to Westpac Banking Corporation, the credit default swaps, that protect creditors against default by paying the buyer face value in exchange for underlying securities, also gained 3.5 basis points to 153 basis points.