Qantas Airlines is to become the aviation version of Procter and Gambl, a holding company managing a large suite of brands is still on the agenda, with the airline focusing its energy on Kuala Lumpur and entrepreneur Tony Fernandes for its new Asian Market airline. Qantas Airlines was set to mothball plans for a new Asian market airline, worth hundreds of millions of dollars, it is now believed that chief executive Alan Joyce has been working on a deal not only to speed up these plans but to make them bigger and less costly than the proposal announced in August for the new airline..
Qantas Airlines would no doubt welcome anything that would reduce its tax bill or debt burden, the decision has been made to set up a cheaper airline in the Asian market. Whether a deal is finalised this year or next year will depend on how negotiations go with Fernandes, who has a reputation for being fickle. Allan Joyce is believed to be continuing to plug away at several start-up airline proposals with Fernandes in Malaysia, either later this year or early next year. Fernandes is chief executive of AirAsia, which owns 20 per cent of Malaysia Airlines.
The biggest costs for airlines are labour and fuel. Qantas airlines labour bill over the empire was $3.7 billion and fuel was $3.6 billion in 2011. Fuel costs in the first half of 2012 are expected to increase $450 million to $2.2 billion. Fuel costs can't be controlled but labour can hence the decision by the board of Qantas Airlines to try to crush the unions by grounding all aircraft. Qantas Airlines pilots are paid more than their regional counterparts, and that is what Qantas wants to change.
To focus on Malaysia rather than Singapore (scoot airlines), Qantas airlines expects to have the new budget airline running at least six months earlier than it originally planned, and with far more aeroplanes than the original proposal to have 11 aircraft by the end of 2013. It will also be far cheaper due to currency and cheaper airport landing charges. In addition, a deal with Fernandes would give Qantas ready access to a bank of aircraft orders once regulatory approval was granted. Singapore was always going to be a tough nut for Qantas airlines to crack. If it launched a full-service model against Singapore Airlines, the competition would be frightening; and, if they wanted to launch a low-cost airline, well, they have that already with Jetstar.
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A Fernandes deal would also give Qantas the option to use Kuala Lumpur as a cheap hub to fly passengers to Europe. Thus it could scrap the Sydney-London service and instead use its Asian airline to run its international routes to Asia and Europe.If it proceeds down this path it will leave Qantas international still operational but only flying to South Africa, the US and possibly Japan. As part of the overhaul, it has already announced plans to eliminate ''unprofitable'' flights from Hong Kong and Bangkok to London. With pressure on the board to find a way to restore dividends and lift the share price, which is trading at $1.50, a far cry from the $5 peak it hit before the global financial crisis, it decided to make industrial relations and Asia the twin weapons to cut costs and maintain margins and yields. It will happen, it is just a matter of when.
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