Qantas Cuts Capacity in Response to Fuel Prices

Sydney, 28 May 2008

The Qantas Group today responded to continuing high fuel prices by announcing a range of cost saving measures including the cancellation of five per cent of Available Seat Kilometres (ASKs) - the equivalent of grounding six aircraft.

The Chief Executive Officer of Qantas, Mr Geoff Dixon, said Qantas' fuel bill would increase by more than $2 billion in 2008/09, representing around 35 per cent of the company's total expenditure.

"The fact is that fuel prices are something we have no control over, so we have to look harder at areas where we do have control," Mr Dixon said.

"Despite our fuel hedging strategy, fuel surcharges, two separate across-the-board fare increases and a recruitment freeze, we are not bridging the widening gap between the actual increase in the cost of fuel and the amount we offset."

Mr Dixon said the Qantas Group would manage the reduction in ASKs by:

* retiring one B737 aircraft;
* grounding two B767 aircraft and one Jetstar A320 aircraft;
* cancelling the delivery of one Jetstar A321 aircraft;
* accelerating the retirement of its four B747-300 aircraft, currently operating trans-continental services to Perth, by December; and
* adjusting the flying patterns of other aircraft, including reducing the utilisation of the B747-400 fleet.

"This will enable us to make significant changes to domestic and international flying for both Qantas and Jetstar. In some cases, this will involve pulling off routes entirely. In other cases, we will scale back frequencies and capacity."

In the domestic market, Mr Dixon said:

* Qantas would exit its Gold Coast-Sydney and Ayers Rock-Melbourne routes and reduce Ayers Rock-Sydney services from August;
* Jetstar would exit its Sydney-Whitsunday Coast, Adelaide-Sunshine Coast, and Brisbane-Hobart routes from July; and
* Jetstar would reduce services on some Adelaide, Avalon and Cairns routes by August.

"Wherever possible, we have tried to minimise the overall impact of the changes. For example, Jetstar will continue to offer more than 140 return services to the Gold Coast each week, including up to 10 services a day on the Sydney-Gold Coast route.

"The Qantas Group, through Jetstar, remains the largest carrier in and out of the Gold Coast."

Mr Dixon said Qantas was finalising details of its international network restructure, including capacity adjustments and market exits, and would announce these within the next week.

"Qantas remains a fundamentally strong company, with a good balance sheet and a commitment to investment that includes a $35 billion order for aircraft," Mr Dixon said.

"We must make these hard decisions now, however, if we are to ensure the ongoing strength of Qantas, preserve the jobs of the vast majority of our current workforce, and position ourselves for growth when the trading environment improves."

He said that the magnitude of the changes would require a reduction in staff numbers.

"This week we will launch an accelerated leave program to mitigate the requirement for redundancies, but it is inevitable that a reduction in staff numbers will be necessary in selected parts of our business," Mr Dixon said.

"As always, we will communicate with our people. In the first instance, redundancies will be carried out on a voluntary basis."

Mr Dixon said that in addition:

* the pay for all of the company's senior executive group would be frozen; and
* the normal July pay review for the remaining 1,000 executives would be deferred.

He said passengers affected by the schedule changes would be contacted to discuss alternative arrangements.

Issued by Qantas Corporate Communication (Q3768)