Virgin Blue, Qantas cut growth plans as fuel continues to hurt

Qantas announced on July 18 that it will eliminate up to 1500 positions both domestically and overseas.

“Acting now, on top of the measures already taken, will protect our competitive position, protect the great majority of over 36,000 jobs and enable us to grow profitably when conditions improve,” said Qantas CEO Geoff Dixon.

“The pain in this has been spread across the network,” Dixon said, noting that closing the airline’s call centres in Tucson and London will account for nearly 100 of the job losses.

As part of the cuts, Jetstar will close its Adelaide cabin crew and pilot base, although services will continue from other bases. Jetstar will also cut one of its three daily services from Melbourne to the Sunshine Coast from September 1.

However, Dixon confirmed that Jetstar will continue with its aggressive pan-Asian strategy, and that the carrier would be willing to wear some short-term losses in order to gain a strategic advantage in that region.

In addition to the cuts announced in June, Virgin Blue announced on July 18 that it will remove two more Boeing 737-800s from the domestic market, which will be used as operational spare aircraft. This is in addition to four aircraft which will be redeployed into “existing international markets”.

Virgin has also arranged with Embraer to delay delivery of five E-Jets, which were to enter service next year, until 2010.

As well as cutting capacity, Virgin also announced that it would follow the lead of Jetstar and Tiger Airways and start charging for baggage for its two lowest fare brackets as a way to raise additional revenues. The airline will also increase by up to five per cent its fully flexible fares, which CEO Brett Godfrey says will be more easily absorbed by its corporate passengers.

Although it raised its highest fares, Virgin is adding a new fare class from August 18, called ‘GoFares!’ offering a $20 discount to the Blue Saver fare, which the airline says will still make it more affordable for budget conscious travellers to fly.

“We have endeavoured to seek a reasoned and balanced approach to recover costs associated with current punitive fuel prices and the direct effects on our business,” said Godfrey on July 18. “The necessary introduction of baggage fees and the reduction of our lowest fares for our price sensitive guests, is anticipated to yield both improved demand levels and revenue. ” In announcing the capacity cuts and revenue measures, Virgin Blue said that it would currently be able to avoid job cuts. But only days after the announcements, Godfrey admitted on ABC radio that the carrier was holding onto more staff than necessary.

“We’re probably carrying, with this last set of announcements, a few more staff than we actually will need to operate the program in the next 12 months,” he said on July 22.

Unlike Qantas and Virgin Blue, Tiger Airways has given no indication that it is suffering under the high cost of fuel, with the airline recently announcing plans to recruit another 60 pilots and cabin crew for its Melbourne base.

Spokesman Matt Hobbs also confirmed that it still plans to take delivery of one Airbus A320 and two A319s this year.

Although having dropped in recent weeks, the price of fuel is still much higher than previous levels, and both Dixon and Godfrey have said that the industry would face a tough year ahead.

“With fuel where it is at US$165 a barrel, I think for any airline to do well and break even this year with fuel where it is will be a challenge and that goes for the Australian airlines as well,” Godfrey told the Business Spectator website on July 18.

Dixon went a step further on July 22 in a speech to the Committee for Economic Development of Australia, saying that the high price of fuel would force major, permanent changes to the global aviation industry, but insisting that Qantas was well placed to meet this.

“The size of the aviation industry in the coming years will be significantly determined by the amount by which fuel prices rise,” he said.

“The industry structure will be on a global scale, and focused on maximum cost constraint and efficiency. Over the next 12 years, many airlines will vanish, unable to cope with high fuel prices, or they will be swallowed up in takeovers or mergers. ”