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Grounding hurts Qantas profit

Nov 28 2011 08:00 AFP

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Sydney - Qantas said on Monday the dispute that triggered a shock grounding of its fleet cost AU$194m amid reports it is poised to shelve plans for a joint venture premium airline in Asia.

The Australian flagcarrier said it expects to post an underlying net profit of $140m - $190m in the first half of the financial year to December 31 2011, from $417m a year earlier.

The slump is largely due to high fuel bills, a series of strikes and the grounding of its entire fleet for nearly two days last month during a bitter dispute with unions over wages and conditions.

Chief executive Alan Joyce said the airline had lost $68m as a result of industrial action before he decided to take all planes out of the skies.

The cost of the grounding itself, including lost revenues, refunds and accommodation for thousands of stranded passengers, came in at $70m.

There was also a $27m hit related to forward bookings and a $29m cost as a result of "customer recovery initiatives".

The government called on the industrial relations umpire, Fair Work Australia, to step in to end the standoff with unions representing pilots, engineers and ground staff.

But with the parties unable to resolve their disagreements the dispute is now heading to arbitration.

Joyce said customers had started to return to the airline.

"We can now provide absolute certainty for our passengers and this has led to a strong and quick recovery in forward bookings," he said.

But he added that the outlook for the second half of the financial year remained volatile given the uncertainty in global economic conditions, volatile fuel prices and fluctuating foreign exchange rates.

It is this uncertainty that is likely to force Qantas to shelve plans for a new premium airline based in Asia, the Australian Financial Review reported, citing sources.

The announcement in August of Qantas's decision to refocus on Asia was part of what sparked the fierce backlash from unions, who are concerned at the possible outsourcing of jobs.

The report said despite intense planning for the capital-intensive project based in either Kuala Lumpur or Singapore, executives had now decided to focus on a lower risk alliance with Malaysia Airlines.

Joyce said no final decision had been made.

"We obviously keep all of our options open," he told ABC radio.

"We believe that a new premium airline in Asia is important for us.

"The timing of that airline and how it works with partners is still part of the discussions we're having with both Singapore and Malaysia and no final decision has been made on what we are going to do."

The newspaper said Qantas and the Malaysian airline were working towards a letter of intent for a new partnership.

This would include a code-sharing alliance which is expected to allow joint marketing, scheduling and pricing.

The newspaper added that talks with the Singapore government would cease, with the hook-up with Malaysia Airlines mirroring Qantas's relationship with British Airways.

As part of the deal, Qantas would likely recommence flights to Kuala Lumpur and gradually shift its central Asian hub to Malaysia from Singapore.

Partner British Airways would also reorient its focus in the region to the Malaysian capital, the report said.

The Australian and International Pilots Association welcomed news that Qantas's Asian offshoot may not go ahead.

"Thankfully, this potentially disastrous plan seems to have collapsed before fatal damage could be done to the Qantas brand and the Qantas business," said the union's vice-president Richard Woodward.

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