Oil Surge Forces Qantas To Cut.

Qantas has been forced to cut its flight capacity due to rising fuel prices, and warns that its fuel bill will increase by more than $2 billion next financial year.

It joins Air New Zealand in cuts and other moves after the Kiwi airline yesterday revealed that earnings this year would be down 25% on last year’s level.

And, US discount airline JetBlue Airways said it was postponing delivery of 21 Airbus for four to five years because of the oil crunch.

Qantas said in a statement to the ASX that the decision to cut capacity by 5% was equivalent to grounding six aircraft, which it plans to do.

It follows a statement on May 22 that it was putting up air fares domestically and on international routes for the second time in a month, and ‘reviewing’ its domestic and international routes.

Qantas shares rose 16c to $3.45 yesterday with the news announced an hour before the end of trading.

The results of that review are clear from yesterday’s statement.

“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,” chief executive Geoff Mr Dixon said in the statement.

“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,” he said.

He repeated that the cost of jet fuel will be more than $2 billion this year for the airline, or around 35% of its costs.

Qantas’ statement late yesterday makes today’s stopwork meetings by aircraft engineers employed by the airline over a wage claim, look rather futile.

Qantas said in the statement that it will now retire one B737 aircraft; ground two B767s and one Jetstar A320.

It will cancel the delivery of one Jetstar A321 plane.

It will also move faster toward retiring four B747-300 aircraft, which currently operate to and from Perth, by December, while flying patterns of other aircraft will be adjusted, which include reducing the use of the B747-400 fleet.

“This will enable us to make significant changes to domestic and international flying for both Qantas and Jetstar,” Mr Dixon said.

(Air New Zealand has switched from 747s to more efficient 777 ER (Extended Range) aircraft on some of its long haul international routes to cut fuel costs).

Mr Dixon said in the statement that “In some cases, this will involve pulling off routes entirely. In other cases, we will scale back frequencies and capacity”.

In Australia, Qantas plans to exit the Gold Coast-Sydney and Ayers Rock-Melbourne routes and reduce Ayers Rock-Sydney services from August.

Its discount airline, Jetstar will exit its Sydney-Whitsunday Coast, Adelaide-Sunshine Coast, and Brisbane- Hobart routes from July and Jetstar will also reduce services on some Adelaide, Avalon and Cairns routes by August.

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

Mr Dixon warned there would be staff cuts.

“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,” he said in the statement.

Qantas says it will freeze pay for all of the company’s senior executive group while the normal July pay review for the remaining 1,000 executives will be deferred.

And the engineers want more: between 3% and 5%. Qantas is offering 3% plus a 10% increased superannuation contribution.

In New Zealand Air New Zealand’s warning that profit will drop 25% made it a day for Trans-Tasman updates.

The airline said it expected profit for the year to June of below $NZ200 million. That is 25% down on last year’s $NZ268 million profit before unusual items and tax.

It is also down on Air New Zealand’s last forecast on April 23, for annual profit of between $NZ200 million and $NZ220 million before unusual items and tax.

Like Qantas, Air New Zealand blamed the surge in jet fuel costs which it says have risen more than 50% over the past six months to reach a record high of $US173.55 a barrel.

‘The cost increase to the business means that our expectations of 2008 normalised earnings before taxation and unusual items is now below $200 million,” Air NZ said in an update statement.

Shares in Air NZ fell 6c, or 5%, to $NZ1.08 while in Australia they dropped 4c to 91 Ac.

The airline is still 76.47% owned by the NZ government.

It is switching to using Boeing 777s on the return Auckland-Los Angeles-London route from September, replacing the less fuel-efficient Boeing 747s.

In the US Tuesday night, JetBlue Airways said it will put off buying 21 new Airbus jetliners for four to five years because of the impact of higher jet fuel costs.

The A320 planes, which were originally scheduled for delivery between 2009 through 2011, will now be delivered in 2014 and 2015.

The airline says that by delaying delivery, JetBlue will be able to hold off paying for the planes and will save on the additional operating expenses they would bring.

It’s the largest disclosed postponement of an order from an leading airline since jet fuel costs surged last year.

Other airlines have been quietly shuffling orders and are thankful that there are growing delays in the two new major aircraft: the Airbus A380 and the Boeing 777.

“In the face of escalating fuel costs, we believe it is essential to take a more financially conservative approach to managing our business,” JetBlue CEO, Chief Executive Dave Barger said in a statement. The aircraft deferrals we announced today will help us further moderate our growth rate in 2009 and beyond, which will enhance liquidity and defer future debt obligations.”

The single-aisle A320 is one of two aircraft JetBlue operates and is configured with 150 seats. The carrier’s existing fleet includes 107 of the planes and 34 smaller Embraer E190 aircraft (Which Virgin Blue is flying here).

JetBlue says it plans to take delivery of nine new A320s in 2008 and sell the same number by the end of the year.

JetBlue last month cut its capacity growth forecast to between 3% and 5%, down from a previous plan to grow by 5% to 8%.

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