Qantas fleet grounding fallout hits profits

Qantas said Monday the dispute that triggered a shock grounding of its fleet cost Aus$194 million (US$190 million) amid reports it is poised to shelve plans to set up a joint-venture premium airline in Asia. In a profit update, the Australian flagcarrier said it expects to post an underlying net profit of $140-$190 million in the first half of the financial year to December 31, 2011, from $417 million 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 $68 million 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 $70 million. There was also a $27 million hit related to forward bookings and a $29 million 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. "Domestic bookings, including from corporate accounts, have recovered particularly well and are now back to normal levels. "International bookings for the period up to January have also recovered, but at a slower rate because of the longer lead times associated with international travel." He added that the outlook for the second half of the financial year remained volatile given the uncertainty in global economic conditions, fuel prices and foreign exchange rates. It was this uncertainty that forced 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 were concerned at the possible outsourcing of jobs. Joyce made no comment, but 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. It said Qantas and the Malaysian airline were working towards a letter of intent for the new partnership. This would include a code-sharing alliance which is expected to allow joint marketing, scheduling and pricing six to nine months after an agreement is reached. The newspaper added that talks with the Singapore government would cease. Qantas told AFP no decision had yet been taken. "It's speculation. There has not been any decision yet and we remain in negotiations with Singapore and Malaysia," a spokesman said. The newspaper added that the hook-up with Malaysia Airlines would mirror 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.