Analysis for South Pacific
As New Zealand’s economy sparkles, trans-Tasman activity is growing at well above historic rates. New Zealand GDP is projected to increase 3.5%, against Australia’s 2% for the current financial year.
As Qantas now looks to expand its own services westbound towards Europe - with the recent announcement of Perth to London direct 787-9 Dreamliner services scheduled to commence in early 2018 - looking east Christmas was almost ruined following the blow dealt to Australian’s largest carrier as a result of the US Department of Transport’s (DoT) rejection of a proposed joint venture with American Airlines (AA) across the Pacific. This, despite Australia’s Competition and Consumer Commission and New Zealand’s Ministry of Transport approving the proposed venture earlier this year.
Qantas announced today that its international operation is expected to report an earnings before interest and tax (EBIT) loss of over AUD450 million in 2011/12. This compares with a loss of AUD216 million attributed to international in FY2010/11. Overall forecast for the year is steeply downgraded to AUD50-100 million. The larger international loss is largely a result of one-off restructuring costs pegged at AUD370-380 million.
According to the carrier, the “structural issues” in the business have been compounded by the impact of global economic factors – including increased fuel costs, the high Australian dollar and weakness in the UK and Europe market – as well as allocating a AUD100 million one-off cost to last year’s industrial action.
Inbound traffic to Australia has softened in the past two months, causing yields to fall, and outbound premium traffic is showing some signs of weakness. But Qantas Group’s domestic business has boomed over the past year, with Tiger temporarily quietened and Virgin relaxing its pressure on the leisure end of the market.