* Expects 500 jobs to go; no plans to move jobs offshore
* To consolidate engineering, maintenance, ground operations
* H1 underlying profit falls 51.5 pct to A$202 mln
* To cut capex by A$700 mln over 2 years
* Shares rise as much as 5.4 pct
(Adds analyst comments, updates share)
By Narayanan Somasundaram
SYDNEY, Feb 16 Australian airline Qantas
Airways plans to axe 500 jobs and cut capital spending
by $700 million ($749 million) over two years, after a bitter
industrial dispute and high fuel bills halved its first-half
Chief Executive Alan Joyce said the 13 percent cut in
capital expenditure would come from a delayed intake of new
aircraft due to manufacturer delays and cuts in planned domestic
capacity. The airline will also withdraw from some routes and
cut costs in its engineering, maintenance, ground handling and
The news sent its shares higher by as much as 8 percent to a
3-month high,although the stock is still down by about a third
over the past year.
The cuts are designed to protect profitability and
an investment grade credit rating at Qantas, which suffers from
a higher cost base than its Asian peers.
Markets welcomed the cost and capex cut plan, while
underlying profit before tax of A$202 million ($217 million)
still beat analysts expectations for A$176 million.
"The cut in capex now reduces the risk of an equity
raising," said David Liu, Head of Research at ATI Asset
The global airlines industry has been struggling to pass on
higher fuel costs to customers as demand for business and
leisure travel dwindles due to the global economic slowdown.
Qantas employs over 90 percent of its 32,500 employees in
Australia, and union fears that it will send jobs offshore
helped spark last year's bruising industrial battle that led to
the grounding of its entire fleet and promped intervention by
Australia's industrial umpire.
"Today Qantas Engineering services costs are at
least 30 percent higher than those of our competitors. And we
have the ability to change," Joyce said in a statement.
He said Qantas would review its heavy maintenance operations
in Australia, given the introduction of new aircraft such as
A380 super jumbos and Boeing 787s was lowering the age of its
fleet. The review was expected to conclude in 60 days could lead
to more job cuts.
The airline also planned to consolidate some engineering,
ground and maintenance operations in its Sydney hub, and was in
talks to sell some catering centres.
The changes along with the exit of two loss making routes
should be positive for plans to return the international
operation to profitability, Credit Suisse analyst Anthony
Joyce said the cut in capital expenditure to a total A$4.6
billion for 2011/12 and 2012/2013, from A$5.3 billion projected
earlier, would come partly by adopting a capital-light model for
a planned Asian premium airline.
The proposal is Joyce's answer to turn around an
international operation that is losing A$200 million a year by
setting up an Asian-based airline. Joyce said the airline was
still in talks with potential partners.
The Asia plan was a factor in last year's industrial action,
which Qantas said cost it more than A$650 million, along with
the grounding of the fleet and high fuel bills.
The Australian and International Pilots Association said in
a statement ahead of Qantas earnings that investors should be
wary of the proposition that a low-yielding, cut-throat,
low-cost model could replace a high-yielding, premium traffic
model and provide a better return.
Qantas has not had a good run in recent times. Besides
trouble with employees, its flagship A380 superjumbo fleet has
suffered wing cracks due to design and manufacturing flaws.
Last month, ratings agency Moody's cut its rating on the
airline by one notch, citing pressure from high fuel prices,
strong competition and a difficult operating environment.
Qantas is not alone in its struggles. Earlier this month,
Singapore Airlines said it expected to see a further
deterioration in its business as it struggles with sluggish
demand and rising fuel costs.
($1 = 0.9329 Australian dollars)
(Editing by Richard Pullin)