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Cathay, Singapore face tough decisions as Qantas cuts

Written by editor

Qantas Airways Ltd., Australia’s largest carrier, will cut about five percent of its staff in anticipation of a record loss caused by a drop in business class travel. Cathay Pacific Airways Ltd.

Qantas Airways Ltd., Australia’s largest carrier, will cut about five percent of its staff in anticipation of a record loss caused by a drop in business class travel. Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. may be next.

“All airlines in Asia will have to make similar tough decisions,” said Jim Eckes, managing director of industry adviser Indoswiss Aviation. “With traffic falling so rapidly, it’s going to be difficult for many airlines to make a profit.”

Traffic for Asia-Pacific carriers sank almost 13 percent in February, the steepest decline since June, according to the International Air Transport Association. Qantas Chief Executive Officer Alan Joyce is examining measures such as passengers tagging their bags or checking in via mobile phone, while Hong Kong’s Cathay Pacific will ask staff to take mandatory unpaid leave, a company official said.

The airline industry globally may lose as much as $4.7 billion this year as the deepening recession wipes out $62 billion of revenue. Carriers in Asia-Pacific are expected to post combined losses of $1.7 billion, the biggest of any region.

“If your top line has fallen off the cliff, then you have to adjust your costs,” said Christopher Wong, a fund manager at Aberdeen Asset Management Asia Ltd. in Singapore, which oversees $20 billion. “Whether it’s cutting headcount or reducing working hours, that’s the only thing airlines can adjust.”

Record Loss

Qantas may have a record pretax loss of as much as A$188 million ($137 million), in the second-half, according to figures derived from the airline’s full-year forecast released yesterday and confirmed by the company. The Sydney-based carrier will also defer the delivery of four Airbus SAS A380s, the world’s largest commercial aircraft, and 12 Boeing Co. 737-800 aircraft.

Singapore Air, which gets 40 percent of its revenue from premium travel, is removing 17 percent of its fleet starting April. It’s slashing work days and freezing management wages to save costs amid what Chief Executive Officer Chew Choon Seng calls a “sharp and swift” drop in air transportation. The carrier is also negotiating with pilots to take unpaid leave.

Cathay Pacific will ask staff to take mandatory unpaid leave this year to help save about HK$400 million ($52 million), the official said, declining to be identified before an announcement scheduled for the next few days. The move will apply to all Cathay Pacific staff, including top executives.

The airline has already curbed capacity growth and delayed a new cargo terminal in the city after posting a loss of HK$7.9 billion in the second half. Chairman Christopher Pratt last month said the aviation industry is in a “crisis.”

Qantas Cuts

The cuts at Qantas are the deepest Joyce, 42, has made since taking charge of the company in November after turning Qantas’s budget carrier Jetstar into the airline’s fastest- growing unit. The Irishman, who holds degrees in Management Science and mathematics from Trinity College at the University of Dublin, succeeded Geoff Dixon after five years building and running Jetstar.

“We’re experiencing significantly lower demand, particularly in premium classes, and considerable price pressures with extensive sales and discounting by all carriers,” Joyce said yesterday.

Qantas shares, which have dropped 26 percent this year, fell 2.5 percent to A$1.95 at the close of trading in Sydney today. Singapore Air, the world’s second-largest airline by market value, tumbled 1.5 percent to S$10.88 in the city-state, taking the year-to-date decline to 3.4 percent. Cathay Pacific gained 1.9 percent to HK$9.64 in Hong Kong.

‘Big Crisis’

Joyce used Jetstar to target Qantas’ less profitable routes or flew at different times of the day than the full-service carrier with more fuel efficient aircraft and lower labor costs.

Banks and insurers have cut more than 280,000 jobs since the crisis began and rising unemployment in the U.S., Europe and Asia has also slashed air travel demand.

“This is a big crisis,” Aberdeen’s Wong said. “The whole financial industry has been badly affected and that’s where most airlines’ premium traffic come from.”

Asia Pacific airlines may be the hardest hit by the crisis because of their dependence on premium travelers, according to Eckes. Filling up the coach-class seats won’t be enough to compensate for lack of premium travelers, Eckes said.

Premium travel dropped the most in Asia in January, falling 23 percent within the region, and 25 percent on routes across the Pacific, according to IATA.

Japan Airlines Ltd., Asia’s biggest carrier by sales, is forecasting its third annual loss in four years, while All Nippon Airways Co., Japan’s second-largest, is slashing its overseas services and may delay starting a discount carrier.

“Business demand has dropped sharply since August and that’s hurting profits,” said Makoto Murayama, an analyst in Tokyo at Nomura Securities Co. “Things are going to get worse.”