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Qantas may cut business class seats as demand plunges

Written by editor

Qantas Airways Ltd., the Australian carrier that says it invented business class 30 years ago, may remove some premium seats as companies force executives to fly coach or stay at home.

Qantas Airways Ltd., the Australian carrier that says it invented business class 30 years ago, may remove some premium seats as companies force executives to fly coach or stay at home.

“Ideally, in the current environment, we wouldn’t have as many premium seats as we have,” Chief Executive Officer Alan Joyce said in an interview with Bloomberg Television, broadcast today. The carrier is undertaking a fleet-wide review before deciding which planes it should reconfigure, he added.

The Sydney-based carrier’s premium-class sales have plunged about 30 percent due to the global recession that has also forced Singapore Airlines Ltd. and Cathay Pacific Airways Ltd. to pare flying. As much as 40 percent of space on some Qantas Boeing Co. 747s is used for business and first-class seats.

“People have just started flying economy rather than business,” said Saxon Nicholls, who manages more than $500 million at Herschel Asset Management Ltd. in Melbourne, including Qantas stock. “When you get a behavioral change like that you have to adapt.”

Domestic Routes

Qantas, which says on its website that it was the first to introduce business-class travel when it offered premium seats in 1979, may be shielded from the worst of the global travel slump. It has about two-thirds of its domestic market, the best position for any carrier, according to Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, an industry consulting company.

Still, the airline is going to have to “drastically review” its operations if the global slump continues for another six months, Harbison said. “It cannot continue with the same structure and neither can any airline.”

Qantas, which expects a record loss in the six months ended June 30, also faces pressure on routes to North America, once its most profitable market, as Delta Air Lines Inc. and Virgin Blue Holdings Ltd. add flights. It used to get as much as 15 percent of earnings from transpacific routes as it shared a duopoly with UAL Corp.’s United Airlines.

“We think every carrier on that route will be losing money,” said Joyce, 42. “We are seeing 35 percent additional capacity being added in the next year in a market that is declining 10 percent.”

Swine Flu

The shares fell 4 percent to A$1.90 at the 4:10 p.m. market close in Sydney. The stock has declined 28 percent so far this year.

Qantas, founded in the Queensland outback in 1920, may also face a drop in demand following an outbreak of swine flu in Mexico. The Obama administration has declared a public health emergency in response to the outbreak. An epidemic of severe acute respiratory virus, or SARS, six years ago, led to a plunge in international travel.

That comes as airlines globally struggle to cut costs.

Singapore Airlines has already axed some all-business class flights because of slowing demand, while Hong Kong-based Cathay Pacific is cutting overall capacity for the first since 2003. Global premium air travel fell 19 percent in the first two months, according to the International Air Transport Association.

Qantas has annual revenue of about $10.6 billion compared with $10.7 billion for Singapore Airlines.

Joyce has already fired 5 percent of Qantas staff and curbed flying to pare loses since becoming CEO in November. He said a decision to reconfigure planes would depend on how long it would take for the work to pay off through higher sales of economy tickets.

All-Economy Class?

Joyce, who ran budget unit Jetstar for five years before taking over as Qantas CEO, said he has no plans to turn the whole company into a discount carrier, especially on ultra-long haul routes to Europe, for instance.

“We need a first class and business class,” he said.

The company also won’t delay any more Airbus A380s SAS superjumbos, having already postponed four deliveries. The carrier plans to double its fleet to six by the end of 2010, enough for daily services to both Los Angeles and London, Joyce said.