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The battle for Australian skies intensifies

The battle for Australia's skies intensified yesterday as Qantas shrugged off threats by rival Virgin and announced big capacity increases with more on the way.

The battle for Australian skies intensifies

The battle for Australia’s skies intensified yesterday as Qantas shrugged off threats by rival Virgin and announced big capacity increases with more on the way.

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The airline also announced it would defer until 2016-17 the delivery of two Airbus A380 superjumbos originally scheduled to arrive early next year.

Chief executive Alan Joyce said the move could open the way for the airline to resume paying dividends.

The aircraft deferrals will provide a 2012-13 capital expenditure saving of $400 million, in addition to a $500m saving identified in February, bringing total capex for the year to $1.9 billion and putting it at roughly the same level in 2013-14.

“The board is positive about paying a dividend again and want to pay a dividend again,” Mr Joyce said. “But we have to get the business back to where our investment grade rating was solid, because that’s really key for us.

“And obviously part of that is getting the business back to free cashflow positive.

“We can see, dependent on world circumstances obviously, but given that $1.9bn capital expenditure next year, we believe it will be free cashflow positive and all of that is a positive sign of getting ourselves back into a way of paying a dividend.”

Mr Joyce dismissed comments by John Borghetti, boss of rival airline Virgin, that he would consider taking Qantas to the competition watchdog if he believed it was acting illegally.

Mr Borghetti said yesterday that he was not worried about the Qantas move – with one source saying Qantas was looking to add the equivalent of three years’ growth in one year – and believed it would just mean his rival would lose money. But he said he would watch the airline’s behaviour “very carefully”, noting there was competition in the market for the first time in a decade and travellers “shouldn’t be deprived of true competition”.

But Mr Joyce likened Mr Borghetti’s comments to telling Apple it could not add new screens or enhancements on its phones because it was too far ahead of the competition and they should be given a chance to catch up.

“Frequency and network is part of the same competitive dynamic,” he said.

“We’re entitled to have an advantage there, we’re going to retain an advantage, that’s why we’re profitable and it’s no different to Apple keeping their lead on iPhones against Samsung and the other competitors.”

Analysts say that, as a result of the increases by Qantas, Virgin and Tiger, overall capacity in September will be about 20 per cent higher than in September 2011.

They warn that the increases will lead to a drop in fares, affecting yields and bottom lines.

Mr Joyce was unable to provide a figure for the overall capacity increase, which includes extra services during peak times on core east coast business routes on the Sydney-Melbourne-Brisbane triangle as well as the reintroduction of Boeing 747 services on Sydney-Perth and additional Airbus A330 services on Melbourne-Perth. The latter was seen as the quickest way of providing capacity for growing traffic from resource areas.

Jetstar will also increase flights to key leisure markets and QantasLink will boost its presence in Queensland with the introduction of Fokker F100 jet services between Brisbane and Emerald.

“There’s more to come over the next few weeks and months and we’ll absolutely clarify how much capacity is coming,” Mr Joyce said. “The way we see this is that we need to be competitive in every aspect of providing the appropriate service to business customers and to be relevant and having the network and capacity for Jetstar to be the No 1 low-fares airline in the country.”

Mr Joyce said that, in terms of business customers, Qantas had advantages through its business lounges and smarter, faster check-in, but big additional drivers for these travellers were network, frequency and on-time performance.

He said the airline had won 12 of the past 15 months in terms of on-time performance, but needed to keep its advantage in terms of network and frequency.

“It’s the reason we’re not losing corporate accounts; we lost only two in the last half of the financial year,” he said.

“We obtained 46 new ones and we retained 160, and we won the Fortescue Metals Group, which was a big contract.”

The A380 deferrals were in keeping with the the airline’s decision to suspend services from Bangkok and Hong Kong to London, both of which were going to be A380 operations.

Moving the A380s was also critical to reaching the capex spending target of $1.9bn.

“We knew we could survive with the 12 aircraft over a period of time and we’ve been talking to Airbus about delaying those two aircraft that were coming next year,” he said.

Mr Joyce said the airline had parked its slots at London’s Heathrow Airport and the delay until 2016 would allow it to look at using those aircraft to go back into London should it have turned around the international operations by then.

“And that allows us to have more flexibility because we’ll have (Boeing) 787s coming,” he said.

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