Qantas To Split Off International Business
Qantas Airways is splitting its loss-making international operations from its profitable domestic business and putting it under the charge of the head of its second-biggest money spinner.
As part of a five-year turnaround plan, the two businesses will have separate chief executives and operational and commercial plans, Australia's biggest airline said in a stock exchange filing. The two businesses will also report earnings separately.
Though speculation about the fate of the international business has surfaced since Qantas first announced the losses there in August, the move does not presage a sale of the unit or a spin off, analysts said.
"This is aimed at showing external stakeholders, such as unions and government, how difficult the international business is," David Liu, head of research at ATI Asset Management said. ATI owns Qantas shares.
"The split brings in added transparency and detail to the two units. It lets Qantas say this is what we have to do to fix it. I don't think this is about selling the unit."
Qantas named Simon Hickey, CEO of its frequent flyer division, as chief executive of Qantas International. Qantas Frequent Flyer reported underlying earnings before interest and tax (EBIT) of AUD$119 million (USD$117.29 million) in the half-year ended December, accounting for more than 40 percent of the group's results.
Lyell Strambi, group executive for airline operations, was named as chief executive of domestic operations.
But it said Bruce Buchanan, CEO of its low-cost offshoot JetStar will leave in six months. Buchanan is credited with building the JetStar brand across Asia. JetStar was the No. 1 contributor to Qantas's first-half EBIT, netting AUD$147 million.
Qantas announced an underlying profit before tax of AUD$552 million for the 2010/11 financial year. It also, for the first time, gave a glimpse of the troubles at the international operations by saying it lost more than AUD$200 million, surprising investors.
The airline, which is emerging from a bruising industrial dispute with unions, would also need a change in legislation to sell off the unit. The legislation is designed to protect Qantas's position as an Australian airline.
"Qantas International, a great airline with a rich history, is loss-making and does not deliver sustainable returns," chief executive Alan Joyce said.
"However, we are committed to turning it around through the five-year strategy we announced last year, based on flying to global gateways, deeper alliances, smart investment in product and disciplined capital management."
RBS analyst Mark Williams called the move a sensible approach but said the challenge was to ensure the maintenance of the strong level of integration between the domestic and international businesses that is driving profits now.
Weak demand and high fuel prices are taking a toll on airline profits, pushing carriers across the world to cut costs and delay capital expenditure.
The business separation comes as Joyce struggles to find a partner to float an Asian premium airline to take advantage of lower costs, with some analysts saying Qantas has given up that option for now. In March it ended talks with Malaysia Airlines.
Qantas on Monday said it planned to cut 500 jobs on top of a similar number flagged in February to save up to AUD$100 million (USD$98.5 million) annually.
It is consolidating engineering, maintenance and ground operation functions and also plans to sell some catering facilities. It has also cut AUD$900 million in capital expenditure.