21 August 2012

Jetconnect Losses

QANTAS' trans-Tasman flying business Jetconnect is losing money - even though it has a similar cost-base to major rival Air New Zealand - because of tough competition on the short-haul route between Australia and New Zealand. The disclosure of the New Zealand subsidiary's financial health comes as Qantas is set to post on Thursday its first annual loss - expected to top $200 million - since it was fully privatised in 1995. The airline's biggest losses are on long-haul routes to Europe rather than short-haul flights. Qantas does not disclose the performance of Jetconnect in its accounts. But during a recent hearing before the industrial umpire, Qantas' then head of commercial operations, Rob Gurney, revealed the Qantas subsidiary was ''incurring losses because of the fundamental dynamics of the market, and even though it has a cost structure comparable with Air New Zealand … it is losing money''. The subsidiary pays its pilots and cabin crew ''New Zealand rates of pay'', which are substantially lower than those for their Australian-based counterparts. ''The commercial dynamics of these markets are such that these are loss-making enterprises, even given the cost structures that are in place today,'' Mr Gurney told Fair Work commissioners in June. Qantas executives and pilot union leaders have been appearing before the workplace umpire at various stages over the past three months. It is the final of three industrial disputes, which culminated in the dramatic grounding of Qantas' entire fleet last October, to be settled. Qantas has argued that its higher labour costs put it at a big disadvantage to other airlines. But lawyers for the pilots' union told Fair Work it was a ''long bow'' to blame pilot salaries for Jetconnect's performance when they were less than their counterparts at Air New Zealand. Air New Zealand's highest-paid captains receive about $200,000, while a Jetconnect captain is on almost $140,000 a year. Jetconnect operates 90 per cent of Qantas flights between Australia and New Zealand, employing about 600 staff, mostly cabin crew and pilots. It has a fleet of eight new Boeing 737-800 aircraft painted in Qantas livery. Last week, Virgin Australia also announced it will stop services between Brisbane and Hamilton, New Zealand, in October, leaving its alliance partner Air New Zealand to do the bulk of the pair's trans-Tasman flying. Airlines have long viewed Hamilton as a marginal destination in terms of profitability. Analysts doubt Qantas will give an update on talks with Emirates about forming a code-share deal when it releases its annual result on Thursday, but they have speculated that it could announce further route cuts. Qantas' annual net loss is expected to top more than $200 million for the year to June. Stripping out $100 million in costs from the industrial dispute last year, the pre-tax losses from the company's premium international division are set to balloon from $216 million in 2011-12 to about $350 million.

Source: http://www.smh.com.au/business/transtasman-costs-hurt-jetconnect-20120819-24ghk.html#ixzz2489lwxEz

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