Airlines tighten belts as fuel cost bites

SYDNEY: Australia's top airline, Qantas Airways Ltd, will cut four per cent of its workforce and scrap its growth plan for the coming year, saying the business would be at risk if it fails to offset soaring fuel prices.

The plan to cut 1,500 of its 36,000 workers and scrap plans to hire another 1,200 was Qantas's fifth belt-tightening in three months. It had already raised fares twice and cut capacity twice.

The global airline industry faces what it calls a "perfect storm" of skyrocketing oil prices, with carriers worldwide shedding thousands of jobs and closing down routes as losses mount, threatening some of them with insolvency.

"This is one of the toughest industries out there," said Qantas chief executive Geoff Dixon.

As part of the latest measures, Qantas also cut its forecast capacity growth for 2008/09 to nil, from eight per cent before, and said it would shut call-centres in Tucson, Arizona and London.

Dixon said the job cuts were within the airline's budgeting process for 2008/09, but "obviously there will be a cost". More than 20 per cent of Qantas' management and head office support jobs will be cut under the proposed restructuring.

Another Australian airline, Virgin Blue Holdings Ltd, said yesterday it would introduce new baggage fees and withdraw two aircraft from service, its second capacity cut in a month in response to rising fuel costs.

The removal of two planes from the domestic market by October will cut capacity of Australia's second-largest airline by about three per cent.

"We have endeavoured to seek a reasoned and balanced approach to recover costs associated with current punitive fuel prices and the direct effects on our business," Virgin Blue chief executive Brett Godfrey said.

The cut comes on top of a previously announced six per cent capacity reduction for the 2008-2009 financial year.

Virgin Blue has also agreed with the Embraer corporation to delay the delivery of five aircraft in 2009, Godfrey said, which will reduce capacity by another three per cent.

In a separate development, China Southern Airlines Co will cut the pay of chairman Liu Shaoyong and other executives by 10 per cent from this month to help offset jet-fuel costs that have almost doubled in a year.

The move is part of a plan to save 1.3 billion yuan, about US$191 million (US$1 = RM3.24) this year by cutting operating costs and infrastructure investments, the Guangzhou-based carrier, China's largest airline, said in an e-mailed statement yesterday.

China Southern, Air China Ltd and China Eastern Airlines Corp have raised surcharges and trimmed capacity to cope with rising fuel prices and slower travel growth.

Higher fuel costs will boost China Southern's operating costs by 1.9 billion yuan this year, it said.

"The salary cuts are a symbolic move to show the management's efforts to reduce costs," said Yu Jianjun, an analyst at Huatai Securities Co. "The carriers will do everything they can as jet-fuel prices have run out of control."

Liu was paid 751,000 yuan last year, including pension contributions, according to the company's annual report. - Agencies