Travelling light

IN THE airline industry nothing is as instantly obsolete as an empty seat once the plane takes off and nobody knows that better than the Qantas chief executive, Geoff Dixon.

John Singleton, the advertising guru and long-time mate, once said that Dixon kept load factors in the top of his head and took only seconds to work out how to keep an aircraft running profitably; how much to give away, how much to keep and how many discount seats he could afford on any given flight.

Two years in the top job have shown how tough and combative he can be in his dealings with competitors, governments and bureaucrats. Described by one commentator as the Qantas bovver boy, and likened to a junkyard dog by another, Dixon is by nature a juggler who likes to keep all the balls in the air.

So it is not altogether clear whether he played the empty seats card this week out of uncharacteristic nervousness or as part of the never-ending political game that dominates the lives of all airline chiefs.

When Qantas announced on Wednesday that it would cut 1400 jobs from its 35,000 workforce through attrition and 1000 redundancies, he attributed a sharp downturn in international air travel due to the Iraq war, the outbreak of severe acute respiratory syndrome and the world's generally poor economic condition.

That the announcement was made on the eve of the widely anticipated rejection by Australian and New Zealand authorities of a $500 million Qantas-Air New Zealand alliance proposal was not lost on most industry observers.

Jason Smith, a transport industry specialist at Citigroup Smith Barney, was typically sceptical, pointing out that as well as ``these unfortunate events" Qantas was negotiating an enterprise agreement with its long-haul flight attendants and seeking also to renegotiate its joint services agreement with British Airways.

He said Qantas was a master of the political game. ``We believe these unfortunate events should more than help its case to get the alliance with Air NZ through, the joint service agreement renegotiated and the successful completion of a new long-haul flight attendant enterprise bargaining agreement."

He went so far as to suggest that previously announced cuts in flying capacity of up to 20 per cent by mid-July and the redundancy announcement had given the airline greater leverage in negotiations with the flight attendants.

So how is Qantas really travelling?

Last year, when the 250 airlines in the International Air Transport Association lost a combined $21 billion, Qantas shone with a net profit of $428 million. It was up 3 per cent on the previous year but down 17.2 per cent on the record $517.9 million it made in 2000.

Dixon is striving this year for a $500 million profit. Smith is forecasting $489 million, having just reduced his prediction from $525 million to take account of the confluence of international events.

His most recent analysis, on Thursday, predicted that Qantas was likely to be the world's third-most profitable airline but, as if to demonstrate the volatility of the airline industry, he was almost immediately obliged to amend it to second-most profitable. Cathay Pacific had dropped out of contention after warning that it was unlikely to repeat its $843 million net profit for the year to December 2002.

However, Singapore Airlines, which reported a first-half net profit of $716 million, is running in first place. It just so happens that it is Qantas Airways' most direct competitor along its main routes through Asia to Europe and for Dixon it is the nemesis that is never going to go away.

According to an airline industry consultant, Peter Harbison, of the Centre for Asia Pacific Aviation, Singapore Airlines is cashed up and can at any time gain access to the Australian domestic market in competition with Qantas and Virgin Blue should it want to.

He said that it was eyeing the Pacific route between Australia and the US west coast and he expected it to ask the Singapore Government to negotiate a Pacific open skies agreement with Australia.

A former journalist, diplomat and mining industry marketing executive, Dixon took up the reins at Qantas in March 2001. Against a backdrop of international terrorism, aviation collapses and financial uncertainty, he achieved market dominance in the domestic aviation scene in the first year. Luck had played a big hand.

In the same week as the September 11 attacks, Ansett collapsed handing Qantas the equivalent of seven years' passenger growth overnight. In one year the number of Qantas's domestic passengers jumped 33 per cent, from 11.2 million to 15 million.

Considering the deadening impact that the New York attacks and the Afghanistan war had on international air travel, Qantas's 8.5 per cent increase in international passengers from 7.76 million to 8.42 million was as remarkable as its domestic growth.

It has allowed Qantas to achieve an overall world ranking of 12th place in terms of size of fleet and passengers carried, while some of the giants of the industry, including old competitors, have crumbled.

On the Pacific route Pan Am and Continental are long gone and United, now living under US Chapter 11 bankruptcy protection, code-shares with Air New Zealand, the only effective competition to Qantas and its code-share partner, American Airlines.

The Kangaroo and Asia routes remain more competitive with Lauda, Emirates, Singapore Airlines, Malaysia, Thai and the Qantas stablemate, British Airways, the main contenders. Qantas, however, remains a clear favourite among travelling Australians and a popular choice with visitors.

Chris Brown, the managing director of the tourism industry's development organisation, TTF Australia, said the industry relied more than ever on Qantas to bring in overseas tourists and supported its attempts to stay viable.

He said all airlines were overstaffed and struggling with their cost structures and Qantas had done very well in the face of suppressed travel demands. ``Tourism and aviation have taken several hits out of left field in the last 24 months off the back of a challenging operating environment," he said.

``It has been like the perfect storm: September 11, Iraq, SARS and the global downturn have impacted on inbound tourism, with Ansett, the drought and bushfires affecting domestic travel."

Brown said he believed the second half of the year would see a revival.

But for Geoff Dixon and Qantas, a delicate financial balancing act lies ahead as the airline's operational statistics show.

While Qantas put more planes into the skies to cope with the post-Ansett demand, and carried 50,000 former Ansett passengers for nothing and a further 65,000 at heavily discounted fares, it still allowed the airline to improve its passenger numbers and also its revenue per passenger.

But it did precious little for the bottom line. Earnings per share continued on a consistent slide from 42.8 cents in 2000 to 33 cents in 2001 and 29.1 cents in 2002.

It should surprise nobody that Dixon is looking at ways to cut costs. Harbison said he expected him to cut $1 billion a year out of the cost structure, all in the name of survival.

COMMENCING DESCENT

Sydney, Cairns and Melbourne flights to Japan - 20% reduction

Brisbane to Hong Kong - Suspension of the twice weekly

Australia to Los Angeles - 28 to 25 per week

Four Sydney Services - 30 to 24 per week

UK - 21 to 17 per week