Qantas 2005 Annual Report Download - page 14

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are outside our control – the extraordinary cost of fuel,
escalating security charges and increasingly intense
competition from other airlines.
Qantas’ greatest challenge remains the cost of fuel, which
we believe will stay at the current high levels.
Fuel in 2004/05 was 19 per cent of the Group’s total
operating costs, up from around 15 per cent in 2003/04.
It will increase to almost 30 per cent of our total operating
costs in 2005/06.
At current prices, the Qantas fuel bill will rise by more than
$1.25 billion in 2005/06 after hedging. Fuel surcharges will
contribute to partially offset this increase. However, we still
face a $650 million shortfall at current prices compared to
last year.
Over the past three years, segmentation of the business and
SFP have provided the platform for our success. Qantas now
needs to further transform its business to secure another
permanent reduction in its cost base in line with the new
levels of fuel prices facing the industry.
SFP had targeted savings of $1.5 billion over three years to
2005/06. Additional savings of up to $1.5 billion will now
be required over the following two years to 2007/08 due
to continued high oil prices.
We have reviews under way in all areas and face some
difficult decisions going forward to accelerate the
transformation of our business and secure Qantas’ future.
This will involve some job losses over the next two years
but we will be looking at every other available option to
improve efficiency.
None of the problems Qantas currently faces are
insurmountable. Qantas has been more successful than
most airlines in responding to change in the industry over
the past few years and has every intention of maintaining
that success.
A YEAR OF GROWTH
Qantas’ success in recent years has been achieved by
growing all its flying businesses, while using that growth
as the catalyst for substantially reducing unit costs.
x Qantas continued to invest in new international routes
during the year, commencing flights to Mumbai in
September 2004 and Shanghai in December 2004.
Qantas also opened a new Kangaroo Route option via
Hong Kong, commenced flights between Adelaide and
Auckland and added capacity on routes to the USA.
x Qantas improved its profitability in the domestic
market and added capacity on key business and long-
sector routes. Western Australia and Queensland saw
significant capacity increases.
x Jetstar lowered its cost base in the second half of the
year to 7.62 cents per ASK, making it the lowest cost
carrier in Australia, even with a mixed fleet. As additional
A320s are introduced to the fleet, Jetstar’s cost
advantage over the competition is expected to increase
further, giving it an enviable position from which to
grow both in Australia and internationally.
x QantasLink made its biggest ever single investment in
the regional turboprop fleet with the acquisition of seven
new Bombardier Q400 aircraft for delivery from January
2006.
The new Qantas cabin crew base in London opened in
February 2005. Establishing this base has enabled Qantas to
achieve efficiencies in flying and reduce costs by $18 million
a year. At the same time, the base has provided career
opportunities for Australian Flight Attendants, with half
of the 400 staff at the London base having relocated
from Australia.
The roll-out of the award-winning Skybed continued.
Skybed will be available to all Business Class passengers on
all international 747-400 and A330-300 aircraft by the end
of 2005.
The Qantas Frequent Flyer program, one of the most
popular loyalty programs in the region, grew by eight per
cent to 4.3 million members worldwide. A range of changes
were introduced during the year, aimed at providing
members with increased flexibility while continuing to
offer a viable and competitive Frequent Flyer program that
rewards our most frequent travellers.
Continuing investment in qantas.com is helping Qantas
meet the growing demand from customers for online
self-service. Improvements during the year included:
x better online Frequent Flyer services for customers
managing their points, making bookings and updating
their account details;
x an expanded online fare range that now includes all
fares on all flights;
x an improved search function allowing customers to
search one week at a time for the best fare; and
x the introduction of simpler fare rules and better fare
displays for international bookings.
THE YEAR AHEAD
Qantas will base its growth in the next 12 months on new
international markets, while expanding existing profitable
markets, substantially increasing freight revenues and
expanding the Jetstar brand.
Qantas will continue investment in new destinations like
China, with an additional service to Shanghai to start from
November 2005 and new services to Beijing from January
2006.
We are also continuing to invest in established international
markets such as the USA, including new Qantas services
to San Francisco commencing in March 2006, which will
increase Qantas services to mainland USA to a record
39 per week.
The airline’s support for Australian tourism is being
underpinned by a new $60 million destination marketing
partnership with Tourism Australia – a three-year
commitment from 2005/06 to grow Australia’s tourism
business from all major overseas regions.
Spirit of Australia
~Report from the Chairman and Chief Executive Officer~