Qantas chief executive Alan Joyce concedes Jetstar has limited capacity to relieve its parent of profit pressure.
He was speaking after the national carrier downgraded its full-year 2009 profit forecast by 80 per cent.
Mr Joyce told ABC TV that the company was approaching the limit of its ability to transfer capacity to Jetstar in order to cushion the profit squeeze that led to last week’s profit downgrade.
“We have done a lot of that in the last year. There is a limit to what we can do and I think we’re getting to that limit,” he said in an interview broadcast on Sunday.
“A lot of the problem markets now for Qantas are probably markets that Jetstar’s not the right model for – the Los Angeles market as an example.”
Qantas slashed its 2008/09 pre-tax profit guidance from $500 million to between $100 million and $200 million last Wednesday, and said it would retrench up to 1,750 staff – around five per cent of its workforce.
The airline will also ground planes and defer aircraft orders as heavy discounting takes its toll on yields amid a nose-dive in the demand for air travel since the collapse of Lehman Brothers last September.
While Qantas Frequent Flyer, Jetstar and regional operations are still profitable, international operations – its biggest divisional earner – is leaking cash, especially at the front end of the planes.
“In the business class and first class – the premium cabins – we’re seeing a drop internationally of over 20 per cent,” Mr Joyce said.
“In economy, the volumes are actually holding. It’s the yields that’s the problem so that we’re actually getting less in terms of airfares because there’s a lot of discounting.”
In a separate interview on Sky News, Mr Joyce said the airline’s previous market forecast had allowed for a drop in premium traffic of between 20 per cent and 30 per cent, but the latest profit downgrade was due to fare discounts.
“Even in the last two weeks we’ve seen our competitors taking a 50 per cent discount on fares and we’ve matched (this) to remain competitive and that’s causing our revenue to take a hit,” he said.
But Mr Joyce flatly refuted claims that without Jetstar Qantas would be in danger of going bankrupt.
“Qantas is in no danger of going bankrupt – that’s not where we are. What we’re doing is managing ourselves through this environment and making sure we’re healthy when we get through this.”
Airlines around the globe have been cutting capacity and slashing jobs in order to preserve profit as the global economic crisis crimps demand for business and leisure travel.
Passenger numbers for Asia-Pacific carriers dropped almost 13 per cent in February, according to International Air Transport Association (IATA) data.
The aviation industry globally was expected to report a $US4.7 billion ($A6.5 billion) loss this year, IATA said.
The organisation said the Asia-Pacific region would be hit the hardest by the economic slowdown, with carriers in the region accounting for more than one-third of the combined global loss.
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