VZCZCXRO2263
RR RUEHDE RUEHPT
DE RUEHBY #0755/01 2260723
ZNR UUUUU ZZH
R 140723Z AUG 09
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC 1922
INFO RUEHAD/AMEMBASSY ABU DHABI 0238
RUEHLO/AMEMBASSY LONDON 2108
RUEHOT/AMEMBASSY OTTAWA 2370
RUEHGP/AMEMBASSY SINGAPORE 1777
RUEHKO/AMEMBASSY TOKYO 3651
RUEHWL/AMEMBASSY WELLINGTON 0078
RUEHDE/AMCONSUL DUBAI 0057
RUEHBN/AMCONSUL MELBOURNE 6607
RUEHPT/AMCONSUL PERTH 4872
RUEHDN/AMCONSUL SYDNEY 4859
RUEHBS/USEU BRUSSELS
RHEHAAA/THE WHITE HOUSE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 CANBERRA 000755 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EAP/ANP, EEB/TRA 
 
E.O. 12958: N/A 
TAGS: ECON AS
SUBJECT: QANTAS FEELING IMPACT BUT WEATHERING ECONOMIC 
DOWNTURN 
 
¶1. (SBU) SUMMARY:  Though Qantas definitely felt the effect 
of the global financial crisis, the Australian national 
carrier appears to have weathered through it better than most 
in the airline industry.  The company should post between 
USD80 to 160 million in profit for the year ending June 30, 
¶2009.  In the short term, the company is paying close 
attention to several issues that may also be of interest to 
the airline industry.  End summary. 
 
¶2. (SBU) Econoff met with Qantas' Head of Government and 
International Relations Jane McKeon on August 11.  McKeon 
spoke about the state of the airline industry, Qantas' 
financial performance, its response to the current economic 
environment, as well as issues of concern for the company 
going forward. 
 
State of the industry 
--------------------- 
 
¶3. (SBU) McKeon said the effects of the slowdown in the world 
economy caused an unprecedented revenue environment for the 
airline industry, forecasted to lose USD 9 billion in 2009 
and caused over 40 airlines to enter bankruptcy.  The fall in 
consumer and business confidence caused airline job losses 
and reduced spending and investment.  She mentioned that 
hedging against this year's high fuel-price volatility also 
prevented a full realisation of benefits. 
 
State of Qantas 
--------------- 
 
¶4. (SBU) McKeon gave a preview of Qantas' end-of-year results 
(30 June 2008-2009), which will first be announced on August 
¶19.  According to McKeon, profit before tax for the year was 
reviewed downwards from around A$500 million (USD400 million) 
to between A$100 and 200 million (USD80 to 160 million).  She 
explained that some of the key drivers for the revised profit 
forecast were:  a) Lower demand, particularly in premium 
classes; b) extensive sales and discounting by carriers, in 
some cases up to 50%; and c) several competitor airlines 
reducing capacity even though overall international capacity 
continued to expand. 
 
¶5. (SBU) McKeon enumerated some of the measures Qantas has 
taken in response to the economic downturn: Manpower 
adjustments; cost reductions; raising equity capital; 
deferral of capital expenditure; reduction and redirection of 
capacity; retirement of aircraft and deferral of deliveries 
(Note: Qantas canceled an order for 15 Boeing 787 
Dreamliners, saving USD3 billion, and delayed delivery of 
another 15 for four years.  End note.)  Qantas' strategic 
priorities going forward are: To continue the two-brand 
strategy with its discount carrier Jetstar, which has 
afforded it flexibility in varying market conditions; product 
enhancement (premium economy, customer service center, 
lounges); operational improvement (fleet efficiency, air 
traffic management, on-time performance, continued focus on 
safety); improved efficiencies, market segmentation and 
capital management. 
 
Issues of concern 
----------------- 
 
¶6. (SBU) McKeon mentioned several issues that Qantas will be 
paying close attention to in the near term: 
 
-- FAA Reauthorization Act of 2009 (HR 915, passed the House, 
now in the Senate Committee on Commerce, Science and 
Transportation): The outcome may set a useful precedent for 
QTransportation): The outcome may set a useful precedent for 
future Australian legislation on many issues of interest to 
Qantas, such as regulations requirements regarding antitrust, 
immunization, quarantine, lost baggage compensation, customs 
and border security. 
 
 
CANBERRA 00000755  002 OF 002 
 
 
-- Upcoming European Union negotiations on emissions: Under 
some of the measures being considered, Qantas could face 
steep long-distance penalties based on its geographic 
location. 
 
-- GOA's proposed Carbon Pollution Reduction Scheme (CPRS): 
Under the current plan, Qantas would not receive government 
subsidies or protection. 
 
-- Upcoming Australia-New Zealand Leadership Forum: McKeon 
said Qantas is very interested in following the "US-Canada 
model" in seeking to improve transportation links and the 
simplification of travel while maintaining effective border 
security, customs and quarantine standards. 
 
-- Comparative tax treatment: Qantas pays high corporate 
taxes relative to some of its main competitors in the Asian 
market, many of which benefit from high government subsidies 
(Singapore Airlines, Cathay, Emirates, and Etihad). 
 
-- Retaining domestic market dominance: Qantas' two-brand 
strategy has been successful in facing off other competitors. 
 
-- "Shakeout" in US-Australia routes: Delta's entry, among 
others, have brought down prices to, in McKeon's view, 
"unsustainable levels of unprofitability" and looks to see 
who the ultimate survivors will be. 
 
¶7. (SBU) Comment: Despite a downward revision, Qantas will 
manage to end the year with profits.  The measures taken by 
the company to deal with the economic downturn, although 
painful, have largely been successful.  We will monitor 
developments on the above-mentioned issues of concern to 
Qantas and of interest to the airline industry.