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Qantas cancels orders as industry woes contin -

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Qantas cancels orders as industry woes continue

Sue Lannin reported this story on Friday, June 26, 2009 12:47:00

Qantas has cancelled 15 Boeing Dreamliners to cut costs. The move comes as the slump in
international air travel continues, made worse by the global financial crisis and the recent
outbreak of the swine flu pandemic.

PETER CAVE: The global financial crisis has continued to take its toll on Qantas.

The airline has deferred or cancelled the delivery of 30 Boeing Dreamliners to save nearly
$4-billion.

Finance reporter, Sue Lannin.

SUE LANNIN: The Dreamliner may be a dream aircraft but its owner Boeing is expected to soon
announce yet another delay in its delivery date.

Qantas says its decision to delay or cancel the orders of 30 Dreamliners isn't linked to the
aircraft's troubles.

In a statement chief executive Alan Joyce, says changes to the orders are appropriate in the
current climate and will save $3.7-billion.

Derek Sadubin from the Centre for Asia Pacific Aviation says it's no surprise.

DEREK SADUBIN: That is just symptomatic of the pressures that the airlines around the world are
under and we expect that there will be more airlines cancelling aircraft deliveries as they
reassess the demand outlook over the medium term because it's very different than it was 12 months
ago.

SUE LANNIN: Aviation consultant Neil Hansford is critical of Qantas for not selling its freight
business and its frequent flyer program to help improve its bottom line.

He was involved in the order for the Dreamliners.

NEIL HANSFORD: Certainly Qantas's figures are particularly poor at the moment and believed to be,
they're believed to be losing $20-million a month. When the original order was placed it was fairly
bold and I think there was a belief in Qantas that they could have sold their production slots to
other people and made money on the slots.

If they had taken the full 65 aircraft, Qantas and Jetstar would have absolutely been booming.

Alan Joyce has probably got the most difficult job in what he has inherited from Dixon. Geoff Dixon
must be wiping his brow saying, I'm glad I'm out of that.

SUE LANNIN: The woes of Qantas won't be helped by new figures showing another fall in international
passenger demand made worse by the outbreak of swine flu.

The International Air Transport Association or IATA says demand dropped 9.3 per cent in May with
Mexico and the Asia Pacific hardest hit.

Demand for freight fell more than 17 per cent over the month but the association says it may have
reached the bottom.

Derek Sadubin isn't so sure.

DEREK SADUBIN: Well certain the headline traffic figures suggest some stabilisation in the overall
worldwide picture in international demand. Revenues are a totally different story and we are still
seeing airline revenues deteriorate and average fares and yields go down as airlines really throw
the kitchen sink at getting people to try and fly again.

The financial health of the airline industry globally is extremely fragile and IATA goes on to say
that airlines around the world are really in survival mode.

SUE LANNIN: Neil Hansford thinks the bottom is a long way off and it's the budget carriers who will
emerge victorious.

NEIL HANSFORD: When we come out of it and you know there's a million of professors want to tell you
when, it will be the low cost carriers who have got a low cost base. They haven't inherited
traditional high labour costs which the legacy carriers like your Qantases and your BAs are still
stuck with and their dynamics will allow them to come out quicker, they are better on their feet,
they've got better access to equipment.

The saviour of Qantas will be Jetstar and Virgin will obviously benefit.

SUE LANNIN: Singapore based budget carrier Tiger Airways started flying in Australia in late 2007.

Managing director, Shelley Roberts:

SHELLEY ROBERTS: Tiger Airways is the fastest growing airline in Australia today. What we are
finding in fact is that people are looking for a good deal and so they are flying with Tiger.

SUE LANNIN: And how do you see the state of the industry overall? Is it a pretty tough time?

SHELLEY ROBERTS: Well, I think it's certainly the model of the low cost carrier that is proving
successful in this market at these times. It is actually a great time for us with fuel prices being
low and the Australian dollar being strong to continue expanding and we are going to do that.

I mean I have plans to bring 30 aircraft to Australia and we will fly wherever there is demand for
Tiger.

PETER CAVE: Shelley Roberts, the managing director of Tiger Airways Australia ending that report
from Sue Lannin.