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Qantas scraps dividend in profit dive -

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ELEANOR HALL: The profits of Australia's national airline carrier have plunged. Qantas said it
would scrap first class seats on some routes as it announced a 72 per cent dive in its profits.

Qantas posted a second half net profit of $58 million and warned that it's still facing a tough and
uncertain outlook and that air fares will rise.

The company also outraged investors by announcing that it won't pay a dividend and its share price
plummeted.

Qantas chief executive Alan Joyce spoke to business editor Peter Ryan.

ALAN JOYCE: We're certainly seeing things improving and it's great that Qantas is making money when
the rest of the airline industry is still producing big losses. It shows the strength of Qantas and
its portfolio.

You know we're cautiously optimistic about the future we are seeing. The domestic and the
Australian market has certainly turned. It is positive. Confidence has come back.

But we still are seeing some weakness in our big international markets of the UK and LA. But we are
cautiously confident of where the business is going.

PETER RYAN: But are you able to make a positive declaration today that it's all up from here?

ALAN JOYCE: I think that any business that declares victory too early is not planning for the
future appropriately. We are seeing good signs. We're responding to them.

You know we did add a significant amount of capacity to the domestic market at the end of last
year. There's over a million seats being added to our domestic operations. So that shows you our
confidence at how things are actually developing.

PETER RYAN: There are many factors and many variables but what keeps you awake at night when you're
thinking about what might be out there that you don't know about?

ALAN JOYCE: My predecessor Geoff Dixon did a quote which I think is very valid; that the aviation
industry is subject to constant shock syndrome.

So you're always worried about volatility that takes place. Fuel price is still very volatile. Fuel
price is still high relative to where it has been in the long run. So those uncertainties are
probably the biggest ones that we have to deal with.

PETER RYAN: As a result of the downturn you've decided to cut back on first class seats. But are
you worried that this could hurt Qantas's reputation as a premium global airline?

ALAN JOYCE: Well no because we are actually investing more money in a premium product. We made the
announcement today that we are investing $400 million in upgrading our product on the 747s and
making sure our A380s have the right product to meet demand in the various classes.

And the actual statistics show that for where we are today the number of first class and business
class seats going forward will be approximately the same but the number of premium economy seats
will grow by 27 per cent.

That shows increasing our commitment to premium. That shows increasing our commitment to being one
of the world's best premium carriers.

PETER RYAN: But we are seeing a big cultural change in the way that companies are managing staff
and more people for example travelling business class or premium economy. Is that what you're
seeing?

ALAN JOYCE: Certainly. We are seeing that the long term trend of first class has been for a
decline. We still think there's a need for first class travel. We are committed to that. And
actually the new first class product that we have on the 380 has 20 per cent more space than the
old first class product. It is a significant upgrade to our first class suites.

We are committed to that and we'll continue to operate first class from Melbourne and Sydney to LA
and to London.

PETER RYAN: But what about the people at the back of the plane who don't fly first or business or
even premium economy? What's in it for them?

ALAN JOYCE: Quite a lot. The A380 has gotten great customer satisfaction ratings in the economy
classes as a consequence of the new in-flight entertainment system that we've put on the aircraft.

The large element of the money that we're investing is to put that entertainment system across our
international fleet. So the economy passengers will have more entertainment options than they've
ever had. It offers our customers more choice and more options than ever before and our investment
today is to enhance that for them.

PETER RYAN: Are we at a point where realistically people should expect prices to go up?

ALAN JOYCE: Prices have been moving up both domestically and internationally. They did reach a low
in August of this year, of last year.

Internationally the aviation industry had record losses last year and this year it's still forecast
to lose $US5.6 billion. So that's not sustainable. And we know that's as a consequence of the
business market dropping but also of large discounting that's taken place on economy yields.

PETER RYAN: You've suspended the dividend. How do you explain that to investors who see Qantas as a
dividend stock?

ALAN JOYCE: We still have uncertainty about the outlook going forward. But we think being cautious
means making sure that you maintain your flexibility with liquidity and it's not appropriate to pay
dividends in the current environment.

ELEANOR HALL: That's the chief executive of Qantas Alan Joyce speaking to our business editor Peter
Ryan.