Qantas to cut cost - cancels aircraft orders

Australia's Qantas Airways will cut spending by AUD$700 million (USD$750 million) and plans to cancel aircraft orders as it battles waning demand, high fuel costs and investor displeasure with its shares trading near multi-year lows. Qantas, which suffered a blow to its reputation after an Airbus A380 accident last year forced it to ground its flagship aircraft, said it will cut capital expenditure by AUD$400 million up to the end of fiscal 2012 and will reduce aircraft leasing costs by AUD$300 million. With its shares at two-year lows, pilots threatening strike action, costs rising and the domestic economy going through a rough patch, Qantas has been under pressure to take decisive action, with some analysts suggesting its credit rating could come under pressure.

The airline has already offered cabin crew voluntary redundancy in hopes of cutting 350 jobs and raised fares several times to combat its AUD$3.7 billion fuel bill. Qantas now expects its domestic capacity to grow by just 5.5 percent, below the 8 percent projected earlier and the airline will cancel or defer a fifth of its aircraft deliveries next year. Australia's economy contracted by the fastest rate in 20 years in the first quarter and recent data on retail spending and consumer sentiment indicates households are feeling more pain than earlier thought and were unlikely to sharply raise consumer spending. In addition, households have sharply raised their savings as they expect interest rates and mortgage costs, to go even higher.