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Qantas Plans ’Significant Changes’ to end Losses on Internat

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Qantas Airways Ltd. (QAN) plans to reduce costs on its international network as Australia’s biggest carrier tries to reverse two years of losses at the unit.

Faced with Australia’s first tax on carbon emissions next year, Qantas will also increase airfares at home to compensate for the levy, the Sydney-based carrier said. The cuts to international expenses are part of a strategy to be announced Aug. 24 to turn around the long-haul business, Chief Executive Officer Alan Joyce told the Australian Broadcasting Corp.

“We need to make significant changes to our international services,” Joyce said on yesterday’s “Inside Business” program, without providing details. The plan includes adopting “an honest and fairly aggressive view on the performance of the international network and making cuts where we need to make them,” he said.

Qantas forecast on June 22 a A$200 million ($214 million) loss at the international arm for the year ended June 30 and a bigger loss in the fiscal year starting July 1. Competition from Emirates Airline and Singapore Airlines Ltd. (SIA) has slashed the Australian carrier’s market share in international services to about 20 percent from 35 percent in 2001.

Qantas shares fell 3.3 percent to A$1.935 at the 4:10 p.m. close of trading in Sydney. The stock has dropped 24 percent this year, compared with a 3.4 percent decline in Australia’s benchmark S&P/ASX 200 index.

Carbon Tax

Joyce’s potential revamp of the international unit comes as he adjusts domestic operations for the government’s new tax to reduce carbon-dioxide emissions.

Australian Prime Minister Julia Gillard expects to raise about A$27.8 billion in three years by making polluters pay an initial charge of A$23 a ton of carbon dioxide and then lift the price by 2.5 percent a year plus inflation, she said yesterday.

The tax, which will be applied to domestic air services, will increase the excise on aviation kerosene to 10.16 cents per liter in the year ending June 2015 from the current 3.556 cents per liter, the government said in a statement. International flights will not be subject to the extra tax on fuel.

The new tax will increase Qantas’s fuel bill by as much as A$115 million in the 12 months ending June 2013. Qantas is planning a “full pass-through to customers” of the higher costs, the company said in a stock exchange statement today.

The airline’s long-haul pilots today voted in favor of the first industrial action at Qantas in 45 years, the Australian and International Pilots Association said. Qantas is prepared to negotiate “sensible and reasonable increases in pay,” the carrier said in an e-mailed statement.

Invest in Luxury

Joyce said he’ll invest some of the savings from the international network into the luxury end of the division. The turnaround strategy also involves addressing partnerships with other carriers and targeting Asian expansion, Joyce said on the television program.

In its June 22 forecast, Qantas said it was planning for an increase of as much as 46 percent in overall pretax profit for the year ended June 30 as domestic services, budget unit Jetstar and a frequent-flyer program offset losses on overseas routes. The international business is the company’s weakest and delivered required returns only three times in the past 15 years, Joyce said at the time.

Qantas has scaled back capacity growth plans twice this year, including scrapping plane orders, as natural disasters and rising fuel prices damp demand and push up costs.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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Qantas will launch two new airlines, neither of which will be based in Australia. This is causing ripples in that country, fearing QF will slowly migrate jobs off shore as well for the two other carriers the corporate entity owns. One will be an LCC co-owned with JAL and Mitsubishi, the other a wholly-owned regional all-frills carrier HQ tba but it will fly A320s, both current and neo models. This will mean a streamlining of its major overseas long haul routes (to respond from the significant erosion brought about by EK and Ethiad) and a rationalization of an Asian route structure based on hub and spoke.

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Since 1920, Qantas has represented the best of what air travel

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