Qantas Airways is taking drastic steps to overcome the challenges presented by the global economic crisis, deferring aircraft deliveries, slashing capacity and mulling job cuts amounting to 5% of its staff in an effort to rein in costs.

"Market conditions have deteriorated, especially in our international business," says chief executive Alan Joyce. "We are experiencing significantly lower demand, particularly in premium classes, and considerable price pressures with extensive sales and discounting by all carriers."

The immediate measure is to defer the delivery of four Airbus A380s by 10-12 months and 12 Boeing 737-800s for an average of 14 months. It is also grounding 10 aircraft and making them available for sale. Talks have begun with Boeing to reduce the delivery of 15 787-8 aircraft over the near-term. Flying capacity for domestic and international routes is being cut 5%, and freight capacity reduced as well.

Qantas will also remove 500 management jobs, adding to 90 already announced. It will try to manage wage costs with a slew of leaveand working arrangment initiatives, but warns redundancies will be "unavoidable" andanother 1,250 jobs are at stake. Qantas employs 34,000 people.

These measures came as the oneworld member issued a profit warning for the fiscal year ending 30 June. It now expects to post a pre-tax profit of between A$100 million ($73 million) and A$200 million, down 60-80% from the earlier target of A$500 million. That would probably translate to a loss before tax of up to A$188 million for the first half of 2009.

Melbourne-basedDeutsche Bank analyst Cameron McDonald says: "Clearly we were expecting a downgrade to come, given where the previous numbers we were forecasting were anyway, but not to A$100 million or A$200 million." Standard & Poor's credit analyst May Zhong, also based in Melbourne, adds that Qantas' "financial profile will come under significant pressure from the significant deterioration of trading conditions in the airline industry".

This is not unexpected, given the slowdown in passenger traffic. February traffic for the group, which includes low-cost subsidiary Jetstar, fell 10% from a year before. Passenger numbers fell 8% to 2.78 million and passenger loads dropped more than two points to 78.4%.

The airlineplans to cut capital expenditure by at least A$800 million in the next fiscal year and believes it will be on the right track after making the necessary changes. "The structural flexibility of our two-brand strategy, Qantas' diversified portfolio of businesses and prudent financial management have cushioned the impact of the recent deterioration in market conditions. Taking further action on costs and capacity will ensure we can continue to benefit from those strategies," says Joyce.

Redundancies will be unavoidable and another 1,250 jobs are at stake

For more on the challenges facing the Australasian airline industry, see:

Source: Airline Business