Airline hopes to investigate feasibility of forming no-frills carrier to carve a slice of major Australian leisure routes

Qantas has formed a study team to investigate the feasibility of establishing a low-cost airline to serve the domestic Australian leisure market. The airline's board gave approval for the study last week, with the team to report back in November, says chief executive Geoff Dixon.

The move comes as the airline reports a full-year net profit of A$343.5 million ($224 million). This is almost 20% down on last year's A$428 million after a first-half record profit was dragged down by a second-half loss as a result of the war in Iraq and the SARS virus.

Qantas has been considering a low-cost move for five months, says Dixon. Demand is emerging in Australia for a low-cost leisure carrier, "and we would be a very good group to do it", he says.

The low-cost operator would be 100% owned by Qantas, operate on the major leisure routes and be separate from the major carrier, he says. Qantas launched international leisure airline Australian Airlines late last year, but Dixon says that carrier will not fly domestically.

The airline's studies come as low-cost operator Virgin Blue Airlines bites into Qantas's domestic marketshare. Domestic operations, including QantasLink, contributed A$223 million in earnings before interest and tax (EBIT) - down 34.5% from last year, while yield fell 6.3%. EBIT from international operations climbed slightly from A$202.8 million last year to A$206.9 million, despite an EBIT loss of A$54.5 million for the second half.

Pre-tax profit for the year ended 30 June was A$502.3 million, with revenues up 3.7% to A$11.4 billion.

Dixon says the airline needs to get the cost base down, remove inefficiencies and recover revenue. The reorganisation of Qantas into at least eight standalone businesses, with each having separate management, budgets and profit targets, is designed to do this, with the carrier aiming for $1 billion cost savings over the next two years. The businesses will come from three areas - flying, flying services and associated businesses.

Qantas's results come as it and Air New Zealand make their final case to the New Zealand Commerce Commission for approval of their proposed alliance.

Air New Zealand chief executive Ralph Norris warned that the airline faces collapse within six years without the alliance.

Source: Flight International