Qantas has signalled it will shake up its business structure in the coming year to unlock greater value from its lucrative frequent flyer, freight, fleet and holiday divisions. It announced this while reporting record net profits of $720 million for the year to 30 June 2007.
Qantas Chief Executive Geoff Dixon said that unless market conditions deteriorated, he expected to add another 30 percent to this figure by end of 30 June 2008.
One approach it would consider in achieving this continued profitability is to embark upon a program of restructuring and spinning off of individual business units.
“We believe we can unlock further value form our individual businesses and work is underway across the company.
“We are looking at potential new ownership structures and strategic acquisitions. We expect to make announcements during the current financial year on the future direction of these businesses,” he said.
This includes changes across its Qantas loyalty program, a plan to separate its freight and logisitics operations and a different model for its fleet of aircraft.
Qantas said its review of the Frequent Flyer program was aimed at broadening program partners, offering ‘any seat’ redemption and adding a Jetstar loyalty program.
Dixon said other key areas it would be focusing on in the next 12 months were the addition of new international- and domestic-route aircraft to Jetstar’s fleet, which will also extend its flights into Asia through its stake in Jetstar Asia and Pacific Airlines.
Qantas will also be investing in further routes in the increasingly popular destinations of China and India. Locally, it will be adding two new aircraft to its QantasLink regional service in January 2008.
According to Dixon, the airline’s record 2006/07 growth was driven largely by the airline’s two brand strategy. Its spin-off budget domestic carrier Jetstar enabled it to generate $112 million in profit over the last year, from routes which either lost money or realised only small profits prior to Jetstar’s inception in 2004.
Fifteen percent of Qantas’ marginal domestic and trans-Tasman flights have now been transferred to the Jetstar airline.
“The two-brand strategy has also enabled us to successfully defend our position in the Australian domestic market, where we currently hold a market share of 67.1 percent,” Dixon said.
He pointed to strong economic conditions globally and locally as also having a positive impact on demand from business and leisure markets.
Threats to the business included skyrocketing fuel costs, with prices jumping over $500 million in the last year to drive Qantas’ fuel costs to $3.3 billion.
Competitive challenges it identified came from Tiger Airways, Air Asia X and Virgin Blue, along with the proliferation of airlines from the Middle East.