Aviation: Qantas first to blink

Qantas isn't the first airline to announce cost cutting measures, nor the first to announce that it will review flight and terminate the less profitable. It's not even the first to announce that it is to phase out its entire B747 fleet.

But it is the first major airline (outside the USA and, of course, Alitalia) to be facing what appears to be a perfect storm of all manner of problems - most of which other airlines are already anticipating.

Just a week ago, Qantas announced that it would reduce capacity by 5%. This week it began to put that into effect with the scrapping of some flights to Tokyo from both Melbourne and Sydney and the complete cancellation of the Jetstar service from Cairns to Osaka and Nagoya. The Cairns - Tokyo service will be handed to subsidiary Jetstar.

Jetstar's services are also being cut: first to go is the Sydney to Kuala Lumpur service that was inaugurated only last November, although some passengers regarded the pricing as not having sufficient differential from a full-service airline. Perhaps politically more interesting is that Qantas will no longer fly to Indonesia: instead all flights between Aus and Indonesia will by by Jetstar. There will be many in Bali who will be sorry to see that change: Qantas build huge goodwill by flying empty jets in and offering to take out anyone who wanted to leave after the 2005 Bali bombs.

Last month, Qantas announced that it would close its Sydney-Gold Coast route saying that it was uneconomic - and said others would follow. The domestic cuts alone would save, Qantas said, the equivalent of six jets' fuel costs.

Qantas is still using hedged fuel which it contracted at USD72 a barrel - not much more than half the current price which it widely regarded as likely to increase.

Qantas now has only four B747-300s which are very heavy on fuel. They plan to permanently take those planes out of service as soon as possible - but also it plans to retire a B737 (few major airlines outside the US still fly them in any number) and park up two more modern B767s. But there are other indicators that Qantas is either in trouble or buckling up for some heavy turbulence. Jetstar is to cancel an Airbus A431 - and to take an A320 out of full time service, to be used as a spare.

But in addition to cost cutting, Qantas is also trying to address the income side. Also last month, it announced an across the board price rise of 4% international and 3% domestic - and would continue to apply fuel surcharges. The company says that it has been able to hedge for approximately 60% of its 2008-9 requirement at just under USD112 per barrel. In a statement, the company said that it still expected that it would not cover its fuel costs and that at current prices some AUD2,000 million dollars more would have to be found from somewhere.

It's not as if passengers are not flying, or at least were not in 2007 as the Australian Bureau of Infrastructure, Transport and Regional Economics last week reported that 22.8 million people passed through Aussie airports - the highest ever number. But the report says that the proportion of passengers carried by Australian carriers is falling: in 1997 it was 43% and in 2007 it was 33%.

Qantas has imposed a staff freeze - but it's not total. Natural wastage will reduce staff numbers but the company plans to take on up to 2,000 new specialist long-haul crew for its A380 and B787 fleets. However, as both aircraft remain subject to seemingly interminable delays, Qantas will find itself increasingly dependent on its long-range A330 fleet to plug the gaps until the arrival of the new models.

And in the middle of this, Qantas appear to be having problems with delivering its current service. On Wednesday, a Sydney-Tokyo flight was first delayed, then delayed again and then cancelled entirely. At one point, the passengers were put onto the plane, which left the terminal and then came back saying that there was a further technical issue and that the passengers would have to leave the aircraft and return to the terminal. As they waited to reboard, they were told that the plane would not be prepared in time to meet flight-times regulations and so would not go at all. In fact, the passengers were later notified, it was rescheduled and left shortly before 11:30 am - instead of 21:55 the preceding evening.

The next day, a Sydney-Singapore flight did not leave, a Brisbane to LAX flight was delayed for 13 hours and a domestic Sydney-Aukland flight was also cancelled. And in the few days before that, flights to LAX, Bangkok and London were subject to severe delays - some as much as 24 hours.

There are concerns that maintenance problems are mounting because of engineers have decided to impose an overtime ban - and the airline was so stretched that no overtime means maintenance being rescheduled, especially where repairs interfere with planned programmes. Qantas says that the delays are not related to the industrial action.