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SARS, Iraq hurts Qantas profit
CNN's Geoff Hiscock, Asia Business Editor
SYDNEY, Australia (CNN) -- Full year profit for Australia's Qantas Airways has fallen 20 percent to Aust. $343.5 million ($226 million) on the fallout from SARS, terrorism and the war in Iraq. The result, released in Sydney Thursday morning, was in line with market expectations and pushed Qantas shares 6.45 percent higher to close at A$3.30. Qantas CEO Geoff Dixon said the leadup and outbreak of the war in Iraq and SARS had combined to decimate the airline's profitability in the second half of the year to June 2003. The second half loss of A$9 million contrasted with a record first half profit of A$352.5 million, on full year revenue of A$11.4 billion. Full year profit in 2001-02 was A$428 million. Dixon said the airline expected a better result in 2003-04 and flagged further efforts to cut costs and lift productivity, including the use of more part-time workers among its 33,900 staff. Qantas has begun a restructuring that over the next two years will see its permanent worforce fall from 85 percent of the total to between 75 and 80 percent. Dixon characterized the airline's financial position as "quite robust" but said it needed to get its cost base down more. Aviation consultant Peter Harbison, managing director of the Sydney-based Center for Asia Pacific Aviation, concurred. He told CNN that Qantas was addressing its work practises but that in turn was ringing "warning bells" about strikes and other industrial action. On the question of security against a terrorist attack, Dixon told CNN on Thursday that Qantas had decided against equipping its international fleet with anti-missile defenses, saying the $450 million cost was of "doubtful benefit" and not efficient enough. He maintained Qantas was one of the "more secure" airlines in the world, and he said money was better spent on the ground, securing airport perimeters. Qantas spent A$182 million on upgraded security measures in the 2002-03 financial year. Dixon said he was still optimistic the airline's proposed strategic alliance with Air New Zealand would go forward, despite the negative response so far from competition regulators in Australia and New Zealand. A final decision from the regulators is expected at the end of September. Dixon said the airlines would likely appeal if the proposal -- which would see Qantas take a 22 percent stake in Air New Zealand -- was rejected. Dixon also flagged the possibility Qantas will start a new low-cost leisure carrier to service domestic Australian routes. He said a board meeting on Wednesday had approved the next stage of a study to see if such a project was viable. He said a low-cost carrier would be 100 percent owned by Qantas, but would be totally separate from the mainline operations. Qantas, which is owned 17 percent by British Airways, has about 70 percent of the Australian market, against 30 percent for low-cost rival Virgin Blue. On international routes it faces fierce competition from Asian carriers such as Singapore Airlines and Cathay Pacific, plus Middle East newcomers such as Emirates and Gulf. Dixon has been warning for some time of the challenges Qantas faces. However analysts agree it remains one of the world's most profitable airlines in a time of difficult conditions for the global aviation industry. Along with the downturn in traffic caused by SARS and security concerns, the airline's pre-tax profit of A$502.3 million was hit by a redundancy charge of A$115 million and a A$91 million writedown of its B767-200 fleet.
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