Qantas to spend $6.3b on planes

Qantas Airways Ltd, Australia's biggest airline, ordered 99 Airbus SAS and Boeing Co planes worth at least $6.3 billion to help fend off competition from low-cost carriers.

The airline will buy 68 Airbus A320 family aircraft and 31 Boeing 737-800s, Sydney-based Qantas said in a statement yesterday. Qantas and its Jetstar low-fare airline unit also have options for 40 more A320s and 49 additional 737s, it added, without disclosing the value of the deal.

Jetstar will set up bases in Darwin and Perth to expand into Southeast Asia as Tiger Airways Pte and Virgin Blue Holdings Ltd add flights in Australia to challenge Qantas' 65 percent share of the market. Asia's surging travel growth and the emergence of low-cost carriers in the region have helped fuel demand for 737s and A320s, the world's two most popular planes.

"With Tiger Airways' entry coming any day now and Virgin Blue doing well, the domestic space is getting crowded," said Adam Kirkpatrick, general manager of CAPA Consulting LLC. "The smaller planes will give Qantas greater market accessibility and tax and fuel advantages," he said in an interview from Sydney.

Qantas shares fell 7 cents, or 1.2 percent, to A$5.77 yesterday in Sydney, paring this year's gain to 10.5 percent.

Single-aisle planes

The first of the single-aisle planes, an A321, will be delivered in February. The Boeing planes will arrive during a six-year period starting in early 2009. Narrow-body aircraft typically have a single aisle between seats while wide-body planes have twin aisles.

Qantas, emerging from a failed buyout offer by a Macquarie Group Ltd-led group in May, expects to fund the aircraft "without affecting its investment grade credit rating", Qantas Chief Executive Geoff Dixon said in the statement. Moody's Investors Service has a "negative" watch rating outlook on Qantas, while Standard & Poor's has a "stable" outlook.

Short-haul flights are "growing tremendously in Asia Pacific due to regional air travel demand", said Mohamed Haris Izmee, a Kuala Lumpur-based Frost & Sullivan aerospace analyst. "Narrow-bodies will allow Qantas to increase its flight frequencies," giving it a "greater chance" to carry more passengers.

Asia-Pacific's passenger travel market will grow at a 5.7 percent annual rate between 2006 and 2010, outpacing the global average, according to the International Air Transport Association.

This optimism has helped lead to the formation of at least 17 discount carriers in the Southeast Asian region.

Tiger Airways, a unit of Singapore Airlines Ltd, has set up bases in Australia to challenge Qantas. The carrier plans to start offering flights from its base in Melbourne to Adelaide in January with fares as low as A$9.95 one-way, it said yesterday.

Tiger Airways in June ordered 30 planes from Airbus for $2.2 billion, which will help it expand into the Australian market.

Bloomberg News

(China Daily 11/15/2007 page16)