02 May 2008

Qantas open to merger talk

A Sydney Morning Herald Report says that Qantas is willing to discuss merging with another airline and join the wave of consolidation gripping the United States and European aviation sectors.

Almost a year after the failed takeover attempt by a Macquarie Bank-led consortium, Qantas' chief financial officer, Peter Gregg, said the company was open to merger talks.

"We keep saying we are interested and will keep looking. The rest of the world will keep consolidating because the industry needs to rationalise," he said.

"Whether this brings anybody else that might be interested Ã¢â¬' we will keep a lookout for that. Like in any relationship, both parties need to be interested."

Singapore Airlines has long been considered the perfect partner, while it has even been rumoured that Qantas could form a marriage with American Airlines.

But Mr Gregg said Qantas had not resurrected any merger talks with the Singaporeans.

US carriers Delta Air Lines and Northwest Airlines are the latest to pursue a merger, in a deal that is expected to unleash more consolidation as carriers around the world battle rising oil prices.

Mr Gregg's comments came as Qantas said it would raise domestic fares by about 3.5 per cent across all classes of flights on Qantas and QantasLink from May 9, while the price of international tickets would increase by 3 per cent.

Qantas has also suspended indefinitely the buying back of its shares, which has returned more than A$500 million (NZ$600 million) to shareholders since September.

It had decided to adopt a conservative approach while it gauged the likely outlook for the aviation industry, including fuel prices, and credit markets, Mr Gregg said.

"There is a lot of uncertainty in the industry at the moment and we want to understand where it all leads to rather than just return capital to shareholders.

"You can't say [oil prices] won't go higher."

Qantas has fuel-hedged at about US$76 a barrel till June 30 Ã¢â¬' about a 40 per cent discount to the current oil price Ã¢â¬' while 34 per cent of its jet fuel needs for 2008-09 are hedged at US$90 a barrel.

The airline said that "if high fuel prices persist beyond this point it would be of increasing concern".

Oil prices hit a record of almost US$120 a barrel this week after a strike that closed an important pipeline in Britain and renewed violence in resource-rich Nigeria.

A Report by The Mole from The Sydney Morning Herald