Qantas' international plans on track

Pressure from rivals isn't deterring Qantas

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Qantas (ASX: QAN) CEO Alan Joyce on Monday re-affirmed guidance that the airline's international arm would break even in 2015. In an article in the Australian Financial Review, Mr Joyce confirmed that there had been increased pressure on fares recently as competitors increased capacity.

The AFR reported that Qantas believed the lower Australian dollar would result in foreign carriers maintaining or reducing capacity as costs increased. This doesn't appear to have occurred, as traffic statistics are pointing to added capacity from Singapore Airlines, Cathay Pacific, Malaysia Airlines and AirAsia X, resulting in lower yields for Qantas.

While the lower yields are undesirable, Mr Joyce reaffirmed his belief that Qantas is on track to meet its targets in the medium to long term.

Qantas' international division posted a $246 million loss in 2012-13, much improved from the $484 million loss the year before. The trend is expected to continue as Qantas rapidly phases out older, less fuel efficient planes from the fleet. This is expected to reduce costs and boost margins in both the Qantas and Jetstar brands.

Foolish takeaway

Qantas' revival from perpetual disappointment to potential industry leader is well underway. Alan Joyce is steering the company in the right direction, pushing down costs in the domestic and international businesses and expanding margins to absorb the fierce pressure from rivals. The Qantas turn-around story will be a long term one and investors should be handsomely rewarded for jumping on board early if most goes to plan.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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