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Jetstar Japan has a joint venture with local partners Japan Airlines, Mitsubishi and Tokyo CenturyLeasing Company and has grown to become the largest LCC in Japan by fleet size. Jetstar HongKong is still awaiting regulatory approval with local joint venture partners China Eastern Airlinesand Shun Tak Holdings and recruitment of local staff is underway.Despite these initiatives, Qantas has since issued a market update on 5 December 2013 expecting toreport an underlying loss before tax in the range of $250 million to $300 million for the six monthsending 31 December 20137. This is compared to underlying profit before tax of $223 million for thesame period a year earlier8. Consequently, Qantas has experienced ratings downgrades by Moody'sand Standard & Poor's to a negative outlook9. This will further increase its cost of debt. Qantasmanagement claims their poor results are due to an unfair advantage held by its main competitorVirgin Australia in that it is not bound by the same restrictions on foreign ownership by the QantasSale Act, thereby giving them greater access to overseas capital.Qantas would like the Australian government to provide some form of financial support or morelikely, to repeal the Act.10On the face of this, Qantas' current prospects are not ideal. Although it6Bureau of Infrastructure, Transport and Regional Economics 2013, Aviation – International airline activity 2012-13, page 13 Chart III, Commonwealth of Australia 20137Qantas Group Market Update, 5 December 2013 - 8(Results for the half year ended 31 December 2012 - ).9Qantas Response to Moody's Downgrade, 9 January 2014 - -downgrade10Knight, E., Qantas caught in pincermovement between Air New Zealand and Singapore Airlines,viewed 19 January 2014, BusinessDay 17
currently has adequate liquidity and cash reserves, its operational profitability is in serious questionand made more apparent with its appeals for government assistance. Its direction under currentmanagement and CEO Alan Joyce has seen a squandering of its brand value and weakening of itsformerly strong oligopoly leadership11. The current direction undertaken by management is clearlynot working and have been value destroying such as trying to hold 65% market share, enormouslyexpensive forays into super competitive Asia with Jetstar, and an over expansion of Jetstarcannibalising Qantas domestically. On top of that, Qantas' main reaction to any earnings issue is tofurther reduce the workforce and other cost-cutting measures. The latest announcement accelerateda headcount reduction of 1000 on top of the 3000 made redundant since August 2011. This cost-outmay be taken too far as to compromise the long-term viability of the business, as well as drasticallyreducing staff morale and productivity. Qantas will need a change in direction, new focus and