Qantas announced the most extensive cutbacks – to flying operations and staffing levels – of the region’s major airlines, in response to sustained high fuel prices.

The airline will slash planned capacity growth in the 12 months to 30-Jun-09 from 8% to zero, cutting 1,500 existing and 1,200 new jobs in the process. Over 20% of the airline’s management and head-office support jobs will be cut, while a recruitment and executive pay freeze will be extended for the foreseeable future.

CEO, Geoff Dixon, stated Qantas needed to “act decisively to ensure its future” in an industry facing a “major crisis throughout the world”.

Qantas will be retiring 22 older aircraft from its fleet of 228, including B747-300s and Dash-8s as previously announced. The airline is committed to its major re-fleeting programme of A380 and B787 aircraft.

Qantas will be reviewing its network on a route-by-route basis and could reduce frequencies in some markets, if necessary. Mr Dixon cited the US market as one example, where it has “huge” capacity that could be adjusted if that market starts to turn down. Overall, Qantas’ cuts are aimed at maintaining load factors and protecting yields.

Jetstar’s recruitment programme has been suspended until the end of the year, although the Group remains committed to Jetstar’s international expansion strategy.

Qantas’ decision to slow its growth in the face of surging fuel prices is at odds with many of its major rivals.

Singapore Airlines continues to ramp up capacity, last month growing available seat kilometres by 9.5% (but suffering a 3.2 ppts reduction in load factor in the process), while Cathay Pacific this week confirmed plans to hire 1,500 new cabin crew this year to meet its aggressive network expansion plans. Cathay expanded capacity by a scorching 14.3% in Jun-08, including a 20.2% lift in capacity to the Southwest Pacific/South Africa markets. Meanwhile, Emirates and Etihad continue to expand aggressively into the Australian market, which is still exhibiting reasonably robust demand.

The net result for Qantas will be a loss of market share. However, protecting earnings by getting smaller is not a bad strategy for the Flying Kangaroo. The airline's shares were up 4 cents in early morning trade to AUD3.34.