Jetstar to cut capacity, weigh sale of three planes as pilot dispute drags

By Jamie Freed

SYDNEY (Reuters) - Budget airline Jetstar is cutting domestic capacity by around 10% in January and weighing the sale of three Boeing 787-8 jets to counter industrial action by its pilots that the Australian carrier expects will cost it up to A$25 million (13 million pounds).

Members of Jetstar's main pilot union made two four-hour work stoppages on Dec. 14 and Dec. 15 following a failure to agree a pay deal with management. The union also has a range of lower-level bans in place until Friday but has ruled out taking action over the Christmas and New Year holiday periods.

The Qantas Airways Ltd <QAN.AX> subsidiary said on Monday the financial impact of disruptions by pilots and ground staff in December and January was estimated to be around A$20 million to A$25 million and had led it to do a broader review of its fleet and network, including its 787-8s.

"There's no doubt that industrial action is expensive and frustrating, but we have to hold the line on costs or it threatens the long-term sustainability of our business," Jetstar Group Chief Executive Gareth Evans said in a statement.

However, the Australian Federation of Air Pilots (AFAP), which represents more than 80% of Jetstar's pilots in Australia, said that there were no plans for industrial action beyond Friday.

"It is our hope that Jetstar will use the window from 21 December to 3 January to schedule meetings and resume negotiations towards reaching a fair agreement so that we do not need to consider any further action after this point,” AFAP Executive Director Simon Lutton said.

The airline said the proactive domestic capacity cuts in January would reduce disruption in the busiest month of the year, given the pilot's union was required to give only three to five working days notice of industrial action.

Qantas said in October Jetstar was performing weakly in the domestic market where airline margins have been squeezed by fuel costs and softness in consumer spending.

Jetstar said a business case had developed to sell three of its 11 787-8s that were plying loss-making international routes, with the capital to be reinvested in other parts of the Qantas Group or returned to shareholders. A final decision on that is expected in the first quarter of the 2020 calendar year.

A source with knowledge of the matter said the airline was considering cutting its flights to Honolulu, which had suffered from weaker demand as a result of the lower Australian dollar. Jetstar declined to comment.

(Reporting by Jamie Freed; Editing by Stephen Coates and Muralikumar Anantharaman)