Qantas cuts services over fuel price 

Qantas Airways will axe services, shed jobs and retire old planes in a bid to cope with skyrocketing fuel prices.

The airline said it would have to look harder at its business, including cutting staff numbers, in order to deal with an expected $2 billion increase in its fuel bill next financial year.

Mirroring moves by other airlines around the world, Qantas said it would reduce capacity by 5%- the equivalent of grounding six aircraft.

The carrier's Gold Coast to Sydney and Ayers Rock to Melbourne routes will be the first to go, followed by Jetstar's exit from the Sydney to Whitsunday Coast, Adelaide to Sunshine Coast and Brisbane to Hobart routes in July.

Capacity will be reduced on Qantas' Ayers Rock to Sydney services and Jetstar will scale back services on some Adelaide, Avalon and Cairns routes by August.

Qantas said further cuts and changes to its international routes would be announced within the next week.

Qantas chief executive Geoff Dixon said the magnitude of the changes called for a reduction in staff numbers, and the carrier had already launched an accelerated leave program to mitigate the requirement for redundancies.

The company did not say how many jobs would be lost.

"The fact is that fuel prices are something we have no control over, so we have to look harder at areas we do have control," Dixon said.

Despite the introduction of fare increases and new charges and fees, Qantas said it was not staying ahead of the rising cost of fuel.

"Despite our fuel hedging strategy, fuel surcharges, two separate across-the-board fare increases and a recruitment freeze, we are not bridging the widening gap between the actual increase in the cost of fuel and the amount we offset," Dixon said.

Under the cost cutting plan, Qantas will also retire one Boeing 737, accelerate the retirement of four B747-300s by December and ground two B767s.

A Jetstar A320 will also be grounded and Qantas will cancel the delivery of one Jetstar A321 plane.

Qantas also plans to freeze pay for all of its senior executive group and defer the normal July pay review for the remaining 1,000 executives.

Despite the measures, Dixon said Qantas remained a fundamentally strong company, with a good balance sheet and an investment commitment that included a $35 billion order for aircraft.

"We must make these hard decisions now, however, if we are to ensure the ongoing strength of Qantas, preserve the jobs of the vast majority of our current workforce, and position ourselves for growth when the trading environment improves," he said.

Merrill Lynch research analyst Kevin O'Connor said Qantas' plans reflected moves by other airlines across the globe.

"Worldwide you have seen a number of airlines talk about capacity cuts - in the US, NZ, Europe and Asia," O'Connor said.

"The simple fact is that because of rising fuel prices they need to push up ticket prices.

"You cannot push up ticket prices in a softening economic environment unless you start tightening up capacity."

O'Connor said this was not a good signal for the low cost travel industry.

"We had two decades of relatively cheap oil - we are now in a situation where we don't.

"When oil prices go from $US20 to $US120 a barrel that is going to feed through to ticket prices and when you push up prices some people won't travel or they won't travel as much."

Air New Zealand has also responded to higher fuel costs, downgrading its full year earnings forecast to at least 25below last year's level.

Qantas shares closed 16 cents higher at $3.45.