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Qantas cuts may force  fares higher
Grounded: Qantas set to keep its Boeing 737-300s on the ground. Picture: Geoffrey Thomas/The West Australian

The Qantas Group is set to wave the white flag in its market-share battle with Virgin Australia, ending fare wars on domestic routes as it scrambles to turn around record losses.

According to Qantas sources, the airline will announce on Thursday the accelerated retirement of its 15 254-seat Boeing 767-300ER fleet, reduced services and the amalgamation of some Jetstar and Qantas flights.

The combined effect will be to reduce capacity and, therefore, heavily discounted low fares in the market.

And job loss estimates at the Qantas group have risen well above 3000, with some tipping a figure closer to 6000, or about 17 per cent of the workforce.

It is known Qantas is targeting cuts similar to those achieved by alliance partner American Airlines after it went through US Chapter 11 bankruptcy protection in 2011.

At the time, American Air- lines had lost $11 billion since 2001.

The US giant was able to cut staff costs 17 per cent and is now making solid profits.

Many of those remaining - including pilots - are paid more because they are working harder and many inefficient work practices have been eliminated.

Qantas chief executive Alan Joyce alluded to the savage cuts in a speech in Canberra to politicians and industry officials last month.

"We will need to make cost reductions that are proportionally greater than the cuts made by American Airlines during its restructure under Chapter 11 protection," Mr Joyce said.

He said that "much of Qantas' cost base is a legacy of 48 years of government ownership from 1947 until 1995".

Mr Joyce promised that "over the next two years we will drive it down so that we close the gap between Qantas and its major competitors". Some competitors, including Singapore Airlines, have staff costs 50 per cent lower than Qantas.

According to Qantas sources, some staff cuts are likely to lead to the outsourcing of all baggage handling.

Qantas has been struggling with staff costs for years.

Macquarie Research said in a client note that "Qantas' mainline staff costs are in need of serious consideration".