Qantas shares plummet on profit fears
Australian airline forecasts drop of up to 90 per cent in earnings owing to losses at its international operations.
Last Modified: 05 Jun 2012 10:03
Chief executive Alan Joyce has announced Qantas would split its international arm from its domestic operations [AFP]

Shares of Qantas Airways have hit a record low after the Australian flagship carrier forecast a drop of more than 90 per cent in full year earnings on the back of steep losses in its international arm.

"We have taken decisive action to mitigate losses in Qantas international by withdrawing from loss-making routes"

- Alan Joyce, Qantas chief executive

The embattled carrier's shares plunged as much as 18 per cent to an all-time low of A$1.16 before recovering some ground to be down 15 per cent midway through the trading session on Tuesday.

The stock price has shed 40 per cent in value in the past 11 months.

In a statement to the stock market, the carrier blamed a deterioration in global operating conditions driven by the European economic crisis and its highest ever jet fuel bill.

"The forecast result reflects the recent deterioration in global aviation operating conditions driven by the European economic crisis, the group's highest ever jet fuel bill, and substantial capacity increases in the domestic market that have reduced yields," Qantas said in a statement.

Qantas' international business is expected to post a loss of more than A$450m, over the double loss of A$216m in the last financial year.

The carrier is set to post its first annual net loss since it was privatised in 1995.

In contrast, its far healthier domestic unit and low-cost offshoot Jetstar was expected to book a combined profit exceeding A$600m.

Battle with unions

A soaring Australian dollar and a bitter battle with unions over wages and conditions that saw chief executive Alan Joyce ground the entire fleet for 48 hours in October also cost the airline dearly.

Qantas grounded all of its flights on October 29, 2011,
amid a labour dispute with union members

"We remain focused on returning Qantas international to profitability in 2014 and for Qantas international and domestic combined to exceed their cost of capital on a sustainable basis within five years of August 2011," Joyce said.

In a bid to halt the dramatic slide in profits, Joyce last month announced Qantas would split its international arm from its domestic operations.

Each of the two entities, currently combined as Qantas Airways, will run as separate businesses from July with their own chief executives and reporting of financial results.

The move came just days after Joyce said 500 jobs would be axed in Qantas's heavy maintenance and engineering operations.

"We have taken decisive action to mitigate losses in Qantas international by withdrawing from loss-making routes, reducing capital investment, and transforming Qantas engineering," Joyce said on Tuesday.

He added that the carrier, which has retired most of its old aircraft, had a cash balance of more than A$3bn and "remains in a strong funding position".


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