Qantas flies into the red
QANTAS will plunge into the red this year for the first time since it was floated in 1995 as its international operations continue to bleed hundreds of millions of dollars and consumer conditions deteriorate.
The airline has warned that operating profit for 2011-12 will plummet by as much as 91 per cent to less than $100 million, with pressure on both its overseas and domestic operations.
When one-off costs are counted - including grounding its entire fleet during an industrial dispute last year - Qantas expects to post a full-year loss of about $300 million.
''The deterioration in international and domestic has only started to come through in recent weeks,'' Qantas chief Alan Joyce said. ''We've had a significant change from mid-March.''
Qantas shares were savaged after the warning, diving almost 19 per cent to a record low of $1.155 and wiping $600 million off the company's market value.
The red ink gushing from the airline's international division has been produced in part by fierce competition from foreign airlines, which has left Qantas with only a 17 per cent share of travel to and from Australia. The decline has been accelerated by the emergence of the Middle Eastern carriers such as Etihad and Emirates.
Mr Joyce said the high dollar and relative health of the Australian economy were enticing carriers from Europe.
Qantas' response has been to trim back less profitable or loss-making routes and undertake massive cost cutting aimed at staffing and maintenance.
Its domestic operations, while profitable, are under pressure from a price and capacity war with Virgin. Qantas added about 10 per cent more seats in the June quarter and air fares are falling as the airlines scramble to fill seats. Virgin's aggressive push - particularly for business travellers - has prompted Mr Joyce to say he will not let Qantas' market share fall below 65 per cent.
Yesterday's profit warning came a week after Qantas said it would split its domestic business - which it expects to earn about $600 million this financial year - from its international one, which is expected to lose as much as $450 million.
It came on the same day as Etihad swooped on Virgin to take a 4 per cent stake in its domestic operations.
An aviation analyst said yesterday the quickest way back to profitability for Qantas would be to ditch its international travel operations.
''Qantas have got a dominant position in the most valuable domestic market in the world,'' said Peter Harbison, chairman of the Centre for Asia Pacific Aviation. ''They've also got Jetstar, which is a very powerful and profitable weapon, and arguably the best frequent-flyer program in the world,'' he said. ''If they could cut off the dead branches they'd be looking really good.''
But Mr Harbison said Qantas was unlikely to lop off its international arm because it would damage its profitable frequent-flyer program. Instead, he said it should ditch its partnership with British Airways and find a new long-haul partner.
Virgin has been poaching Qantas customers by forming partnerships with other airlines, including Etihad and Air New Zealand.
With ADAM CAREY