Qantas shares nosedive to all-time low as profits slump

SHARES in Qantas dived to an all-time low on Tuesday after the Australian airline giant warned of a profit wipeout.

The carrier said it had been hit by deep losses at its international operations, weak travel demand and soaring fuel costs. It could see its first annual net loss since it was privatised in 1995.

The warning comes just two weeks after Qantas unveiled plans to separate its troubled international business from its profitable domestic unit, and follows a bruising 12 months wrangling with trade unions.

Chief executive Alan Joyce, whose turnaround proposal and handling of the unions has won shareholder plaudits, said the past few weeks had been particularly harsh, leading to the profit warning.

He said Qantas would probably post a net loss for 2011-12. Underlying profit before tax is set to tumble by as much as 90 per cent to A$50 million (about £31.3m) to A$100m, against the previous year’s A$552m.

Irish-born Joyce took over the top job at Qantas in 2008 after stints at its low-cost offshoot JetStar and the now-defunct Ansett Australia.

The airline warned: “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.”

The grim outlook hammered Qantas shares, which have shed about 40 per cent of their value in the past 11 months. The stock closed down 18.7 per cent at A$1.16 on Tuesday.

David Liu, head of research at ATI Asset Management, said: “A very disappointing forecast. It just highlights the size of losses and problems with the international business and justifies Joyce’s move to split the group.

“Having said that, I take a lot of positives from the initiatives to cut costs and cap-ex. It shows the management understands the macro economic environment and is doing everything it can to mitigate it.”

The airline’s international business is expected to post a loss of at least A$450m in the year to 30 June, more than double that of the year before. In contrast, the domestic operations are forecast to deliver earnings in excess of A$600m.

Qantas’ net profit for 2011-12 will be hurt by restructuring, which is forecast to cost A$370m-A$380m.

The plan to separate its international and domestic divisions has sparked speculation that a foreign carrier could buy a stake in the airline, with a recent Deutsche Bank research note suggesting Emirates could invest in the domestic arm.

Joyce has said that reports of Emirates taking an equity stake are wide of the mark.

Separately, Abu Dhabi’s flagship carrier Etihad Airways said it had bought 4 per cent of Qantas’ domestic rival Virgin Australia Holdings and aimed to build its stake to 10 per cent. Etihad has a strategic alliance with Virgin Australia and the Gulf carrier’s chief executive James Hogan ruled out any move to buy a stake in Qantas.

The Aussie airline’s profit warning underlines the global aviation sector’s struggles as high oil prices and sagging demand due to the European economic crisis take their toll.

Trade body the International Air Transport Association has already downgraded its forecast for airline profits in 2012 to US$3 billion (£2bn) from US$3.5bn.