Qantas shares nosedive on profit warning

Last updated 13:52 05/06/2012

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Shares in Qantas dived to an all-time low after the airline warned profits would slump by up to 90 per cent due to deeper losses at its international operations, weak travel demand and soaring fuel costs.

Qantas, which plans to split its profitable domestic and loss-making international operations from next month, said underlying profit before tax for 2011-12 would be in the range of A$50 million ($64 million) to A$100m.

That compared with A$552m a year ago and a A$285m average expected by analysts.

The airline's shares were recently down 15.5 per cent at A$1.20 after earlier plunging to an all-time low of A$1.16, down 18 per cent.

"It's very disappointing, especially the extent of the decline for the international business," said Peter Esho, chief market strategist at City Index. "That's the one part of the company that's holding it back."

Qantas' warning underlines the global aviation sector's struggles as high oil prices and sagging demand due to the European economic crisis take their toll.

The International Air Transport Association has downgraded its forecast for airline profits in 2012 to A$3 billion from A$3.5b, and has said that a further economic downturn could see a net loss for the sector.

Qantas said its international business was seen posting a loss in earnings before interest and tax (EBIT) of more than A$450m in 2011-12, compared with a A$216m loss a year ago. The domestic operations EBIT was seen at over A$600m, up from A$552m in the previous financial year.

"We are attacking costs and allocating aircraft and capital efficiently. Over A$300 million in annual benefits have been identified from the changes we are making," said chief executive Alan Joyce, who aims to return the international business to profit by 2014.

The airline said with a cash balance of more than A$3b, an undrawn standby facility of A$300m, and the flexibility to cut or raise capital investment it remains in a strong funding position

The airline has cut back on unprofitable long-haul routes, deferred plane purchases and announced plans to split the international and domestic arms into separate businesses.

"We have taken decisive action to mitigate losses in Qantas international," Joyce said.

INDUSTRIAL ACTION COSTS

The structural issues in that business had been compounded by rising fuel costs, the high Australian dollar and weak markets in the United kingdom and Europe, Qantas said. There will also be a one-off cost of A$100m associated with industrial action.

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Qantas' net profit for the year to June 30 will be impacted by its restructuring programme, which is forecast to bring with it costs of A$370m to A$380m in the 2011-12 financial year.

Those costs would be outweighed in the long term by its financial benefits, Joyce said.

- AAP, Reuters

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