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Qantas issues shock profit warning Qantas issues shock profit warning
(40 minutes later)
Qantas issued a shock profit warningon Tuesday, saying annual profits could drop by more than 90% this year due to a toxic combination of hard up Europeans cancelling their holiday plans and sharply rising fuel costs. Qantas shocked the market on Tuesday by warning that annual profits could drop by over 90% this year due to a combination of hard-up Europeans cancelling their holidays and sharply rising fuel costs.
The unexpected warning, which was also blamed on intensifying competition from domestic rival Virgin Australia, sent Qantas shares down to an all time low. The airline, also known as The Flying Kangaroo, said it expected to make an underlying profit of no more than A$100m (£64m) in the year to 30 June, a far cry from the A$552m it made last year. The warning, which also blamed intensifying competition from domestic rival Virgin Australia, sent Qantas shares down to an all-time low. The airline, also known as The Flying Kangaroo, said it expected to make an underlying profit of no more than A$100m (£64m) in the year to 30 June, a far cry from the A$552m it made last year.
One-off costs associated with the five-year turnaround plan being pushed through by chief executive Alan Joyce mean the airline will slump to its first annual net loss since it was privatised in 1995.One-off costs associated with the five-year turnaround plan being pushed through by chief executive Alan Joyce mean the airline will slump to its first annual net loss since it was privatised in 1995.
Joyce said the past few weeks had been particularly harsh, forcing the airline to warn investors. Losses at its international business were on track to more than double to A$450m, he said, eating into the A$600m earned from domestic flights and its low-cost offshoot JetStar.Joyce said the past few weeks had been particularly harsh, forcing the airline to warn investors. Losses at its international business were on track to more than double to A$450m, he said, eating into the A$600m earned from domestic flights and its low-cost offshoot JetStar.
The grim numbers saw Qantas shares lose nearly a fifth of their value, falling to a record low of A$1.15 in Sydney trading. Joyce blamed 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" for the sharp decline in profitability. The grim numbers saw Qantas shares lose nearly a fifth of their value, falling to A$1.15 in Sydney trading. Joyce blamed 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" for the sharp decline in profitability.
Fuel costs are expected to reach A$4.4bn - up A$700m on last year - the airline said. Fuel costs are expected to reach A$4.4bn, up A$700m on last year, the airline said.
The profit warning comes a fortnight after Qantas said it planned to separate the heavily loss-making international division from its profitable domestic operation, and follows a bruising 12 months of wrangling with unions that led to the grounding of its fleet for nearly two days last year. The dispute with unions representing pilots, engineers, ground and catering staff over fears that jobs were being moved overseas cost it A$100m, the airline said.The profit warning comes a fortnight after Qantas said it planned to separate the heavily loss-making international division from its profitable domestic operation, and follows a bruising 12 months of wrangling with unions that led to the grounding of its fleet for nearly two days last year. The dispute with unions representing pilots, engineers, ground and catering staff over fears that jobs were being moved overseas cost it A$100m, the airline said.
Qantas also used the update to cut its guidance on passenger yields - a measure of revenue to kilometres flown - to an increase of 1% or less in the second half, compared with previous expectations as high as 2.5%. The extent of the revision surprised analysts, who said the airline could be forced to go cap in hand to its shareholders if there is any further deterioration. Qantas also used the update to cut its guidance on passenger yields - a measure of revenue to kilometres flown - to an increase of 1% or less in the second half, compared with previous expectations as high as 2.5%. The extent of the revision surprised analysts, who said the airline could be forced to go cap in hand to its shareholders if there was any further deterioration.
The airline's profit warning underlines the global aviation sector's struggles as high oil prices and sagging demand as as result of the continuing turmoil in the eurozone take their toll. The International Air Transport Association has downgraded its forecast for total airline profits in 2012 to $3bn from $3.5bn, and has warned the sharp rise in oil prices could lead to losses of as much as $5.3bn. Last month the budget carrier Ryanair said its profits could fall by up to 20% this year. The profit warning underlines the global aviation sector's struggles as high oil prices and sagging demand resulting from eurozone turmoil take their toll. The International Air Transport Association has downgraded its forecast for total airline profits in 2012 to $3bn from $3.5bn, and warned the rise in oil prices could lead to losses of as much as $5.3bn. Last month the budget carrier Ryanair said its profits could fall by up to 20% this year.
Despite the setback Joyce, who has announced 1,000 job cuts, is sticking to the target of returning the international business to profit in 2014. "We are attacking costs and allocating aircraft and capital efficiently," he said, highlighting the withdrawal from loss-making international routes. The world's second-oldest airline is also shrinking its engineering and maintenance centres to save money. Despite the setback, Joyce, who has announced 1,000 job cuts, is sticking to the target of returning the international business to profit in 2014. "We are attacking costs and allocating aircraft and capital efficiently," he said, highlighting the withdrawal from loss-making international routes. The world's second-oldest airline is also shrinking its engineering and maintenance centres to save money.
Qantas is the market leader in Australia with a market share of 65%, but Virgin Australia has recently been going head to head on key domestic business routes. Qantas's woes come as Abu Dhabi-based Etihad Airways said it had acquired an initial near 4% stake in Virgin Australia. "We're interested in taking the stake up to a higher level of 10% subject to the necessary regulatory approvals," Etihad said, adding that the state-owned airline had "no interest" in investing in Qantas. Qantas is the market leader in Australia with a share of 65%, but Virgin Australia has recently been going head to head on key domestic business routes. Qantas's woes come as Abu Dhabi-based Etihad Airways said it had acquired an initial near 4% stake in Virgin Australia. "We're interested in taking the stake up to a higher level of 10% subject to the necessary regulatory approvals," Etihad said, adding that the state-owned airline had "no interest" in investing in Qantas.