5 Jun 2012

Qantas shares slump as profits erode

10:03 pm on 5 June 2012

Qantas shares have dived to an all-time low after the airline announced it expected full-year profit before tax to fall as much as 90% due to losses in its international business.

Qantas Group says it expects to post underlying profit before tax of between $A50 million and $A100 million for the 2011-12 financial year.

Last financial year, Qantas posted a profit of $A552 million, the ABC reported. Analysts had expected the airline to make $A285 million this year.

At 4.30pm on Tuesday, its share price was down 18.6% at $A1.55.

The airline blamed a downturn in international business conditions as the eurozone's debt problems and the high Australian dollar weakened travel markets in the United Kingdom and Europe, and said it was facing a record fuel bill.

Out of red by 2014, says chief executive

In a statement on Tuesday, Qantas chief executive Alan Joyce says the international business is expected to return to profit by 2014.

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

Former Qantas chief economist Tony Webber, who is now an Associate Professor at the University of Sydney, told the ABC that was the worst result he could remember for the airline.

"I've never seen a deterioration in Qantas International profitability that big as far as I'm aware. That's quite an astonishing loss.

"It somehow has to stem the excess supply of seats in the market, and it has to have a better policy, or better strategy in place, for higher oil prices."

Fat Prophets analyst Greg Fraser says the entire industry is facing the same problems of rising fuel prices.

"The real big factor for Qantas this year has been a near 21 percent increase in their fuel bill to $4.4 billion. The proportion of fuel to their total expenses is - like all airlines - rising and rising".