Qantas tumbles to first loss in 17 years

The forecast comes two weeks after Qantas unveiled a plan to separate its bleeding international business from its profitable domestic unit, and follows a bruising 12 months wrangling with unions that led to the grounding of its fleet for nearly two days last year.

Chief executive Alan Joyce, whose turnaround plan and handling of the unions has won shareholder plaudits, said the past few weeks had been particularly harsh, forcing the airline to warn investors.

“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,” said David Liu, head of research at ATI Asset Management, which owns Qantas shares.

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

Mr Joyce said Qantas would post a net loss for 2011/12. He forecast underlying profit before tax would slide as much as 90 per cent to A$50m, while the airline will incur A$380m in restructuring costs – half the statutory level.

The latest underlying profit forecast compared with A$522m a year ago and was well below analysts’ expectations of A$285m.

The Qantas plan to separate its international and domestic divisions has sparked speculation 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. Mr Joyce said reports of Emirates taking an equity stake are wrong.

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 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.

The International Air Transport Association has downgraded its forecast for airline profits in 2012 to $3bn from $3.5bn, and has said a sharp rise in oil prices could lead to losses as high as $5.3bn for the sector.

Qantas said its international business was set to more than double its loss in earnings before interest and tax (EBIT) to over A$450m in the year to June 2012, compared with a A$216m loss a year ago.

Earnings for its domestic unit and low cost offshoot JetStar were seen at over A$600m.

“We are attacking costs and allocating aircraft and capital efficiently,” said Mr Joyce.