Qantas Heads Towards First H2 Loss In Six Years
Qantas Airways on Tuesday forecast its first second-half loss in six years and unveiled capacity and job cuts as Australia's biggest airline battles a slump in passenger demand and rising competition.
Qantas, which like many other airlines is suffering from the global economic downturn, also said its full-year pre-tax profit may be down by 80 percent from a previous estimate. The surprise announcement pushed its shares down 11 percent in early trading, but they rebounded to rise 2 percent in a firm overall market.
"People see the worst is over for at least the fiscal 2009 year and at this stage they can't possibly disappoint on that revised guidance," said Brian Han, an investment analyst at Australian fund manager Constellation Capital Management.
Many airlines, worldwide, have announced job cuts to reduce costs, with British Airways predicting last month it was heading towards a second year of operating losses and announcing further job cuts.
Singapore Airlines, the world's second-largest airline by market value, posted a 43 percent drop in quarterly profit in February and flagged further potential scale back of flights and capacity reductions to cope with the downturn.
"We have faced accelerated declines in passenger demand and revenue while market competition has intensified," Qantas chief executive Alan Joyce said in a statement.
The airline now expects profit before tax of AUD$100 million - AUD$200 million (USD$73 million - USD$146 million) for the year ending June 30, down from around AUD$500 million it had forecast in November. It cited a "rapid and significant" deterioration of trading conditions in the past few weeks.
In the first half ended December 31, Qantas reported a profit before tax of AUD$288 million. That would mean it is expecting a pre-tax loss of up to AUD$188 million in the second half. Qantas confirmed it was expecting a second-half pre-tax loss.
Ratings agency Standard & Poor's cut its corporate credit ratings on Qantas to 'BBB/A-3' from 'BBB+/A-2'.
"The downgrade reflects our view that Qantas's financial profile will come under significant pressure from the significant deterioration of trading conditions in the airline industry," S&P said in a statement.
ROUGH WEATHER
World airlines are set to lose USD$4.7 billion this year as a result of the global downturn that has shrunk passenger and cargo demand, industry body The International Air Transport Association (IATA) estimated at the end of March.
On Monday, shares in Boeing sank more than 6 percent after the group said cuts in output of widebody planes and lower-than-expected aircraft prices would reduce first-quarter earnings by about 38 cents a share.
Qantas said it would defer aircraft orders for four Airbus A380s and twelve Boeing 737-800s, and said it was also talking to Boeing about cutting the number of 787-800 planes to be delivered in the near term.
The airline said it would reduce capital expenditure by at least AUD$800 million in 2009/2010, lower flying capacity by a further 5 percent and cut another 1,750 jobs, or about 5 percent of its 34,000 staff. The cuts include 500 management positions. Last month, Qantas announced it would shed 90 top management positions, adding to 1,500 job cuts announced last year.
"In terms of overall business traffic, we are seeing a drop of somewhere between 15 and 20 percent, depending on the route," Qantas Chief Financial Officer, Colin Storrie, told a news conference.
Analysts welcomed the steps Qantas was taking but said it would be a long grind.
"Doing nothing is not an option in an environment like this... but it's still going to have to work quite hard to deliver it," said Michael Maughan, senior analyst at Australian fund manager Tyndall Investment Management.
