Qantas Forecasts Profit Nosedive

The newly appointed chief executive of Qantas's international operations has a lot of work cut out for him following the warning of by Qantas Chief Executive Alan Joyce of an expected net loss of $330 million for the financial year that ends this June.

Mr Joyce explained the expected 90 per cent nosedive in profit to soaring aviation fuel bill, the economic crisis in Europe and one-off expenses due to strikes by unions and the job cutting programme.

Following the net loss warning, Qantas shares tumbled down almost 20 per cent on Tuesday and another 4 per cent on Wednesday to $1.10 by 11 a.m.

The flag carrier's heavy losses would be caused mainly by its international division which is expected to report $450 million pre-tax loss. It is more than double the $216 million loss logged by the same division in its last financial year.

If the one-offs are removed, Qantas would have an underlying profit before tax of $50 million, barely 10 per cent of the $552 million underlying profit the previous year. Qantas paid $100 million for the industrial row and an undisclosed amount for the redundancy payments of 500 Victorian employees who were laid off in May.

However, the bulk of its expenses went to jet fuel which was a whopping $4.4 billion from only $700 million the previous year. To partially offset its astronomic fuel bill, Qantas domestic operations and Jetstar reported over $600 million pre-tax earnings.

Mr Joyce said Qantas will continue to protect its 65 per cent market share in domestic operations since it is the most profitable level.

"If we didn't maintain our 65 per cent market share, in the long run this profitability would be under threat," Bloomberg quoted Mr Joyce.

Ratings agency Moody's Investor Service said it was not surprised by the downgrade in Qantas's profit forecast, but it kept its Baa3 rating for the airline due to Qantas's strong liquidity. Moody's said Qantas remains one of the few invest grade-rate carriers in the agency's ratings universe.

"The Baa3 investment-grade rating continues to reflect the company's good operating model, strong domestic franchise, and liquidity. The challenging conditions present ongoing materials challenges for the carrier and weaken its position within the rating," The Australian quoted Moody's.

The challenge now lies heavily on Simon Hickey who has barely warmed his seat as chief executive of international operations after the major revamp announced by Mr Joyce two weeks ago.