Qantas forecasts big drop in profit

Qantas Airways shares have slumped to an all-time low after the airline said it was expected to post a net loss for the full 2011/12 year. In a market update on Tuesday, Qantas said it expected underlying profit before tax - the airline's preferred measure of financial performance - for the full 2011/12 year to come in between $50 million and $100 million. The forecast massive slump in full year underlying profit was due to a soaring fuel bill, turmoil in a number of European economies and a glut of seats in the domestic market. If the result prints in line with expectations, it would be up to 90 per cent below the $552 million achieved in the prior corresponding period. And with $370 million to $380 million of restructuring costs to be booked in 2011/12, Qantas chief executive Alan Joyce said the airline was expected to post a full year net loss for 2011/12. "That will result in a loss for the group at a statutory level," Mr Joyce said during a conference call with reporters on Tuesday. There would also be a one-off $100 million cost due to the disruption caused by industrial disputes between the airline and unions. While there have been indications in recent times the aviation market was softening, the sheer magnitude of earnings downgrade appeared to catch the market a little off guard, given the sharp selloff in Qantas shares. The stock plummeted 18.66 per cent, or 26.5 cents, to close at $1.16, the lowest level since the airline listed in 1995. "The deterioration again in international and domestic has only started to come through in recent weeks," Mr Joyce said. Qantas said its total fuel bill for 2011/12 would be $4.4 billion, up about $700 million from the prior corresponding period. And its struggling international operations, which lost $216 million in 2010/11, were forecast to post a loss in excess of $450 million in 2011/12. On a brighter note, Mr Joyce said the domestic operations of Qantas and Jetstar were forecast to achieve combined earnings before interest and tax (EBIT) in excess of $600 million for 2011/12. Mr Joyce said the improved financial performance of Qantas and Jetstar's domestic network came despite weakening yields - an industry term for average airfares per passenger - due to increased capacity and disruptions due to industrial disputes. "It shows that this 65 per cent profit optimising strategy is the important position for Qantas in the medium and long term," Mr Joyce said. However Qantas pointed to challenges on the domestic front, citing "aggressive competitor capacity increases", which have affected yields. A research note from CAPA Centre for Aviation said the Australian domestic market would be flooded with more seats in the period ahead, as Qantas and Jetstar matched capacity increases from Tiger Australia and Virgin Australia. "The war in the domestic market seems about to move to another dimension," CAPA said. "As Tiger returns to the market in a bigger way and, as Virgin increases its pressure to become a more powerful force in the domestic premium market, an almost inevitable bloodletting appears to be looming."from world news.