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Qantas predicts huge profit slump

By Paul Armstrong, CNN
updated 3:29 AM EDT, Tue June 5, 2012
Qantas employs about 32,500 people and flies to more than 180 destinations across the world.
Qantas employs about 32,500 people and flies to more than 180 destinations across the world.
STORY HIGHLIGHTS
  • Qantas forecast underlying profit before tax in the range of A$50-$100 million for year ending June 30
  • The Australian airline's loss-making international business is seen as biggest concern
  • Increased fuel costs, the high Australian dollar and weakness in the UK and Europe market blamed

(CNN) -- Qantas expects its profits to plummet by as much as 90%, as it counts the cost of its highest ever fuel bill and an ailing international business that continues to hemorrhage money.

In a statement released Tuesday, the Australian carrier forecast an underlying profit before tax in the range of A$50-$100 million (US$48.6-97.2 million) for the financial year ending June 30, 2012.

This compares with the $552 million profit it recorded last year.

Qantas international, which was recently separated from the airline's profitable domestic operation in a management reshuffle, represents the biggest challenge. It is expected to report an earnings before interest and tax (EBIT) loss of over A$450 million (US439 million) in 2011/12 compared with $216 million (US210 million) in 2010/11.

This compares to an EBIT profit of A$600 million (US585 million) for Qantas' domestic business and its low-cost subsidiary, Jetstar.

"The structural issues in the business have been compounded by the impact of global economic factors -- including increased fuel costs, the high Australian dollar and weakness in the UK and Europe market -- as well as the $100 million one-off cost of industrial action," the airline said in its statement.

Qantas resuming flights
Qantas ground entire fleet

In February, Qantas announced it was cutting 500 jobs to cut costs. Group CEO Alan Joyce revealed the airline was reviewing its maintenance facilities in Australia and consolidating its catering and engineering operations. It has also withdrawn from less profitable routes.

Qantas cuts jobs as profits dive

Referring to Tuesday's announcement, Joyce said: "We have taken decisive action to mitigate losses in Qantas International by withdrawing from loss-making routes, reducing capital investment, and transforming Qantas engineering. The introduction of a new Qantas Group structure with dedicated CEOs for Qantas International and Qantas Domestic will bring further rigor to our business.

"We remain focused on returning Qantas International to profitability in 2014 and for Qantas International and Domestic combined to exceed their cost of capital on a sustainable basis within five years of August 2011."

Shares in the company dived to record low of A$1.19 by mid afternoon Tuesday, down 18%.

Qantas, which has its headquarters in Sydney, is the second-oldest airline in the world and marked its 90th anniversary last year.

It employs about 32,500 people and flies to more than 180 destinations worldwide, according to the company website.

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