Qantas warned that it was flying into trouble as it blamed the eurozone crisis for a predicted 90 per cent drop in full-year profits.
The world’s second-oldest airline cited weak demand for seats from European travellers as well as surging oil prices and increased competition in its domestic market for a collapse in projected underlying pre-tax profits to between A$50 million (£31 million) and A$100 million for the year to June 30. It posted profits of A$552 million over the same period last year.
Tom Webber, a former Qantas chief economist, said: “I’ve never seen a deterioration in Qantas International profitability that big, as far as I’m aware.”
The airline, which was privatised in 1995, said that the eurozone debt crisis, combined with the high value of the Australian dollar, had undermined the number of foreign visitors travelling to Australia.
The group’s domestic division remains profitable but not enough to offset the downturn in the group’s international arm. Alan Joyce, the chief executive who, two weeks ago, announced a turnaround plan, said that the profit warning had been issued after a particularly difficult few weeks.
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He said that he expected the company’s long-haul division to return to profit in 2014 after a wholesale restructuring.
“The forecast result reflects the recent deterioration in global aviation operating conditions driven by the European economic crisis, the group’s highest jet fuel bill and substantial capacity increases in the domestic market that have reduced yields,” a statement said.
Shares in Qantas fell sharply after the announcement, closing down 19 per cent at A$1.15.
Mr 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 airline said its international arm would post a loss of at least A$450 million in the year to June 30, more than double the A$216 million loss reported last year.
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Mr Joyce’s five-year turnaround plan involves cutting about 1,000 jobs and a sharp reduction of its engineering and maintenance operation.
It also outlines plans to cut A$900 million in capital spending and to separate its international and domestic operations, with the appointment of individual business heads for each one.
Across the group, underlying fuel costs are expected to reach A$4.4 billion in the year, up about A$700 million on last year.
The profit warning comes as airlines around the world are struggling to remain solvent in the face of tough economic headwinds.
The International Air Transport Association has cut its overall forecast for airline profits in 2012 to $3 billion from $3.5 billion and has warned that a sharp rise in oil prices could lead to losses as high as $5.3 billion across the sector.