Australia's struggling flag carrier Qantas will face pressure to further cut costs and streamline operations with its earnings poised to take a dive due to high fuel expenses and a bleeding international division.Qantas has embarked on a five-year turnaround plan announced last year based on building deeper alliances and cost management, in the hopes of lifting its sagging fortunes that have been aggravated by mounting competition at home.The airline, which has flagged its first full-year net loss since 1995, is expected to post a shortfall of AUD$248.5 million (USD$259.7 million) when it announces its earnings on Thursday.Qantas is also expected to report a second-half underlying loss before tax, which excludes one-time gains and losses, of around AUD$128 million. That compares with a profit of AUD$135 million a year ago.In the earnings report, investors will be looking for signs that Qantas is managing its costs, particularly the fuel bill, which the carrier has warned will be its highest ever in the 2011/12 financial year.Benchmark jet fuel prices in Asia have risen 7 percent to USD$131.99 a barrel in the past year.The surge in oil prices has highlighted the particular disadvantage Qantas has as a so-called "end-of-line" carrier. Qantas, nicknamed the Flying Kangaroo, has to spend more on fuel than other airlines in Asia to carry passengers on inter-continental routes as its aircraft are based in Australia.A loss of market share in international passenger traffic on its home turf has also put another thorn in its side.The share of international passengers Qantas flies in and out of Australia dropped to 18.4 percent in May from 19.2 percent a year earlier, according to the latest data from the Bureau of Infrastructure, Transport and Regional Economics.In contrast, Singapore Airlines and Emirates all boosted their share, with the Singapore carrier's slice of the pie expanding to 9.4 percent from 8.8 percent.At the same time, Qantas is facing increasing competition on domestic routes from Virgin Australia, which is benefiting from alliances with Middle East airline Etihad, Singapore Airlines, Air New Zealand and Delta.Qantas is the worst performing stock in the sector this year among 36 large- and mid-cap airlines globally, with its shares down 20 percent.STREAMLININGQantas is separating its loss-making international business from its profitable domestic unit, eliminating loss-making routes, cutting 2,800 jobs and slashing capital spending over two years by AUD$700 million.The cost-cutting measures have been opposed by unions who have repeatedly called Qantas a very profitable company. The airline is emerging from a bruising industrial dispute that led to the grounding of its entire fleet for close to two days last year.Qantas confirmed earlier this week that chief executive Alan Joyce would not be receiving a bonus, joining BHP's Marius Kloppers and BlueScope's Paul O'Malley in forgoing the payment due to weak earnings.Credit ratings agency Moody's has added to the pressure on the airline, saying last month that sustainable and profitable international business was a major factor for the airline's ability to maintain an investment-grade rating over time.So far, talks to revive Qantas' ailing international business by floating a new Asian premium airline joint venture have gone nowhere.Qantas ended discussions with Malaysia Airlines in March and instead said it would set up a regional low-cost carrier in the increasingly overcrowded low-frills market with China Eastern Airlines.Moody's said a tie-up with a Middle East or Southeast Asian-based hub carrier could ease some of the "strategic disadvantages" Qantas faces as an end-of-line carrier.The carrier said last month that it was in talks with several airlines, including Emirates, on a potential alliance. A tie-up with Emirates would give Qantas access to greater numbers of passengers from Emirates's Dubai hub .Thursday's earnings are the last to be posted by Qantas in its current form. The airline splits its domestic and international operations into separate reporting units at the start of the 2012/13 financial year.
Gravity always wins!