Australia's flag carrier Qantas Airways has forecast that its full-year profit could drop by up to 90%, mainly because of higher losses at its international arm.
The Oneworld alliance member says that it is expected to post a profit before tax of between A$50 million ($49 million) to A$100 million for the year to 30 June 2012, down from A$552 million a year before.
Qantas International is expected to report an earnings before interest and tax (EBIT) loss of over A$450 million, compared with A$216 million a year before.
In the domestic market, Qantas and Jetstar will deliver an improved EBIT of over A$600 million, it adds. The carrier did not provide a corresponding figure for the previous year.
The forecast result reflects the deterioration in global aviation operating conditions driven by the European economic crisis, the group's highest ever jet fuel bill and substantial capacity increases in the domestic market that have reduced yields, says Qantas.
Group yield, excluding foreign exchange for the second half of 2011/12, is expected to increase by 0.5% to 1%, down from the previous estimate of 1.5% to 2.5%. Underlying fuel costs are expected to reach A$4.4 billion, an increase of around A$700 million from the previous year.
Qantas chief executive Alan Joyce says that the "tough and worsening environment" showed that it was important to push on with a five-year transformation plan for the international business that the company announced in August 2011.
"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 rigour to our business," says Joyce.
"We have also doubled capacity on the successful Dallas/Fort Worth route and launched new services to the South American gateway of Santiago. We are improving our flying economics and lifting customer satisfaction through our Boeing 747 reconfiguration programme."
The airline is also "attacking costs and allocating aircraft and capital efficiently," he adds.
While the transformation will result in one-off costs of A$370-380 million this year, this will be outweighed by the "long-term benefits of increased efficiency and competitiveness", says Joyce.
"We continue to practice disciplined financial management. We have announced capital expenditure reductions totalling A$900 million for 2012/13, bringing the total for the year down to A$1.9 billion. Capital expenditure in 2013/14 will be at this level or lower," he adds.
Qantas International is expected to return to profitability in 2014, and both the domestic and international businesses combined are expected to exceed their cost of capital on a sustainable basis within five years of August 2011.