Half-year loss Qantas' first

By SOPHIE HARES in Sydney

Australia's biggest airline, Qantas Airways, yesterday posted its first six-month loss since its 1995 listing, hurt by the Sars outbreak, the Iraq war and domestic competition.

A strong jump in first-half profit to A$352.5 million ($396 million) helped the airline notch up an annual profit of A$343.5 million for the full year ended June 30, although the result was still down 20 per cent from A$428 million a year earlier.

But like other Asia Pacific airlines such as Cathay Pacific Airways and Singapore Airlines, Qantas forecast improved performance this year as bookings pick up.

Shares in Qantas, which is 19 per cent owned by British Airways, jumped 20Ac, or 6.45 per cent, to A$3.30 by the close of trade, its biggest one day rally since April 29. The shares have lost a third of their value over the past year, against a 5 per cent rise in the broader market.

Qantas also said it might set up a low-cost carrier to fend off competition by Richard Branson's discount airline Virgin Blue. The plan, which follows a similar idea by Singapore Airlines, met with scepticism from at least one analyst.

"They'll definitely cannibalise their own market share, unless they're planning to set that up and phase out the existing Qantas operations," said Bruce Low, aviation analyst at ABN Amro. "I'm very cynical about whether or not they can actually set up a low-cost carrier in the first place."

Qantas - which had twice downgraded its earnings forecasts for 2002/03 and said it would cut up to 3000 staff - had a loss of A$9 million for the six months to end-June, according to Reuters' calculations, its first loss since its Australian Stock Exchange debut in 1995.

"Provided we're not hit with things like Sars again, [our operations] will improve their profitability, we've still got a fair bit of work to do," Qantas chief executive Geoff Dixon said.

The result, which included a writedown of A$91 million on its 767-200 fleet and A$115 million in one-off redundancy costs, was above the A$337 million full-year net profit tipped by analysts.

"Overall probably neutral to a little bit disappointed on the cost side. I think it was pretty much in line in terms of the actual [profit] number itself," Low said.

Qantas said load factors were high and forward bookings were picking up but had yet to reach pre-Sars levels.

International business was weak in the second half after many would-be passengers stayed at home as Sars swept through Asia.

In the domestic market, where Qantas commands a 70 per cent market share in the face of tough competition from Virgin Blue, earnings were down 34.5 per cent on a year ago.

Qantas, which is cutting back on its domestic business class seats due to reduced demand, said it was determined to defend its current domestic market share and its board would decide by November whether to launch a new, wholly owned discount carrier.

Australian Airlines, Qantas' low-cost international operation, would be profitable by September, but there were no plans to extend that model domestically, Dixon said.

Despite its fall in annual profit, Qantas remains one of the world's most profitable airlines.

* Air New Zealand releases its full-year result next Thursday, August 28.