Harsh world taking toll on Qantas

SYDNEY - Battered by harsh conditions in international aviation that have erased any benefits from its domestic monopoly, Qantas is likely to post close to a 30 per cent plunge in interim profits.

Grabbing about 85 per cent of the domestic market since the collapse of rival Ansett in September, the airline slashed jobs and international routes as yields tumbled after the September 11 terror attacks.

"They're going to be hit pretty hard in international, but that's the same as Cathay or Singapore Airlines," said Chin Lim, Singapore-based aviation analyst for Morgan Stanley Dean Witter.

"The saving grace is you might see a surprise in the domestic."

But Qantas reaped the benefit of domestic market dominance only in the last two months of the first half - not enough to offset the yield slide in its international business, which generates more than 70 per cent of its profits.

Analysts' profit estimates for the six months to December vary widely, ranging from $A136 million ($166.2 million) to $A220 million.

Centring on $A190 million, forecasts suggest a 27 per cent drop from last year' $A262.9 million first-half profit.

The airline is due to announce its results before the market opens on February 21.

"Interim results are likely to be poor, and we believe any share price weakness should be used as further buying opportunity," said UBS Warburg analyst Graeme Wald.

Striving to cut costs in the face of competition from low-cost carriers Virgin Blue and a revived Ansett, Qantas has been burdened by increased aircraft leasing charges and the lacklustre Australian dollar.

Spot fuel costs have been lower than expected, but analysts say the carrier's jet fuel hedges, which have shielded it from soaring costs in the past, may have prevented it from cashing in on softer prices.

Meanwhile, Ansett Australia's administrators denied that a deal to sell the airline was starting to crumble as they continued legal action to seek protection amid the carrier's mounting losses.

"We don't see it as unravelling, we just see it as complex and there's lot of things to get done," Mark Korda, an Ansett administrator, said outside Melbourne's Federal Court.

The court has postponed a decision until next week on whether to approve actions taken by administrators Mark Mentha and Mr Korda from Andersen on behalf of the creditors, who are owed almost $A2 billion.

Concerned that the case could set an unwelcome precedent, Australia's securities watchdog says the administrator, not the court, should be responsible for commercial decisions regarding the carrier.

This week, administrators told the court the airline would lose around $A6 million a week in February as ticket sales drop by around $A1.8 million a week amid growing doubts about the carrier's future.



A $A3.5 billion plan by the Tesna consortium to revive the collapsed airline was approved by creditors at the end of January.

But administrators asked that another 30 days be granted to settle the complex deal, which includes the transfer of Ansett's Sydney airport terminal and sign-offs from aircraft lessors.

"They're looking for settlement well before that date. Without putting too fine a point on it, within the next week rather than the next three weeks," a spokesman for the administrators said.

But sources close to Melbourne millionaires Lindsay Fox and Solomon Lew's Tesna said suggestions of a rapid resolution could prove premature.

"I wouldn't even give them until the end of the month. I think if it's not done in the next week or two, it's not going to happen," said an aviation analyst who declined to be named.

Securing the lease for the Sydney airport domestic terminal remains a major sticking point in the Tesna plan after administrators verbally rejected a proposal from airport authorities this week.

Ansett's administrators remain convinced the Tesna deal will fly,, but Virgin Blue and Lang Corp, whose joint proposal to buy some Ansett assets was shunned, could take another look at the carrier if the plan fails.

- REUTERS

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