Qantas in profit warning

SYDNEY - Qantas Airways says fiscal 2006 profit will slump by about 27 per cent to around A$670 million ($797 million) - below analysts' average forecast - on a soaring fuel bill and redundancy costs.

The world's 11th largest airline by market value also said it would not sell its catering business because the potential sale price was not good value when compared with the savings from a restructuring plan that might lead to as many as 30 job losses.

Qantas is already targeting A$3 billion in savings as part of a five-year "Sustainable Future" cost-cutting programme that ends in June 2008. "However, if fuel prices continue at this level, further restructuring will be required," Qantas said.

Shares in Qantas, which began restructuring its heavy maintenance operations in May to compete with providers in North America, Europe and Asia, dived 15c to A$3.03. The stock has lost 25 per cent of its value since December 31.

Qantas said pre-tax profit after restructuring costs for the year to June 30 would be at the lower end of analysts' forecast range of A$670 million to A$895 million. The average of nine analysts' forecasts was A$809 million, a Qantas spokesman said.

Qantas had warned in August last year that its fiscal 2006 profit would fall on soaring fuel costs, after posting a record 2005 profit on the back of cost cuts and higher fare yields.

"This position has been reinforced by a A$1 billion increase in fuel costs for 2005-06 after hedging, a significant amount of which will not be recovered by surcharges," chief executive Geoff Dixon said.

"Qantas is a terrific company with one big flaw - oil prices," said Jason Teh, of Investors Mutual in Sydney. "If it wasn't for that, their earnings would be doing fine and the shares would be a lot better value."

Airlines worldwide may post losses of US$3 billion ($4.83 billion) in 2006, 36 per cent more than forecast in March, as oil prices rise, the International Air Transport Association said earlier this month.

- REUTERS, additional reporting by Bloomberg