Qantas yield forecasts lose altitude

SYDNEY - Airline analysts downgraded profit forecasts for Qantas Airways yesterday after Australia's biggest carrier slashed routes and trimmed its earnings targets as the war in Iraq and a killer flu virus bite.

The airline took out half-page advertisements emblazoned with its red kangaroo logo in some of Australia's biggest newspapers to publicise discounted short-break packages in a bid to stimulate lacklustre domestic routes.

Many of its international fares are set to rise up to 3 per cent as part of a move by the International Air Transport Association to meet increasing insurance and fuel costs.

Qantas said on Friday that it would cut international flights 20 per cent because of war and fears about severe acute respiratory syndrome (Sars), which has killed nearly 60 people worldwide.

It also warned that its net profit for the year ending June 30 would be 15 per cent below market forecasts of about A$600 million ($655 million).

Macquarie Equities cut its earnings forecasts to A$467 million ($509 million), well below the guidance given by the carrier, and warned that more revisions could be on the way if the war in Iraq dragged on for more than two months.

"The war in Iraq is leading to no visibility in the forward booking patterns and, as a result, [in] the revenue and earnings of Qantas," said analyst Ian Myles in a research note. "As a result, our confidence in the earnings forecasts remains low."

Shares languished around 18-month lows yesterday, trading down 0.02 per cent at A$2.98, after losing 10 per cent on Friday.

Salomon Smith Barney, which downgraded earnings for Qantas last week, said it would stick with its recently lowered forecast of a A$525 million ($572 million) full-year net profit.

"Even the mighty Qantas is not bulletproof," said the brokerage, adding that the stock would be good value under A$2.80.

Merrill Lynch has also cut its profit forecasts 19 per cent for this year and 11 per cent for fiscal 2004, maintaining a "buy" recommendation on the stock with a A$4.50 12-month price target, down from A$5.20.

Said analyst Simon Gresham: "We expect a bounce-back in demand within a six-month timeframe, implicitly assuming that both war risk and Sars fade from travellers' perception."

ABN Amro said Qantas continued to look attractive relative to Asian peers such as Cathay Pacific and Singapore Airlines, which were likely to be hit harder by the short-term factors affecting the Australian carrier.