Surprised analysts reassess outlook for Qantas

Qantas Airways will be better positioned to cope with tough trading conditions and longer-term challenges because of the aggressive cost-cutting taken by its new management team, analysts say.

Qantas on Tuesday said it would retrench as many as 1750 staff - about 5 per cent of its workforce - as well as ground planes and defer aircraft orders in response to falling demand for air travel, particularly on international services. Chief executive Alan Joyce said Qantas had slashed its guidance and now predicted a pre-tax profit of between A$100 million ($124 million) and A$200 million in 2008/09, down from A$500 million in its previous forecast.

GoldmanSachs JBWere analyst Andrew Gibson said the severity of the earnings downgrade was likely to have surprised investors.

"Calendar year 2009 is gearing up to be one of the toughest years in history for aviation and Qantas is by no means insulated from these pressures."

Credit Suisse analyst Anthony Moulder said in a client note that Qantas' management culling and capacity cutting would better position it to weather the tough conditions. "While surprised by the depth of the change, we do believe management's restructuring will better position the business to address the current conditions as well as the longer-term challenges from international competition."

Passenger numbers for Asia-Pacific carriers dropped almost 13 per cent in February, according to International Air Transport Association (IATA) data.

The aviation industry globally was expected to report a US$4.7 billion ($8.16 billion) loss this year, IATA said.

The organisation said the Asia-Pacific region would be hit the hardest by the economic slowdown, with carriers in the region accounting for more than one-third the combined global loss.

Merrill Lynch analyst Kevin O'Connor said he believed Qantas was poised for a recovery. "We believe the aggressive action taken by Qantas' new management team places it well to take advantage of any demand recovery," O'Connor said in a client note. "We expect Qantas' financial performance will improve significantly in 2009/10 as the benefit of cost and capacity cuts starts to flow through."

- AAP