* Carrier warns of H1 pre-tax loss of A$250-300 million
* 'Market deterioration' prompts 1,000 job cuts
* Seeks government action as shares slide to 16-month low
By Jane Wardell
SYDNEY, Dec 5 Qantas Airways Ltd put
fresh strain on Australia's 'open for business' credentials on
Thursday, calling for government support after shocking
investors with a loss warning.
As the national carrier's shares plummeted as much as 17
percent, Chief Executive Alan Joyce said he placed calls to
government ministers seeking urgent action, complaining that
rival Virgin Australia Holdings Ltd's access to foreign
funding has created an unfair playing field.
Virgin Australia "should not have the benefits conferred by
an Australian carrier designation when it has only 20 per cent
Australian ownership," Qantas said in a statement.
After Qantas warned it expects an underlying pre-tax
first-half loss for the first time ever, analysts said
government support for the formerly state-owned carrier would
provide an obvious financial solution to the airline's woes.
That could come via a share purchase, or ownership of Qantas's
loss-making international division.
But they said lawmakers may be reluctant to answer Joyce's
call after charges of protectionism followed the government's
block on U.S. agribusiness giant Archer Daniels Midland's
A$2.8 billion ($2.5 billion) offer for Graincorp
"Turning Qantas public again by a share purchase buyback
would look very, very poor from a protectionist standpoint,"
said IG markets strategist Evan Lucas. "The government is
already struggling to maintain its 'open for business' stance
after blocking the GrainCorp deal."
On Thursday Qantas said it would accelerate a cost-cutting
programme following a "marked deterioration" in market
conditions, axing 1,000 more jobs as it braces for an underlying
pre-tax first-half loss of between A$250 million and A$300
"The challenges we now face are immense," CEO Joyce said,
noting Virgin Australia's move last month to tap its majority
owners, Gulf carrier Etihad, Singapore Airlines and
Air New Zealand, for A$350 million to add capacity and
lift service levels.
Treasurer Joe Hockey cited national interest grounds when he
last week prohibited the takeover of GrainCorp following strong
opposition from local grain growers. International lawyers and
bankers who work in mergers and acquisitions said the decision
was likely to spook foreign investors who already think pushing
through a deal in Australia is tough.
Qantas's Joyce has hinted he would like the government to
either provide support through subsidies or tax breaks, or move
to limit Virgin Australia's foreign ownership.
But, acknowledging last week that Qantas is in "regulatory
handcuffs", Treasurer Hockey appeared to lean toward opening up
foreign investment avenues, rather than increased government
Hockey's spokesman Tony Ritchie declined to comment on
speculation about government intervention on Thursday, adding
that the treasurer had an open mind about the options on the
Convincing taxpaying voters of the merits of wading in to
save the loss-making airline is likely to be a hard task,
particularly after high-profile government support for the
domestic car manufacturing industry failed to stop it hitting
Ford Motor Co is shutting its two Australian auto
plants in October 2016, while General Motors Holden, the local
unit of General Motors Co, has cut its workforce and said
its presence is dependent on government support.
"The government is loath to buy assets," said Tony Webber,
an associate professor at the University of Sydney Business
School and a former Qantas economist.
"They've got themselves into trouble assisting the car
industry, and so it's going to be hard for them to win over
voters in terms of trying to find a voice for assisting the
Qantas, which earlier this year signed an alliance with
Dubai-based Emirates Airlines, claims it is hampered
by laws introduced when it was privatised two decades ago that
cap its foreign ownership at 49 percent and bar government
The carrier said on Thursday the outlook for the second half
of the year "remains volatile" and declined to provide further
guidance, citing uncertainty in global economic conditions, fuel
prices and foreign exchange rates.
Group capacity is expected to rise 1.1 percent in the first
half, leading to a 3.5 fall in group yield, excluding foreign
exchange movements. Underlying fuel costs are expected to jump
68 percent to A$2.27 billion.
As well as 1,000 job cuts within 12 months, the acceleration
of the cost reduction program - aimed at total savings of A$2
billion over three years - includes a pay cut for Joyce and the
board, a pay freeze and no bonuses for executives, and a review
of spending with the airline's top 100 suppliers.
Qantas also launched a review of all planned capital
expenditure and potential structural changes, saying no options
were excluded. It has already cut unprofitable international
routes, shed jobs, reduced capital spending and sold assets to
Those measures had helped Qantas's more than double its
underlying profit to A$192 million for the most recent financial
Shares in Qantas were down 11 percent at A$1.08 in afternoon
trade, after touching a 16-month low at A$1.00.