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Qantas

By Dan Stratful (AFA)

Wednesday 11th July 2012

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Qantas's (ASX: QAN) recent profit downgrade has seen QAN shares trading at never before seen lows as Australia's national airline expects its underlying profit to fall by as much as 90% in the year to 30 June 2012 (FY12).

Underlying profit is expected to be between $50 million - $100 million in FY12, down from the $552 million it reported in FY11. This significant reduction was after a recent deterioration in global aviation operating conditions and its highest ever jet fuel bill.

The main culprit was the performance of QAN's International flight operations which are expected to report a $450 million EBIT loss. QAN has decided to mitigate further losses in its International operations by withdrawing from loss-making routes, reducing capital investment and transforming Qantas engineering.

Featured in Daily Sharechat's sister publication - New Zealand Investor magazine - as a SELL at $2.35 in April 2011, QAN shareholders would have done well to get out as the shares have now more than halved in value.

The fall in QAN's shares leaves them trading at an all time low and it looks like QAN could appeal as a viable recovery buy at some stage. Rumors are beginning to emerge that QAN could find itself a takeover target as a group of individuals are thought to be working on forming a syndicate to make an offer for the airline.

However, airline stocks are a risky investment at the best of times and airlines do have a habit of going broke. Most investors know not to invest in anything that "flys or grows".

QAN does not expect to raise capital in the immediate term, however a further deterioration in aviation conditions could see QAN need capital.

A Government bail-out is always an option.

About Qantas:
Queensland and Northern Territory Aerial Services Limited (QANTAS) is Australia's largest domestic and international airline operating through two airline brands - Qantas and Jetstar. QAN's subsidiaries include QantasLink, Qantas Catering Group, Qantas Freight, Qantas Defence Services and Qantas Holidays. Other investments include a 27% stake in Jetstar Pacific (Asian low fare carrier), a 46% interest in Air Pacific and an interest in Jetset Travelworld Group.

Status: HOLD

QAN's shares today traded at $1.05

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