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Alan Joyce, the combative chief executive of Qantas Airways, has had a week he’d rather forget. After heavy trading, the share price of the Australian airline closed below A$1 for the first time on Friday as it was put on notice of a possible downgrade by Standard & Poor’s and investors continue to worry about the possibility of a capital increase.
While Qantas claims it has a “strong funding position” and the “flexibility” to “further reduce” capital investment, few investors seem prepared to give the carrier and its Irish-born businessman the benefit of the doubt following Tuesday’s dire trading statement.
Blaming everything from rising fuel prices to falling bond yields, increased competition on domestic routes and the Europe services, Mr Joyce said Qantas would post its first annual net loss since privatisation in 1995.
The unexpected warning threw into sharp relief the task Mr Joyce faces in returning its ailing international business to profitability. Losses at the division, which is saddled with a cost base significantly higher than that of its competitors, are forecast to more than double to at least A$450m in the current financial year as Qantas battles fierce competition from government-backed carriers in the Middle East and Asia and sagging demand from Europe and the US.
Analysts are also concerned by the decline in domestic yields as Qantas belatedly responds to the competitive threat from a rejuvenated Virgin Australia by increasing capacity on key business routes.