Qantas (QAN) Airways Ltd., which this week forecast an annual loss, fell below A$1 for the first time, capping a four-day slump that has wiped out about $1 billion of market value.
Australia’s largest carrier dropped 8.5 percent to 97 cents at the close in Sydney. The stock has tumbled 32 percent since June 5, when it predicted its first annual loss since its 1995 initial public offering.
Standard & Poor’s also put Qantas on review for a possible downgrade today after the carrier said losses on international routes may double to A$450 million ($444 million) in the year ending June. Chief Executive Officer Alan Joyce is struggling to revive Qantas’s overseas unit amid competition from Emirates Airline and other Middle East carriers, slower demand in Europe and higher fuel prices.
“There are some fairly jittery shareholders out there,” said Simon Rutherfurd, who helps manage about $2.3 billion as Chief Investment Officer of Northward Capital in Sydney. “It’s a vicious circle.”
Credit default swaps insuring the debt of Qantas against non-payment rose to 375 basis points, Westpac Banking Corp. prices show. That is near the record-high of 375.1 reached Oct. 4, according to data from CMA.
“The magnitude of the losses from Qantas’ international business underscores the difficulty in turning around the segment,” Standard & Poor’s credit analyst May Zhong said in a statement. “The group’s business risk profile would weaken if the airline’s international market position and earnings do not recover within a reasonable timeframe.”
The share fall has pared Qantas’s market value to A$2.2 billion ($2.2 billion) today from about A$3.2 billion at the close of trade on June 4, based on data compiled by Bloomberg.
Losses on international routes will reduce Qantas’ underlying profit this fiscal year to as little as A$50 million, the carrier said June 5. That’s a 91 percent drop from a year earlier. Domestic flights, including at budget arm Jetstar, are expected to post a profit of more than A$600 million. The company expects a full-year net loss after including restructuring costs, Joyce said on a June 5 conference call.
Earnings have been hit by higher oil prices, which will help boost annual fuel costs by A$700 million to A$4.4 billion, Qantas said. The price of jet fuel has averaged $127.30 a barrel in Singapore since June 30, 18 percent higher than a year earlier, according to data compiled by Bloomberg.
Qantas has a BBB rating from S&P, the highest among airlines worldwide. The review, which will take as long as 90 days, will probably only result in a one level reduction, S&P said. That would reduce the carrier to BBB-, the lowest investment grade, and the same ranking as Southwest Airlines Co. and Deutsche Lufthansa AG. Those are the only carriers not rated as junk by S&P.
“Qantas remains one of only two airlines in the world with two investment grade credit ratings” from S&P and Moody’s Investors Service, spokesman Luke Enright said by e-mail. Southwest is the other, according to data compiled by Bloomberg.
Qantas will probably keep an investment grade because it has “manageable” debt levels, with A$1.3 billion maturing next fiscal year, S&P said. The carrier will also probably retain about A$2 billion of cash even as it buys new planes and other investment, the company said.
The Australian airline is facing tougher competition on domestic and international routes. At home, Virgin (VAH) Australia Holdings Ltd. is rolling out business-class services to lure corporate travelers, while budget airline Tiger Airways Holdings Ltd. is rebuilding operations following flight cuts prompted by safety violations last year.
On international routes, Abu Dhabi-based Etihad Airways PSJC has formed a tie-up with Virgin, including buying a stake, to help boost sales in Australia. Middle East carriers’ hubs also allow them to offer a wider range of one-stop flights to Europe than Qantas, which only bases planes in Australia.
Other long-haul carriers are also adding flights to Australia. Singapore Airlines Ltd.’s budget unit Scoot Pte. made its maiden trip to Sydney this week. Chinese carriers including China Southern Airlines Co. have also boosted Australia services and begun offering tickets linking the country to Europe.
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