Qantas shares plunge as Etihad swoops

Qantas Airways shares plunged to an all-time low after it warned that full-year profit could fall by as much as 91%.

The airline’s woes are exacerbated by Abu Dhabi-based Etihad acquiring a 4% stake in rival Virgin Australia Holdings and the arrival of a new low-cost carrier, Singapore-based Scoot.

The share purchase cements the 2-year-old alliance between Etihad and Virgin, in which Air New Zealand has a near 20% a stake.

The Gulf airline’s move follows a denial by Qantas that it is seeking an alliance with the much bigger Dubai-based Emirates Airline.

Virgin recently split off its international arm with the object of attracting more overseas investors, while Qantas – restricted by legislation limiting overseas ownership – has announced plans to split its domestic and international operations.

Etihad, which has bought shares in Virgin’s ASX-listed shares that own the domestic airline, has a strategy of buying up stakes in foreign airlines. Most recently it has a 29% shareholding in Germany’s second largest carrier, Air Berlin, and 3% of Irish airline Aer Lingus.

Qantas, meanwhile, has pinned its future on the expansion of its low-cost subsidiary, Jetstar, which is rapidly expanding in Asia from its Singapore base and is soon to launch a Japanese airline.

In yesterday’s announcement, it warned that pretax underlying profit for the year to June 30 would come in at between $A50 million and $A100 million, compared with $A552 million a year earlier. The shares fell 18% to close at $A1.16.

The weak forecast reflects downward pressure on demand created by Europe's debt crisis, soaring jet-fuel costs, declining bond yields and competition in Australia's domestic travel market, the airline says.

The full-service international unit is running heavy losses, with earnings-before-interest-and-tax (ebit) showing a deficit of more than $A450 million – more than double the $A216 million loss reported for last year.

The domestic operation and Jetstar are expected to have a pretax profit of $A600 million on an ebit basis.

Jetstar faces fresh competition with the maiden flight yesterday by Singapore Airlines-owned Scoot to Sydney.

A technical glitch marred the yellow-liveried airline's launch with the full Boeing 777 aircraft carrying 400 passengers delayed by 100 minutes on takeoff from Singapore.

From next week, Scoot will add five flights a week to the Gold Coast. It will also operate services to a number of Asian cities starting with Bangkok, and Tianjin in China, with plans to fly to Tokyo and Taipei later in the year.

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