Qantas dives to first-ever loss

BRITISH AIRWAYS' Australian partner Qantas crashed to a second-half loss as stiff domestic competition, the Sars crisis and the Iraq war bit into the performance of one of the world's few profitable airlines.

It was the first loss in any six months of its history as a public company. While it was only A$9m (£3.7m), the fact that it followed a record first half lends weight to chief executive Geoff Dixon's dire warnings that the Flying Kangaroo has no God given right to survive.

Qantas still managed a full-year profit of A$343.5m, down 19.7% from the A$428m last year. The airline chalked up a profit of A$352.5m in the first half.

'All sections of our business came under severe strain in the second half, with inbound visitors to Australia falling by more than 20% in some months and by up to 45% on some Asian routes,' Dixon said.

While that was due mainly to Sars, there is evidence that Richard Branson's no-frills carrier Virgin Blue is taking an ever-greater toll on domestic profitability.

Qantas still holds a 70% market share at home, but discounting to compete with Virgin Blue took earnings there down 34.5% from a year ago.

The result was better than market expectations of some A$337m and that led to a small rise in the share price to A$3.10.

The shares have been slashed by a third over the past year. Before yesterday's result, Qantas had twice downgraded its earnings forecasts and said it would axe up to 3,000 staff.

Despite today's result the carrierremains one of the world's most profitable - but the loss for the half is a psychological blow.

Qantas has not made a loss since listing in 1995. That, along with the fact it has not had a plane crash, has added to an air of invincibility Dixon recently has been trying to dispel.

'Some people think that the Ansett [Australia's failed second domestic airline] collapse somehow guarantees Qantas's future. This simply is not true. It faces many obstacles in surviving,' he said recently. Many had thought those comments were merely designed to force the unions to accept tough changes.

Looking ahead today, Dixon was more positive and believed Qantas will improve its performance. He said plans to launch a lowcost domestic operation to challenge Virgin Blue head-on were well advanced.

BA stands by stake in Flying Kangaroo

BRITISH Airways wants to hang on to its 19% stake in Qantas, Dixon said. There has been speculation that BA wanted to sell its interest, but Dixon said it is not an issue that is raised any more.

Qantas and BA's predecessor Imperial Airways formed Qantas Empire Airways in 1934 to fly the last leg of a London to Australia mail route. Qantas bought out Imperial in 1947 when it first flew between Sydney and London.

In 1993 the Australian government sold BA a 25% stake, although a cash-strapped BA declined to take part in subsequent rights issues and its holding has been diluted. The two carriers have a code-sharing agreement, co-ordinate scheduling, sales and marketing and share facilities.

So important are these arrangements that BA chief Rod Eddington warned earlier this month that he would pull out of the London-Sydney route if Australian authorities did not continue to approve them.