Qantas Airways (ASX:QAN) is facing a potential earnings collapse as a "perfect storm" of rising fuel prices and Middle Eastern conflict threatens to halve its flying profits.
Former chief economist Tony Webber warns that if current hostilities persist, the airline's underlying earnings could plummet to $544 million this financial year—a staggering drop from the previously forecasted $1.193 billion.
Industry analysts, including those from Macquarie, suggest that even with high passenger loads and increased airfares, Qantas could be forced to absorb $250 million in additional costs over the coming months due to tight fuel supplies and shipping disruptions in the Strait of Hormuz.
The turbulence has already triggered a 20% slide in Qantas’ share price and the cancellation of a $1 billion debt raising.
While the airline has so far avoided the massive schedule culls seen at competitors like United Airlines and Air New Zealand, it has begun trimming Jetstar services to New Zealand citing unsustainable costs.
Domestic earnings are projected to fall from $554 million to $294 million, while international profits remain vulnerable despite strong demand for routes bypassing regional hubs.
Analysts suggest Qantas may be forced to consolidate long-haul sectors and reduce A380 flying hours to conserve fuel.
Although recent market rebounds offered a temporary reprieve, the prospect of a prolonged conflict means the era of high airfares and capacity shifts is likely to stay, as the carrier struggles to navigate a significantly more expensive operating environment.