JPMorgan put out a research note this morning, in which the bank predicted Australia’s national carrier Qantas would post losses until 2016.
In the note, reported by the AFR, JPMorgan also reaffirmed its underweight rating.
Reportedly, analyst Carolyn Holmes thinks Virgin Australia’s goal of constantly expanding its domestic market share means Qantas will not be able to offset the impact on its core profit driver.
According to JPMorgan, this means that this year Qantas will report an underlying pre-tax loss of around $289 million on February 27, which is at the higher end of its $250 million-$300 million guidance.
Virgin is putting pressure on Qantas by undercutting it on domestic routes. Qantas holds the majority of the domestic market in Australia, and relies on this to fund its international business.
Qantas boss Alan Joyce has asked the government for help, after Virgin announced a $350 million capital raising. Virgin Australia’s major shareholders are overseas airlines, which compete with Qantas’ international business.
Joyce thinks they are using Virgin Australia as a proxy to place unfair pressure on its domestic airline, therefor making it harder for the airline to sustain its international arm.
Virgin Australia has argued its capital raising was completely legal, and Qantas was asking for special treatment.
The government is yet to announce an assistance package for Qantas, though options include a public investment, a debt guarantee or a change in ownership laws.
There’s more here.