If you ever needed convincing that airlines were bad investments, the headline above should be all the confirmation you need.
Qantas Airways Limited (ASX: QAN) could be looking down the barrel of a loss near $1 billion next financial year, according to the Australian Financial Review (AFR). The newspaper reports that Qantas will freeze domestic capacity in the first three months of the 2015 financial year, virtually admitting defeat in the air wars with Virgin Australia Holdings Ltd (ASX: VAH).
As Qantas Chief financial officer Gareth Evans noted in January, "stepping back from the 65% [line in the sand of market share] would effectively be waving the white flag". Qantas has long asserted that it would do everything in its power to maintain its 65% share of the domestic market to maximise profitability.
Now Qantas says demand has fallen as capacity oversupply hits, amid weaker consumer confidence and falls in new mining work in Western Australia. Earlier this month Qantas CEO Alan Joyce said the company would soften its stance over the 65% line-in-the-sand, and that he was comfortable with the 63% market share the company had at the time.
Yesterday the company said there would be 'zero' growth in domestic capacity in each of the first three months of the 2015 financial year across Qantas, QantasLink and Jetstar.
Consensus forecasts had Qantas reporting a full-year underlying loss before tax of around $700 million – before yesterday's update. Qantas also noted yesterday that April's traffic statistics were disappointing with the international division also under pressure thanks to 'persistently high levels of competitor capacity growth'.
The AFR reports that analysts have already begun dropping their forecasts, with CIMB now expecting a loss of $770 million. Virgin is expected to see a loss of $192 million.
Foolish investors would be wise to continue avoiding buying airlines. Warren Buffett has and it has served him well.
