The Qantas Quagmire: It’s shaping up to be an awful year for the flying kangaroo

When it comes to making money, Qantas, as a rule, doesn’t dazzle. But nor does it disappoint. Unlike any of the North American legacy carriers, or those in Europe or Japan or anywhere else in the rich world, Qantas managed to generate underlying pretax profits, excluding special items, in every year—no kidding—since the turn of the millennium. Come to think of it, such consistent profitability is, in its own right, rather dazzling. But it’s also the past.

All of the engines behind this Qantas miracle, it seems, are now thrusting in reverse, heralding what could be a terrible 2014. The pain, in fact, is already setting in. Late last year, executives warned investors that losses for the calendar second half of 2013 could reach as high as $270m, far worse than the $125m net profit ex special items earned in the first half. They advised, moreover, to expect negative cash outflow for the entire fiscal year, which will end in June.

Qantas, to be sure, was no stranger to adversity even in its moneymaking years, especially in the years since the onset of the global financial crisis. Its meager margins show that. So do numerous episodes of distress, from the grounding of its A380 fleet after an engine failure in 2010 to the brief self-imposed grounding of all operations in 2011 following a labor dispute. More systemically problematic, meanwhile, has been the airline’s mainline longhaul business, which continued a long losing streak with another $151m in operating losses during the first half of 2013. Only with profits from Jetstar, mainline domestic routes, cargo operations and a cash-cow frequent flier program did the company overall stay in the black.

Not bad for an airline with high labor costs relative to many of its Asian rivals, not to mention terrible hub geography. In bullish times (like the mid-2000s, when the global economy boomed) and in bearish times (like the past few years, when it didn’t), Qantas has found a way to make money, buttressed by its own relentless cost cutting, its unprecedented success with a wholly owned low-fare unit, a two-decade long economic expansion in Australia, a strong home currency that eased the pain of rising oil prices and a mostly benign competitive environment, especially at home.

But now: the great unravelling. With China consuming less of its natural resources, Australia’s economy is slowing…

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