Its fall has been gaining speed and now investors are wondering what value is left in the hold. Jemima Whyte, Joe Aston and Michael Smith report.
In November 2001, Qantas Airways chief Geoff Dixon warned that the federal government was in danger of regarding the airline as a "magic pudding, that no matter how much you bite out of this company there'll always be something left".
Back then, it was easy to see why Qantas might be confused with Norman Lindsay's "cut 'n come again" caricature.
Dixon made his comments in the wake of the Ansett collapse, when the competition regulator was assessing whether the airline had become too dominant.
By 2008, Dixon's last year in charge, Qantas would post a record $1 billion profit, driven by an enviable duopoly on Australia-US routes, a low Australian dollar, a robust global economy and the early success of its new discount offshoot, Jetstar.
But nearly 11 years on from Dixon's pudding comment, the airline could barely be considered appealing leftovers. Shares plumbed new lows yesterday, closing at $1.16 and prompting comparisons with the failed $5.45-a-share offer in 2006 from the Airline Partners consortium.
Under even the simplest calculation, Qantas has spectacularly underperformed the market, which has fallen from about 7000 points to 4000 points since the bid - although it's worth pointing out other companies closely linked to the economic cycle have done far worse in that period.
"Qantas had a privileged market position and they blew it," one fund manager, who offloaded his shares earlier this year, said yesterday.
But how? The question being asked around the markets yesterday was just who tried to gouge too much from the pudding.
Like many of its global peers, Qantas is beset from almost every angle: a teetering global economy; a legacy business model; state-funded competitors; high (albeit softening) fuel prices; a strong Australian dollar and parts of its workforce deeply resistant to change.
Under Dixon's successor Alan Joyce there has been wholesale management change, with well-regarded former commercial and freight operations head Rob Gurney and Jetstar chief executive Bruce Buchanan the latest to go.
It's hard to know where to apportion blame for the airline's malaise and, more importantly, how to identify which levers can be pulled to turn around the ailing international division and with it the company's woeful share price.
Joyce spent some of his press conference yesterday defending his record. He said the international business would be profitable again by 2014 while the international and domestic businesses would together return their cost of capital by August 2016.
Cost cutting, restructuring and withdrawing from loss-making routes would drive that turnaround, Joyce said, insisting the company was delivering on a stated strategy and hadn't dropped the ball.
He said he had highlighted the problems in the international business in March last year and laid out a "four pillar" strategy.
Privately, some analysts say there has been too much focus on expansionary capital expenditure, largely with Jetstar, and not enough focus on keeping a tight rein on costs (although Jetstar has also been the most disciplined on that front).
The analyst conference call was closed to media. Later, in an interview with The Australian Financial Review, Joyce was remarkably upbeat, insisting that Qantas was the "best" airline in the world.
"I would not trade this job for any other job in the world," he said.
"I certainly wouldn't trade this job for any other airline job in the world because this is the best airline in the world."
While Joyce's claim of the "best" title for Qantas seems a stretch after his forgettable day: there are clearly believers waiting for more value to be unlocked within the group.
Large institutional shareholders on the Qantas register include Balanced Equity Management, a key player in scuppering the private equity bid, Colonial First State and the US-based Capital Group and Franklin Resources. But even the institutions' support wavered after yesterday's downgrade with some 52.5 million shares - or 2.3 per cent of the shares on issue - changing hands.
And given the inexorable decline of the share price, it is easy to forget that Joyce is still delivering a gross profit in a very tough environment.
Investors are hoping management and the board - chaired by Leigh Clifford and, excepting former chief executive James Strong, low on operational airline experience - can wring out any value that's there.
And value-wise, the group is still better placed than any of its legacy competitors - the likes of British Airways, American and its latest dance partner, Malaysian Airlines.
Arguably one of the airline's greatest issues has been its failure to execute mooted international partnerships, which would have provided a capital-lighter option of maintaining its far-reaching network. Dixon failed to pull off a mergers with Singapore Airlines and then British Airways, while Joyce has unveiled grand plans for a new ultra-premium airline based in Singapore and a partnership with Malaysian Airlines, both of which failed to eventuate.
Joyce is adamantly sticking to his mantra - he won't invest any further capital in the international division until it is returning its cost of capital. Investors, he says, support this approach. But others question how he can return the long-haul arm to profitability without investing capital. Deferring the delivery of A380s and allocating the first Boeing Dreamliner deliveries to Jetstar has not helped and has reinforced the views of those who believe Joyce is overly focused on Jetstar. But planning lead times are long in aviation. Just as Dixon's predecessor (Strong) ordered the A380, his successor (Joyce) entered it into service. And Joyce inherited a very expensive pipeline of new aircraft deliveries and a fleet already long in the tooth.
Management has continually pared back the Qantas International network through cuts to routes and flight frequencies. Fewer flights have left it with the same number of employees doing a lot less work. And cutting routes has left capacity for competitors to snap up.
The domestic business remains strong - despite a resurgent Virgin Australia - and its frequent-flyer business is worth more than the rest of the group put together. So the potential for asset sales to unlock value and improve the balance sheet - despite repeated assertions from Joyce that the balance sheet is not under sufficient pressure to require a capital raising - is being mentioned as one option to pursue.
The decision by Qantas in 2008 to shelve a 40 per cent sale of Qantas Frequent Flyer still pains some, although its earnings since then have been critical for the group.
Other potential low-hanging fruit include its freight joint ventures with Australia Post - Star Track Express and Australian Air Express - and its catering arm.
Despite the headwinds, these assets still look attractive to the likes of ad man John Singleton, banker Mark Carnegie and Dixon, who were reportedly considering a private tilt at the airline earlier this year.
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