Shares in Qantas tumbled to a record low and more than A$600 million was wiped off its value after the airline said it was heading for an annual loss.
The airline warned that underlying profit might fall as much as 91 per cent because of losses on overseas routes and higher fuel costs.
Shares in Qantas closed down 18.66 per cent at A$1.155 yesterday. The airline blamed record high fuel bills, falling demand from economically struggling Europe and costly industrial battles for exacerbating "structural issues" in the business. One analyst said the company was "bleeding".
Underlying profit before tax may be A$50 million to A$100 million in the year ending June because of a A$700 million increase in fuel bills and a doubling of losses at the troubled international operation.
The group would make a net loss for the full year, chief executive Alan Joyce said.
"The deterioration in international and domestic has only started to come through in recent weeks.
We've had a significant change from mid-March."
Yesterday's warning is the latest in a succession of bad news announcements this year.
Qantas' first-half profit tumbled 83 per cent to A$42 million and in February it announced it was slashing spending on new aircraft by $700 million and axing routes, including the Auckland-Los Angeles service. Last month it announced a major corporate restructuring to split domestic and international operations and cut 500 maintenance positions.
"It's bleeding," said Peter Esho, chief market strategist at City Index in Sydney. "It's very disappointing, especially the extent of the decline for the international business."
The airline is facing increased competition on some international routes.
Singapore Airlines' low cost subsidiary Scoot is offering substantially discounted fares on routes to Sydney and the Gold Coast. Asia's biggest carrier, China Southern Airlines, is taking on Qantas on its "kangaroo route" to London via its hub in Guangzhou.
In its domestic market Virgin Australia - almost 20 per cent owned by Air New Zealand - has stepped up its offering to passengers in the lucrative corporate sector.
Yesterday Abu Dhabi's fast-growing Etihad Airways said it had bought up nearly 4 per cent of Virgin, deepening its partnership with that airline.
Joyce said the tough and worsening environment reinforced the importance of a five-year transformation plan for Qantas International.
"We have taken decisive action to mitigate losses in Qantas International by withdrawing from loss-making routes, reducing capital investment, and transforming Qantas engineering."
Capital expenditure reductions would total A$900 million for 2012/13, bringing the total for the year down to $1.9 billion.
Last October, Joyce ordered the grounding of the entire Qantas fleet in a move which forced the Government to intervene in a long-running labour dispute.
- Additional reporting: BloombergBy Grant Bradley Email Grant