Qantas shares plunged 11 per cent yesterday to near-record lows after the national icon warned of a first-half loss of up to $300 million and at least 1000 job losses.
Citing the "toughest market conditions it had ever faced" the airline said it would freeze salaries of top executives and cut the pay of the chief executive and board.
Qantas said it expected to report an underlying loss of between $250 million and $300 million for the six months to December 31, with analysts tipping it to blow out to $500 million for the full year.
To stem the losses, the carrier will accelerate its business transformation program that promises to deliver $2 billion in savings over three years.
Qantas chief executive Alan Joyce said yesterday trading conditions had deteriorated, particularly last month, with passenger loads and yields below the already negative trends for the year to date.
In a blunt warning to staff, Mr Joyce said all spending cuts and assets sales were on the table including the jewel in the crown - Qantas' frequent-flyer program.
"We will do whatever we need to do to secure the Qantas Group's future," Mr Joyce said.
"The challenges we now face are immense - but we will overcome them and we will continue to build a stronger and better Qantas for Australia.
"Since the global financial crisis, Qantas has confronted a fiercely difficult operating environment - including the strong Australian dollar and record jet fuel costs, which have exacerbated Qantas' high cost base."
Mr Joyce again blamed the "unprecedented distortion of the Australian domestic market" with Virgin Australia's strategy of "massive financial backing from foreign government-owned airlines."
"This foreign government capital has been used to finance dramatic increases in domestic capacity, with profound implications for the future of Australia's aviation industry," he said.
Mr Joyce said that last month Virgin signalled its intention to continue its strategy, which is designed to weaken Qantas in the domestic market, with a $300 million-plus injection from its foreign owners.
"The uneven playing field in Australian aviation is being tilted further and we cannot and we will not stand still in these extraordinary circumstances," he said.
But Virgin disputed that the playing field was tipped in its favour.
"The proposition that Virgin Australia has access to cheaper capital by virtue of our shareholder base is completely false," the airline said.
It said it was in the process of a capital raising, a standard way for publicly listed companies to raise funds.
"In fact, Air New Zealand and Singapore Airlines, two of Virgin Australia's cornerstone investors, are both publicly listed companies, not State-owned enterprises, that are expected to make a profit and a return on their investments," Virgin said.
It said "the vast majority of Virgin Australia's transformation over the past three years has been funded from its own balance sheet, not from foreign government capital as stated by our competitor".
Virgin also noted that Qantas had raised $1.2 billion over the past 10 years through nine capital raisings.
Qantas said it would leave no stone unturned in its efforts to cut costs.
It said the existing transformation program would be accelerated, with an expanded mandate to achieve targets, including a review of spending with its top 100 suppliers.
Qantas will also review all planned capital expenditure to make further cuts.
It will begin an immediate review to identify structural changes that could potentially unlock sources of capital and value for shareholders.