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Qantas will cut 1000 jobs and issued a grim profit warning following a "marked deterioration" in trading conditions in November.
The airline says it expects to report an underlying loss of between A$250 million ($275 million) and $300 million for the six months to the end of the year.
Qantas chief executive Alan Joyce said the challenges the airline faced were immense.
"We will do whatever we need to do to secure the Qantas Group's future," he said.
He took a swipe at Air New Zealand and the other airline stakeholders in Virgin Australia, saying there had been an unprecedented distortion of the Australian domestic market.
Air New Zealand, Etihad and Singapore Airlines now have 73 per cent of Virgin - a fierce competitor for Qantas on its domestic routes in particular - and this stake will increase after a A$350 million capital raising.
"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," Joyce said.
He said the Virgin rights issue "was designed to weaken Qantas" in the domestic market.
"The uneven playing field in Australian aviation is being tilted further. We cannot and we will not stand still in these extraordinary circumstances," he said.
Qantas has appealed to the Australian government to review foreign airlines' investment in Qantas and said it was taking steps to make savings of $2 billion over the next three years.
Staff numbers would be cut by at least 1000 within the next year, Joyce's own A$5.1 million salary would be cut and there would be a pay freeze and no bonuses for executives for 12 months.
The airline's network would be "optimised" and spending on 100 top suppliers reviewed.
Qantas would conduct a review of all planned capital spending to achieve further substantial reductions to ensure the business generates positive net free cash flow from the 2015 financial year.
"As we work through our cost reductions, capital expenditure and structural review, no options will be off the table," Joyce said.
He said that since the global financial crisis, Qantas had confronted a "fiercely difficult" operating environment - including the strong Australian dollar and record jet fuel costs.
"The Australian international market is the toughest anywhere in the world," he said.
"Our competitors in the international market, almost all owned or generously supported by their governments, have increased capacity to pursue Australian dollar profits, changing the shape of the market permanently."
- Grant Bradley of the NZ Herald