In a sign of the extent of the downturn in aviation, Qantas will also ground 10 aircraft and defer orders for four Airbus superjumbo A380s and 12 Boeing 737-800s. It is also in discussions with Boeing to delay the delivery of the first batch of its 787 Dreamliner aircraft. The airline has revised its pre-tax profit guidance downwards from about $500 million to between $100 and $200 million for the full year. The forecast is subject to no further changes in market conditions, fuel prices and volatility in hedge accounting. It will also reduce capital expenditure by at least $800 million next financial year. Qantas's chief executive, Alan Joyce, said the airline's international services and freight operations were bearing the brunt of the decline in economic conditions. "Market conditions have deteriorated, especially in our international business,'' he said today. "We are experiencing significantly lower demand, particularly in premium classes, and considerable price pressures with extensive sales and discounting by all carriers."

In some cases airlines had reduced fares by up to 50%, he said. "We have no choice but to lower our profit forecast and make major changes to ensure Qantas can weather the current commercial environment," he said. "Qantas revenues have come under severe pressure, so it would be irresponsible to rely solely on stimulating demand through attractive pricing, given the potential for unprecedented reductions in yield." Qantas will slash the capacity on its international and domestic routes by a further 5%. It will also reduce the capacity of its freight operations. The airline said Australian domestic routes would be the most heavily affected by the capacity cuts, along with routes to the US, UK and South Africa.

"We will ground additional aircraft and defer some aircraft orders, as well as maintaining a freeze on further capital expenditure," Mr Joyce said.

Qantas has the largest firm order, for 65 Boeing Dreamliner aircraft, of any airline and has purchase rights for another 50. Its low-cost subsidiary, Jetstar, was to have received the group's first Dreamliner. Delivery had been delayed until at least next year. Deputy Prime Minister Julia Gillard slammed the decision as "unwelcome news". "It's going to be very distressing for those Qantas workers who are shortly to be told they are to be made redundant. It's a very difficult time for them." She said Qantas had vowed to do what it could to preserve additional jobs and avoid further redundancies. "An important thing for employers is to do all they can to keep their hard-working staff, and being prepared to look at this in an innovative way," she said.

Ms Gillard said it was not long ago that employers had been "screaming out" for skilled labour. Holding on to those workers during the financial crisis was important, she said. Ms Gillard said it stood to reason that a global recession would hit international travel. "Qantas has made it clear today's decision is largely in response to a rapid deterioration in its international business," she said. Qantas also confirmed this month that it will inject $66 million into its superannuation scheme over the next three year to cover a shortfall caused by the meltdown in financial markets.

The airline recently raised $526 million through an institutional placement and retail share purchase in an effort to protect its investment-grade credit rating. Ratings agency Moody's cut Qantas's long-term debt rating last month and warned of further cuts if air travel continued to suffer. Analysts at Citi have said that it expected the other main ratings agency, Standard & Poor's, to downgrade Qantas from BBB+ to BBB. Loading The airline's third-in-charge, John Borghetti, last week tendered his resignation, two weeks after the airline slashed the 90 senior management roles. Flight Centre last week also issued its third profit downgrade in six months, amid the worst downturn in aviation and tourism in years.