Qantas predicts a rise in first-half profit

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October 26, 2017
Geoffrey Thomas

The Qantas Group continues to benefit from strengthening demand with the company predicting a first-half underlying pre-tax profit of $A900m to $A950m for the current financial year.

That’s up from $852m in the same period in the 2016-17 financial year. when the airline recorded its second biggest underlying pre-tax annual profit on record of $A1.18 billion.

The expectation is based on a 2-3 per cent increase in group capacity in the first half and a 2-3 per cent fall in group domestic capacity The airline expects the fall in domestic capacity to be followed by a further decline of 1 per cent in the second half as “right sizing in key markets continues”.

Falls in capacity generally lead to higher fares unless demand also falls.

First-quarter data released by the flying kangaroo indicated improved trading conditions in both the domestic and international markets.

Group revenue for the three-month period ending Sepetember 30, 2017, increased 5.1 per cent to $A4.19 billion compared to revenue of $A3.98 billion in the first quarter of financial year 2017.

The airline said unit revenue — measured as revenue per available seat kilometre —increased by 3.1 per cent in the first quarter compared to the prior corresponding period. This was consistent with guidance given during its full year results.

The group’s domestic unit revenue, which includes Jetstar, rose by 8 per cent compared to the prior corresponding period.

It attributed an improvment in the domestic demand environment to the stabilisation of conditions in the resources market and the impact in the prior year of the “subdued demand overhang”  from the 2016 federal election.

“Proactive capacity management continued, with group domestic capacity down 2.7 per cent including continued right-sizing in the resources market,” it said in a statement.

“Conditions in the international market eased slightly with the unit revenue for group Iinternational (comprising Qantas International, Jetstar International and Jetstar Asia in Singapore) increasing by 0.2 per cent in the face of a 3 per cent increase in competitor capacity.’’

The first-half bill will be slightly higher, tipped at $A1.55 billion compared to $A1.49 billion for the same period in 2016-17.

The airline is predicting some headwinds  in the second half with domestic unit revenue growth expected to slow, increased competition on international routes and another higher fuel bill.

Group  international capacity  is expected to rise by 5 per cent in the first half and 3 per cent in the second half. At the same time, first-half international competitor capacity growth of 3 per cent is expected to increase 6-7 per cent in the second half.

The group’s full-year  fuel cost, based on a  forward market price for Brent crude of $A74 a barrel,  is expected to be $3.21 billion compared with $3.04 billion for financial year 2017.

Qantas chief executive Alan Joyce said the airline was pleased to see continued strong performance across our portfolio of flying and loyalty businesses in “a mixed market”.

“The domestic market is healthy but remains very competitive,” he said. “The high rate of revenue growth we’ve seen so far this year is likely to slow when compared with what was a strong second half last year.

“There’s been a welcome easing of capacity growth in the international market but the indications are that it is likely to pick up pace again in the second half.”

Joyce said the group  had announced some significant changes to its international network that would better leverage its strengths.

This included the decision to to fly to London via Singapore and direct  from Perth.

“Emirates has announced it will be relying on us to pick up some of its Trans Tasman flying so it can focus more on long haul routes,” Joyce said. ” The benefit of all these changes are significant and will start flowing fully through from FY19.

“We’re making good progress towards our annual target of $400 million in cost and revenue improvements, with the Dreamliner and domestic WI-FI two examples of projects that will make us more efficient and deliver a revenue premium.

“Overall, despite an uptick in fuel costs and the challenges from competitor capacity growth on the international side, the group remains on track for another strong underlying first half and a successful full year.”

Qantas has its annual meeting on Friday.