Qantas sees strengthening demand as it posts second-highest profit.

by Steve Creedy - editor
701
August 25, 2017
qantas results

Qantas is expecting to benefit from stronger demand in the current financial year after announcing its second highest underlying pre-tax profit and a competition for a next generation of  ultra-long-range planes.

The airline posted a 2016-17 net profit of $A853m, down from last year’s record  of $1.03 billion, which included a $A141m gain from the sale of airline’s Sydney domestic terminal, but still a strong result compared to many of its Asia-Pacific peers.

The figure translated to underlying pre-tax profit of $1.18 billion, down from $A1.53 billion, and gave both shareholders and staff a windfall.

The airline’s domestic unit put in a strong performance with earnings up $A67 million, to $A645m, compared with a year ago to offset a $A185m earnings decline from international operations, to $A327m, in the face of increased competition.

Qantas Group chief executive Alan Joyce said the airline expected to see the continued strength in the domestic market, which posted a record result, and improvements in international and freight operations.

Read: Qantas challenges Boeing and Airbus for more range.

Joyce the airline was seeing continued strong demand in the domestic market from all areas except the resources sector.

“If you break it down domestically, we’re seeing strong demand from the corporate market outside of resources, we’re seeing strong demand from SMEs, strong demand in the leisure,’’ he told AirlineRatings. “We’re seeing a weakness in the resource side that’s easing but the strength in the rest of the corporate market is more than compensating.”

There may also be a sign of  “ green shoots” in Australia’s important resources market, the Qantas boss said.

“We’re forecasting still a slight decline but we think that may be bottoming out and with the resources prices recovering maybe that’s the start of the turn in that performance,’’ he said.

On international routes,  Joyce said there was a moderation of the  decline in unit revenues seen by all airlines.

Read: Qantas to upgrade A380s.

“The capacity levels that are being added internationally are easing, both in the first half and in the second half,’’ he said. “I think Air New Zealand said the same thing and we would be in complete agreement with what they’re saying there.’’

Joyce said the airline had not seen much capacity added on  the Pacific but there had been a spike  from China and some growth on Middle East routes.

“Hong Kong’s had a bit of growth, as we know, but there’s moderation everywhere else,’’ he said.

In other business units,  Jetstar Group earnings were down $A35m to $A417m compared to year ago while while freight fell $A17m, to $A47m, in tough conditions.

The airline said careful capacity management, cost control and yield management helped drive the record domestic result while the decline in the international market was driven lower fares stemming from 8.5 per cent capacity growth in the wider market.

Jetstar’s result was the second highest on record with its Australian operations performing strongly and included another net profit from Asia,

Qantas Loyalty posted another record profit $A369m, up $23m, and added 400,000 members t0 reach a membership of 11.8 million.

Joyce said the airline was delivering significant value to shareholders and was in a strong position that allowed it to make significant announcements about new aircraft and refurbishments on its flagship Airbus A380s.

He said the airline’s $A2 billion, three-year turnaround program was complete but the airline was still targeting annual cost savings of $400m.

“We have a plan to keep delivering sustainable returns well into the future,’’ he said. “We’re investing in lounges, Wi-Fi and cabin upgrades, looking at new aircraft to evolve our network and diversifying into new businesses like insurance and financial services.’’

The airline is expecting increase group capacity by about 3 per cent in the first half but expects overall domestic capacity to fall by 1 per cent, mainly due to the resources slowdown.

Group international capacity is expected to grow by 5 per cent driven by previously announced new routes into Asia.