Qantas has started the 2020 financial year with a record first-quarter revenue but continues to see weak domestic demand and faces some international headwinds.
The airline said in a trading update that total group revenue rose 1.8 percent to a record $A4.56 billion while unit revenue was up 2.1 percent compared to the same quarter in 2018..
But group domestic unit revenue fell by 0.9 percent due to “mixed market conditions” and Jetstar’s unit revenue was down 2.6 percent because of weakening demand in the price-sensitive leisure market.
Strengthening resources industry traffic helped offset weaker demand in other corporate sectors such as financial services and telecommunications but overall corporate travel demand was flat, the update said.
Small business demand also slowed, although Qantas said its share of both business markets increased, and premium leisure demand remained steady.
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Jetstar’s 2.6 percent fall in unit revenue accounted for most of the group’s domestic decline and was offset by higher load factors that supported growth in ancillary revenues.
Driving the increase in group unit revenue was a 4.4 percent increase for the group’s international operations led by reduced capacity from competitors as well as network and fleet changes in Qantas International.
Qantas International reduced its own capacity by 2.5 percent and saw unit revenue rise by more than 6 percent.
Jetstar International’s revenue and capacity also grew in the quarter with a strong demand on leisure routes to Asia offsetting weakness in markets impacted by the strong US dollar.
A bright spot for the group remained Qantas Loyalty which “continued to see strong revenue growth in line with expectations” and expects to announce new growth opportunities shortly.
“The Group continues to perform well, with strength in key parts of our portfolio helping to offset softness in other areas,” Qantas chief executive Alan Joyce said.
“Qantas International has seen significant upside from competitor capacity contracting more than anticipated, which is expected to continue for at least the remainder of the first half.”
Joyce said the slower revenue environment would mean a strong focus on cost reduction “to make sure we keep delivering on our transformation targets.”
”Part of this is about taking opportunities to reduce complexity and constantly improving how efficiently we manage our business,” he added.
Among the headwinds facing the group are the protests in Hong Kong, which will wipe $A25m off the first-half profit and prompting capacity adjustments.
Other problems include the impact of the US-China trade war on freight, expected to cut full-year profit by $A25-30m, and foreign exchange expenses expected to increase non-fuel costs by $A25m in the first half.
The group has fully hedged its fuel for the 2020 financial year, including the ability to benefit from significant price falls, and expects its first-half fuel bill to increase $A29m to $A3.98 billion. A worst-case scenario would see fuel costs rise to $A4.05 billion
Qantas will continue to keep a tight rein on capacity with group increases expected to be between 0.5 and 1 percent in the first half.
“Domestically, published competitor capacity is set to increase despite the weakness in the market,’’ Joyce said.
“The Qantas Group will maintain its strategic position in all parts of the market and therefore our total domestic capacity is expected to grow by up to 1 percent in the second half.”
