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Fuel hits Qantas profit but big green rebound ahead

February 22, 2019 Headline News No Comments Email Email


High fuel prices have pushed down Qantas’ half-year profit by 19%, but forward bookings are strong and the airline expects to completely recover these costs by the end of this financial year – while growing steadily greener than ever.

Qantas announced the half-year result yesterday – simultaneously unveiling a coordinated environmental effort to make its operations as green as possible, including “the highest waste reduction target set by any airline in the world”.

Revenue rose 6% to AUD 9.21 billion for the six months ended 31 December 2019 but underlying profit before tax dropped to AUD 780 million from a record AUD 959 million a year ago, adjusted for accounting changes.

Announcing the result yesterday, Qantas group chief executive Alan Joyce said indications pointed to a strong second half. Forward bookings remained strong, competitor capacity growth had slowed internationally and was relatively flat domestically. The ongoing Qantas transformation program remained on track and oil prices had fallen from the peaks of late last year.

As a result, “we expect to completely recover our increased fuel costs by the end of this financial year,” Joyce said.

“We are mindful of potential signs of weakness in the broader economy and we’re always adjusting capacity to meet demand in individual markets – but overall revenue and yield indicators remain positive.”

Swinging into the airline’s big new green initiative, Joyce said:

“As a big business we have a big impact on the environment. For several years we’ve had a series of targets to reduce that impact, and we’re on track to reach them. By 2020, for instance, we’ll have cut electricity use by almost 40 per cent.

“Today, I’m pleased to announce a step change in our efforts.

“In the process of carrying 50 million people, we generate some 30,000 tonnes of waste in Australia each year. That’s the same weight as about eighty 747s.

“Across Qantas, QantasLink and Jetstar we want to reduce our waste to landfill by 75% and remove 100 million single-use plastic items per annum. And we’ll do it by the end of 2021.

Qantas B787 Dreamliner

“It’s the highest waste reduction target set by any airline in the world and it goes well beyond the recent European Union ban on single-use plastics in scope and speed.

“Our coffee cups will be recycled. Our boarding passes and crew manuals will be replaced with paper-free alternatives.  Even plastic frequent flyer cards are going digital.

“Reducing our waste isn’t just the right thing to do, it’s good for business.

“It will take time, but we’re already starting – and we’ll be asking our industry, regulators, customers and our people to help.”

Qantas shares fell more than 2% in morning trade following yesterday’s results, Reuters reported, before recovering to be 0.4% lower in a slightly stronger broader market.

Joyce said the half-yearly result “shows what a resilient business we’ve become”.

“Compared with our record result of last year, that’s a drop of AUD 179 million at the underlying level – but that’s despite a AUD 416 million increase in our fuel bill alone. For the business to recover so much of that extra cost, particularly given how fast the oil price rose, shows that we’re well positioned.

“So does another set of record earnings in Qantas Domestic, Jetstar Domestic and Qantas Loyalty. We’ve done that while facing additional cost pressures from a falling Australian Dollar and other items.

“It’s this resilience that gives us confidence about our full year result, and enables us to keep investing and keep delivering shareholder returns.”

QantasLink Fokker 100 at Wagga Wagga airport

AMONG POINTS JOYCE MENTIONED:

  • Almost two thirds of Jetstar seats sold domestically and internationally go for less than AUD 100.
  • Several B747s will be retired this financial year and the last one by the end of calendar 2020.
  • The Qantas Group saw an increase in selling costs, “simply due to the commissions associated with the 6% rise in revenue, as well as costs linked to a weaker Australian dollar”.
  • Qantas Group Domestic achieved another record profit, up 1% to AUD 659 million, made up of record earnings from both Qantas and Jetstar.
  • Qantas will increase its capacity within Western Australia by almost 10% to cater for demand.
  • Qantas International received another three Dreamliners in the first half, taking the total fleet to eight and, as expected, “they are steadily transforming the economics of the routes they fly”.
  • Jetstar International performed well, especially on its key routes like Bali. Jetstar Airlines in Asia were impacted by fuel and higher airport charges, while Jetstar Japan remained profitable in the half.
  • Qantas Loyalty achieved another record result with profit up 4% “driven by the fundamental strength of the Frequent Flyer program and its growing list of retail partners, as well as continued revenue growth from new ventures – like health insurance and financial services”.
  • Credit cards that earn Qantas Points, for instance, grew by 4% compared with a decline of 1% for the market.
  • For investors, the airline announced another AUD 500 million to shareholders: made up of a 12 cent fully franked dividend and a share buy-back.
  • Qantas pledged to “continue to work for a fairer deal from Australia’s monopoly airports. The travelling public is very familiar with high car parking costs when they fly. Sometimes, it’s more than the airfare. Joyce said the pricing approach the same airports took to airlines was similar to their parking charges “and that cost is ultimately paid by passengers. We think it’s a handbrake on the industry and we’re going to keep pushing for better deals and proper reform”.

Written by Peter Needham



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