Qantas counts on competitor retreat after fuel bill drives profit lower
Qantas says that international competitors pulling capacity out of Australia for the first time in almost a decade will help the airline recover lost ground in the second half of the year after an oil price spike blew a hole in earnings.
The airline on Thursday reported an 19 per cent fall in before-tax profit to $780 million in the December half, after its fuel bill jumped by $416 million.
Qantas said it was able to recover most of the higher fuel expense by keeping a lid on capacity and flying its planes with fewer empty seats.
Qantas' international operations bore more than half ($219 million) of the higher fuel costs, which drove its earnings down 60 per cent to $90 million.
Earnings from the company's Qantas and Jetstar domestic operations grew 1 per cent to $659 million.
Chief executive Alan Joyce said he was confident the airline would completely recover the higher fuel costs in the second half as oil prices eased, the domestic market remained stable and international competition softened.
"Total international capacity is going into negative territory – we have not seen that since 2010," Mr Joyce said.
"That’s a good sign that the market is catching up with the increase in fuel costs, and people are managing capacity to try and get the airfares to cover those costs."
While retailers face a fall in spending as consumers tighten their belts amid falling house prices and weak wage growth, Mr Joyce said Qantas was not seeing those headwinds.
"Maybe that's because the new generation of flyers are spending more on experience, less on retail and less on alcohol," he said.
Demand from the mining sector had returned to growth, and Mr Joyce said he believed Qantas made market-share gains from Virgin in both the corporate and small-to-medium business travel sectors.
Qantas announced a $305 million on-market buyback, despite the earnings fall, and declared a half-year dividend of 12¢.
The buyback brings the total reduction of shares on issue to 28 per cent since 2015.
At a statutory level – and including transformation costs, discretionary bonuses to employees and gains on asset sales – profit before tax was $735 million, down from $840 million.
Qantas' shares were down 0.35 per cent to $5.64 by 11.30am.