Qantas will be heading for another embarrassing earnings upgrade after the release of the traffic figures for February and the first seven months of the 2007 financial year.
The airline said that ”these statistics reflect continued robust demand in both domestic and international markets, combined with temporarily stable industry capacity”.
“Robust demand” is not a phrase we would have heard from QAN’s management and board in recent weeks, so eager have they been to downplay the outlook.
The airline wants us to believe that it is all temporary (they are about to increase capacity domestically with more planes for Qantas mainline and Jetstar to offset an increase in capacity by Virgin Blue).
But there is no mention of the impact of the rising value of the Australian dollar which is cutting the airline’s US dollar costs and will boost overseas travel this year by Australians who find the former Pacific peso is now a much harder currency and can buy more value overseas than in Australia.
In short the figures explain why a growing group of shareholders large and small believe the $5.45 price from Airline Partners Australia seriously undervalues the airline.
That feeling might also explain why we have yet to see a new shareholding figure from APA. APA hasn’t put out an announcement about the level of acceptances since March 23 when they said they had 30.1per cent. They have to notify every one per cent move.
Some smaller shareholders who accepted before March 23 are trying to retrieve their shares to varying success with APA playing funny games from media and anecdotal reports.
The latest traffic figures from Qantas will add to the pressure from these smaller shareholders to retrieve their shares. These figures were not expected to be seen before the APA bid closed, such was the optimism a month ago from the Macquarie Bank-led group that the offer would be successful.
This is what Qantas said in its statement yesterday
“Total Domestic (Qantas, QantasLink and Jetstar domestic operations) yield excluding exchange for the financial year to February 2007 increased by 4.4 per cent when compared to the same period last year.
“Total International (Qantas, Australian Airlines and Jetstar international operations) yield excluding exchange increased by 8.7 per cent over the same period.
“Group passenger numbers for the financial year to February 2007 increased by 7.2 per cent from the previous year. RPKs increased by 7.3 per cent, while ASKs increased by 3.5 per cent, resulting in a revenue seat factor of 80.6 per cent, 2.9 percentage points higher than the previous year.
“These statistics reflect continued robust demand in both domestic and international markets, combined with temporarily stable industry capacity.
“As advised previously, at the same time the Group faces ongoing cost pressures including higher fuel prices and increased restructuring costs associated with the Sustainable Future Program.
“The yield improvement was primarily the result of increased fuel surcharges imposed to partially offset higher fuel costs, which are expected to rise by around $625 million in 2006/07 compared with the prior year, based on current market prices and hedging levels.”
Compared to January all those key measures of revenue (passengers, etc) rose in February, meaning that the already optimistic outlook of earnings jumping to $1.3 billion before tax in 2008, could be increased and the 2007 figure could be higher than the previous upgraded estimates.
None of the factors mentioned by Qantas will damage the underlying improvement in earnings, and the drop in the value of the US dollar and rise in the value of the Australian dollar is actually working in Qantas’ favour at the moment.
Most of its passenger revenues are earned in Australia and most of its international costs (fuel, airport charges, crew accommodation and navigation charges) are in US dollars. That is falling and it is costing Qantas less in $A terms.
Qantas management failed to mention the generally favourable impact of the dollar as an offset for the higher fuel costs and the other cost rises. The Sustainable Future Program isn’t all about costs: it’s all about generating savings larger than costs, otherwise, why is the airline doing it.
Qantas shares were steady on $5.38.
