Qantas has increased its full year profit by 44.1 per cent but says it is starting to feel the effect of higher fuel costs amid an uncertain economic outlook.
But 2009 will see a sharp drop, as expected, on higher fuel prices, rising costs and falling demand as the global economy slows.
Net profit for the 12 months to June 30 rose to $969 million, from $672.6 million the year before, Sydney-based Qantas said in a statement to the ASX yesterday.
The result was a little below the consensus market forecast for a profit of $1.02 billion, while pre-tax profit was about on par with the market expectations of $1.41 billion, which was up 46%.
The result was around $60 million under market consensus of $1.108 billion.
The Qantas result contrasts favourably with that from its rival, Virgin Blue
On Tuesday, Virgin Blue revealed a 55% fall in 2008 profit on high fuel prices, cut its dividend and painted a gloomy outlook: the result, the shares dropped by well over 30% over two days.
Final dividend was lifted to 17 cents a share, making a total payout for the year of 35 cents a share, compared with the 30 cents a share paid in 2007 when the abortive private equity/management buyout of the airline failed.
That’s an increase of around 16%, and a much more confident signal about the airline’s expectations for the coming year than we have seen from other companies in this reporting season, which have held the payout steady, chopped it or lifted it by as little as half a cent to maintain an illusion of doing something for shareholders.
You could say this is a parting gift from retiring CEO, Geoff Dixon. He will be replaced at the AGM by Jetstar CEO, Alan Joyce.
The outlook was more confident than expected, although earnings will be down.
"Although fuel prices have eased over the past month, they have not declined to levels that will sustain the current level of profitability, and fuel and economic conditions continue to be uncertain.
“However, assuming no further deterioration in economic conditions, Qantas expects its 2008/09 profit before tax to be broadly in line with analyst consensus forecasts."
At the moment analysts have Qantas pre-tax 2009 earnings around the $750 million mark, give or take 20 to 40 million dollars.
After pushing the shares down to a day’s low of $3.34, investors chased them higher to where they closed up 8 cents at $3.48.
Compared to a growing list of other companies, Qantas’ management and board has a much better ability to glimpse the coming year than say the likes of Boral, Wattyl and Fairfax, to name three reporting companies with trouble seeing the next year’s business trends.
It was Chairman Leigh Clifford’s first annual results and he said the result reflected an "excellent" performance across all of the airlines businesses, albeit for the first three quarters of the 2007-08 year.
He said “In recognition of this contribution, the Board has approved the awarding of $1,000 worth of shares and a cash bonus of $1,000 to all eligible staff.”
Chief executive Geoff Dixon said the airline industry was facing major challenges.
"The rapid rise in fuel costs since December last year is unprecedented and the impact has been felt across the aviation industry and the world economy," he said in his last profit commentary.
Mr Dixon said Qantas had built flexibility into its various businesses to enable it to effectively handle these challenges.
"We have reacted quickly and have already announced a number of steps to reduce costs, adjust capacity, and increase fares", he said.
Qantas’ results for 2007-08 for the first time included separate reporting for the Qantas Frequent Flyer (QFF) and Qantas Freight businesses.
Qantas said its board will next month decide whether a proposed partial initial public offer (IPO) of shares in its loyalty business will go ahead.
"Regarding the loyalty business, Qantas is well advanced in its preparations for a partial Australian IPO subject to market conditions," Mr Dixon said.
The airline’s frequent flyer business made a pre-tax profit of $234 million in the year.
"The result included revenue of $850 million primarily from the redemption of Qantas Frequent Flyer points for flight and other awards," Qantas said
"Total costs for the period were $721 million with the majority of costs being the purchase of airline seats from Qantas group airline businesses."
The growing freight business, including Qantas Cargo, Express Freighters Australia and the group’s equity investments in Star Track Express and Australian air Express made a pre-tax profit of $64 million, down $1 million on the previous year.
Mr Dixon explained the result came from:
- Strong domestic and international demand, which led to a 1.2 per cent yield improvement and a 0.8 per cent improvement in seat factor to 80.7 per cent for the Group;
- The continued success of the Group’s two brand strategy, with Qantas Airlines delivering a 21.6 per cent increase in profitability, and continued growth by Jetstar in both international and domestic markets, leading to a profit increase of $37 million, or 44.7 per cent, compared to the previous year;
- Improved margin management, with operating expenditure increasing only 5.6 per cent, compared to capacity growth of 4.0 per cent and CPI increases of 3.4 per cent; and
- A further $747 million of efficiencies under the Sustainable Future Program, which resulted in a unit cost reduction of 2.3 per cent.
Non-operating items included in this year’s result were:
