Qantas (QAN) shares went for another big run yesterday – for the second time in a month – when the airline confirmed previous comments from senior management that it would return to an operating profit in the current half year.
In mid-November the airline’s CEO Alan Joyce said the lower oil price would have little effect on Qantas’ results in the first half, but it could provide a nice lift for the full year if it remains low.
Since then oil and fuel prices have plunged and the return to profit hinted at then, is now a reality.
But the airline says the improvement in earnings will flow from the extensive restructuring program the airline has been running for the best part of the past year.
That program and its costs helped send Qantas shares under $1 a year ago as the airline’ was forced to report a massive full year loss of $2.8 billion.
So much so the shares jumped nearly 14% to end at $2.39 yesterday, a level they haven’t seen since 2010, when the airline also last earned a profit of any description of this size.
QAN YTD – Qantas shares soar on lower oil
Qantas told the ASX yesterday before trading that it now expects to report an underlying profit before tax in the range of $300 million to $350 million for the first six months of financial year 2015.
“All operating segments of the Qantas Group are expected to be profitable in the first half, at an Underlying Earnings Before Interest and Tax level,” the airline told the ASX.
"The strong turnaround in the Group’s financial performance is being driven by rapid progress with the $2 billion accelerated Qantas Transformation program announced 12 months ago. To date, all targets under the program have been either met or exceeded.
“After realising $204 million in Qantas Transformation benefits in the second half of financial year 2014, the Group is on track to realise at least $350 million in further benefits in the first half of financial year 2015.
“The Group expects to receive a $30 million benefit in the first half from lower Australian dollar fuel prices,” Qantas said.
The news means the airline’s troubled international operations are running at a profit, while its standby, the frequent flyer program will no doubt be revealed as the major money spinner once again.
Mr Joyce said the Qantas Transformation program was gathering pace and, with a more stable operating environment, benefits were flowing directly to the Group’s financial results.
“Today we confirm that Qantas is set to report its best first half result since 2010,” Mr Joyce said in the statement. “This demonstrates that the strategy we have outlined to transform our business is working.
"This is an improvement of over $550 million compared with the first half last year, with Qantas Transformation being the primary driver of the turnaround.
“Thanks to the hard work of our people, we are delivering the cost and revenue-focused initiatives needed to strengthen our business, without compromising the premium service that matters to our customers.
"As our recent announcements show, from new lounges to new routes and the upgrade of our A330 fleet, customers remain at the heart of our strategy,” Mr Joyce said.
Most investment analysts only offer full-year figures and Qantas didn’t provide guidance for that period.
Citi had forecast Qantas to report a first-half pretax underlying profit of $136.4 million before the latest guidance was given.
UBS last week raised its full-year forecast to $610 million because of accelerating momentum from revenue recovery and lower fuel prices.
Qantas announces its first-half results on February 26.
Just remember that Qantas has been a heartbreaking investment for tens of thousands of investors in the past few years.
It has a capacity to do well, then fall in a hole.
The recovery confirmed yesterday, will have to be confirmed again in the new year with a convincing full year guidance estimate.
