Qantas (QAN) warned yesterday in its first ever quarterly trading update that it expects underlying first-half net profit to fall by up to 13% as the oversupply of international capacity sees air fares slide to some of the lowest seen for 20 to 30 years.
The news saw silly investors (hedge funds and other nervous types such as day traders) sell down Qantas shares in the wake of the announcement – the shares plunged more than 11% to a low of $2.67 before smarter thinking kicked in, sending the shares back where they had come from.
They ended up 3.5% at $3.05 as investors ignored the earlier pessimism.
The airline’s warning mirrors those from other global aviation giants in recent weeks – such as Delta and American and Cathay, which has issued several warnings this year. Air France, Lufthansa and Singapore Airlines are due to release their latest trading figures over the rest of this week.
IAG (the owners of British Airways) last week issued its third profit warning this year as its finances have been hit by weakening global demand, too many seats on offer and the plunge in the value of the pound, especially after the Brexit vote on June 23.
In its first-quarter earnings update, Qantas said it expected underlying profit before tax of between $800 million and $850 million for the six months to December 31, compared with $921 million for the same period a year earlier.
“Like most carriers globally, we are seeing international airfares below where they were 12 months ago," Qantas chief executive Alan Joyce said in a statement.
“We are seeing international air fares below where they were 12 months ago, but the impact of that is tempered by the competitive advantages … including our strong domestic position and diversified Loyalty business,” the group’s chief executive, Alan Joyce said in the update.
"Qantas Domestic, Jetstar Domestic and Qantas Loyalty all continue to perform well with high operating margins in a stable market."
In the half, the group’s fuel bill is expected to fall to $1.5 billion from $1.7 billion, although for the full year it is expected to be little changed at $3.1 billion compared with $3.2 billion in the previous financial year.
"The impact of that is tempered by the competitive advantages we’ve been working hard to fortify, including our strong domestic position and diversified loyalty business."
Qantas said its first-quarter revenue has dropped 3% to $3.98 billion due to increased international competition and subdued domestic demand.
Qantas said passenger numbers were up 2.5% to 13.2 million, boosted by a 2.2% growth in capacity in the three months to September 30.
