Investors liked the interim figures from Qantas (QAN) yesterday, sending the shares up more than 5% a day after they rose 2% ahead of the release on Wednesday.
The shares ended the day on $3.74 as Qantas said its earnings just topped its guidance from late last year.
That means Qantas shares have risen 13% or so in the past fortnight.
That was despite the airline complaining of the damage from stepped up international competition and a soft domestic market had done to earnings in the half year to December.
The airline reported an underlying profit before tax of $852 million for the six months to December 31 – just beating its own earnings guidance from October of $800 million to $850 million.
That was down 7.5% from a year ago.
Revenue fell 3.3% to $8.18 billion in the half year.
Qantas’ net profit came in at $715 million – down 25% from the same half last year. That reflected a $201 million gain from the sale of Sydney Airport Terminal Three in the prior corresponding quarter.
The company will pay out an interim dividend of 7 cents a share, 50% franked. No interim was paid a year ago.
All of Qantas’ business units were profitable with the main challenge coming from the airline’s international business after cheap fuel prices encouraged global airlines to add new capacity, driving down ticket prices.
As a result of higher oil and fuel prices and some commonsense returning to airline management Qantas expects the 11% jump in international capacity growth experienced in the first-half to slow to a second half rate of 6% to 7%.
Qantas says it will lift its own capacity in the half by 1% to 2%, but all this will be international (around 3%) as it expects to cut its domestic capacity by arund 2% this half.
Qantas said its international business had been hit by the double digital rise in capacity, which in turn helped drive international earnings down 9% in the half year to $208 million.
Domestic earnings fell $16 million to $317 million in the half as weaker demand hit home (Virgin Australia has already highlighted that factor).
Jetstar reported record earnings of $275 million, up $13 million thanks to "a record result for Jetstar’s international operations to-and-from Australia, while the Jetstar Group in Asia continued to improve its profitability. Like Qantas Domestic, Jetstar Domestic remained strongly profitable,” according to the airline yesterday.
Qantas Loyalty reported record earnings of $181 million, up just $5 million “as revenue growth in the half was affected by cutover to a revised partnership with Woolworths, which is now making good progress with fast take-up by customers."
And Qantas Freight reported an $11 million fall in underlying earnings to $27 million for the half. “Freight conditions remain challenging worldwide, but there are signs of stabilisation and Qantas Freight is well-placed,” directors said.
“The business holds more than 80 per cent of the domestic air freight market, with dedicated freighter operations for Australia Post launched in July 2016, and is pursuing new opportunities in the international market – including an agreement to freight Tasmanian milk to China,“ directors added.
Qantas had net debt of $5.97 billion at the half year, with capital expenditure weighted to the first half, meaning capex will slow this half. “The Group’s commitment to stay within its target range of $4.8 to $6 billion is unchanged,” directors said yesterday.
“The international market is tough because of capacity growth and lower fares, and Qantas International is not immune from those pressures,” Qantas chief executive Alan Joyce said in yesterday’s statement.
"But the work we’ve done on removing costs and making the business more efficient means Qantas International is outperforming its peers in the region."
Mr Joyce said Qantas continued to focus on being disciplined on capacity, cutting costs and introducing improvements like on-board Wi-Fi and Boeing Dreamliners, due to come into service later this year.
