Qantas shares ended the day up nearly 5% at one stage yesterday as the market concluded the airline’s 2018-19 result wasn’t as bad as a 17% slide in net earnings might say.
It was more the higher dividend, another buyback, and promise of a higher dividend for 2019-20 that won the wallets of investors though.
The airline’s full-year operating profit fell 17% to $1.302 billion on record revenues of $17.97 billion for the 12 months to June 30.
But in the afternoon session there seemed to be some second thoughts and the rise was scaled back to 1.3% and a close of $5.86 against a day’s high of $6.07.
But that was hit by a $614 million increase in fuel costs from higher oil prices and a further $154 million impact from currency movements.
As a result the airline’s statutory profit, which includes all those one-off items, fell by 6.5% to $891 million.
Despite that dip, Qantas raised its final dividend by 3.0 cents to 13.0 cents and plans to buy back up to 79.7 million shares.
With the 12 cents a share interim, the total for 2018-19 is 25 cents a share, up from 17 cents the year before and with the promise of at least 27 cents a share this financial year, tells us a lot about the high level of confidence the airline has about the immediate future.
And looking ahead, the airline revealed that “(s)urplus capital will continue to be assessed at each half, in-line with our financial framework.
“The first tranche of this surplus will be allocated to a base dividend, which is currently assessed at $400 million a year.
Adjusting for the EPS benefits from the buyback announced today, this equates to 27 cents a share a year.
Qantas pointed out in yesterday’s release that latest buyback means Qantas will have cut the number of shares on issue by about 30% since 2015 and will take its capital return to shareholders in that period past $4 billion.
“This result shows the strength of our individual businesses but also the strength of our portfolio as a whole,” chief executive Alan Joyce said in yesterday’s release.
“Even with headwinds like fuel costs and foreign exchange, we remain one of the best-performing airline groups in the world.”
Qantas sats it has fully hedged its expected 2019-20 fuel cost of $3.95 billion after its international underlying earnings were hardest hit by fuel and forex headwinds, dropping 28% to $285 million.
The airline is again making a significant investment in the sector, refurbishing its fleet of A380s and trialing non-stop flights from London and New York to Sydney before the end of the year.
Qantas says the trial or “research flights “will use new Boeing 787-9s and carry no more than 40 employees, scientists and medical experts as Qantas gathers real-time health and wellbeing data to help inform plans to potentially launch commercial flights of more than 20 hours.
“There’s plenty of enthusiasm … but it’s not a foregone conclusion,” Mr. Joyce said. “This is ultimately a business decision and the economics have to stack up.”
It already flies non stop from Perth to London.
Despite higher revenue, domestic underlying earnings fell 3.3% to $740 million.
Its Jetstar airline was similarly affected but its loyalty program boosted earnings 8.4% to $374 million, helped by a rise in members of close to 5%.
Mr. Joyce said Qantas anticipated flat domestic capacity at least for the first half of the current financial year, with weakness in the price-sensitive leisure market but steady premium leisure demand.
Qantas also gave each of its 25,000 non-executive employees a $1,250 travel bonus.
