The slides in June 30 profits for both Qantas (ASX:QAN) and Air New Zealand (ASX:AIZ) signal that the two airlines are preparing for an anticipated slowdown in revenue and earnings for 2024-25.
Qantas is facing a slowdown in domestic revenues and is budgeting for a drop in its international revenue. The airline also faces $60 million in higher staff costs in both areas for cabin attendants.
Similarly, Air NZ is tightening its belt, announcing a job cut equivalent to 2% of its staff and a tightening of cost controls.
Qantas reported that its statutory profit for the year ending in June was down 28.3% from the previous year to $1.25 billion. Underlying profit also decreased by 15.7% to $2.08 billion. Despite a 10.7% increase in revenue to $21.94 billion, the airline will not pay any dividends for the year, but it announced a fresh share buy-back of up to $400 million.
Domestic operations contributed the bulk of Qantas' earnings, with Qantas capacity up 1% and low-cost carrier Jetstar’s capacity up 15%, amid strong demand.
The airline noted that its international and freight earnings were lower due to downward pressure on fares. However, the Loyalty program improved earnings with a record number of points earned and redeemed.
"Qantas benefited from increased corporate and resources travel and ongoing high demand for international premium seats, while Jetstar delivered its highest result as it grew to meet increased demand from price-sensitive leisure travellers and saw the benefits from its new aircraft," said CEO Vanessa Hudson.
The carrier expects domestic revenue to increase by 2-4% in the first half of FY25, while international revenue is expected to fall by 7-10% over the same period, with the decline slowing in the second half.
This news will likely disappoint travel agents, such as Flight Centre, which complained about fare price deflation in its annual results on Wednesday.
Fuel costs seem to be under control, and debt is not expected to change much from the current $4.1 billion.
Air NZ may attempt to boost profit with higher domestic airfares in New Zealand, but this is unlikely to prevent a 2% job cut as insurance if the higher fares do not stick.
Like Qantas, Air NZ also experienced a slide in earnings—though in Air NZ’s case, it was a substantial 61% decline, despite a rise in revenue to more than $NZ7 billion.
The government-controlled airline reported that the second half of the year proved increasingly challenging as operational and economic headwinds became more pronounced.
It saw demand weaken both domestically and in the key North American market amid challenging economic conditions and ongoing cost-of-living pressures. Additional maintenance requirements (from the global Pratt and Whitney engine recall) also meant that six of its Airbus jets and three Boeing Dreamliners were out of service during the second half.
CEO Greg Foran stated that the airline is focusing on strict cost discipline through targeted adjustments, including a 2% reduction in its headcount of 11,700.
The airline expects trading conditions to remain similar in the first half of FY25 and did not provide any guidance due to the ongoing uncertainty.
Meanwhile, Webjet shares fell by 7% or more at one stage after a weak update at its annual meeting yesterday.
The online travel group revealed a softer-than-expected trading update for both its B2B and B2C businesses, with sluggish growth expected in its 2024-25 year.
The company reported that its total transaction value (TTV) under its WebBeds business was "up more than 25%" as of 25 August 2024.
However, WebBeds' TTV in FY24 was 42% higher, indicating a moderation in the value of bookings being processed. The company noted that the Paris Olympics and the European Football Championships had weighed on travel demand.
Webjet OTA performed much weaker, with bookings and TTV down by 5% and 10%, respectively, year-to-date. This compares to a 5% and 6% increase in bookings and TTV in FY24. Webjet attributed the slowdown to cost-of-living pressures and the folding of Rex Airlines.
Webjet also noted that B2B trading in Europe was impacted by the collapse of tour operator FTI Group, which resulted in around $2 billion in hotel inventory distorting the market and lowering margins.
Webjet blamed the fall in its TTV on price deflation in international airfares, which should be seen as good news for customers, both actual and potential.
Webjet is expected to report its first-half results for 2024-25 on November 20, so there is still time for a potential bounce back.
