Qantas shares sold off yesterday after the September quarter trading update yesterday left investors unimpressed.
Nor did they seem reassured by a promise from CEO Alan Joyce of a greater concentration on costs in the rest of the year which some analysts saw as an admission that the airline is in for a tougher than expected period.
The shares fell 3.7% to $6.28 meaning they are now down 6% from the all time high of $6.69 reached on October 15.
While the airline reported record revenue growth of $4.56 billion in the first quarter of 2019-20, it was only up 1.8% on the same period of 2018-19 and barely in front of inflation (1.4%).
Once again it was the weak domestic performance that held back the performance of the airline. Qantas CEO Alan Joyce said the lift in revenue was largely driven by a “strong” international performance.
“Qantas International has seen significant upside from competitor capacity contracting more than anticipated, which is expected to continue for at least the remainder of the first half,” Mr Joyce said in the update.
“Domestically, published competitor capacity is set to increase despite the weakness in the market.” (meaning more seats and greater pressure to cut fares).
Qantas said revenues from its domestic airline fell by 0.9% due to “mixed market conditions”. That in turn partially offset a 4.4% lift in revenues at its international business.
Qantas said it saw increased headwinds from foreign exchange expenses, impact from Hong Kong unrest and trade war impact on international freight market.
“Protests in Hong Kong will negatively impact the Group’s first half profit performance by $25 million, with ongoing capacity reduction in place to minimise the second half impact. …Further deterioration in global trade conditions has impacted freight demand with an expected profit impact of $25-30 million for the full year,” the airline warned.
Given the slower revenue environment, Mr. Joyce said the company will have a strong focus on cost reduction.
“Part of this is about taking opportunities to reduce complexity and constantly improving how efficiently we manage our business,” he said.
The Group remains on track to deliver at least $400 million in transformation benefits in FY20, with an increased focus on cost reduction initiatives in the second half,” the airline said yesterday.
“Recent currency movements will increase non-fuel costs by a further $25 million in the first half….As at 30 September 2019, bond rate movements due to changes in interest rates since 30 June 2019 would result in an estimated adverse $40 million non-cash impact to the full year Underlying Profit Before Tax.”
