Qantas expects stronger second half after H1 profit falls 19% on high fuel costs

Singapore

AUSTRALIA'S Qantas Airways Ltd said on Thursday it expected a strong second half based on solid forward bookings and relief from high fuel prices which drove its first-half profit down 19 per cent.

The airline recovered fuel price increases through higher fares in the domestic market in the first half but was unable to make up those costs on international fares due to stiff competition.

"Looking ahead, we believe the Qantas Group is well positioned," chief executive Alan Joyce said, pointing to strong forward bookings, slowing capacity growth by rivals in the international market and cost-cutting measures. These factors point to a strong second half, and we expect to completely recover our increased fuel costs by the end of this financial year."

Underlying profit before tax fell to A$780 million (S$755.7 million) for the six months ended Dec 31, from a record A$959 million a year ago, adjusted for accounting changes, and its lowest since 2015. Revenue rose 6 per cent to A$9.21 billion.

Despite the earnings decline, Qantas had the confidence to announce the return of A$500 million to shareholders through dividends and share buybacks.

Qantas shares fell more than 2 per cent in morning trade following the results, before recovering to be 0.4 per cent lower in a slightly stronger broader market.

The airline said its capital spending forecast for the year had risen by A$600 million to A$1.6 billion due to delayed proceeds from an airport terminal sale, bringing forward aircraft payments and the purchase of a 20 percent stake in charter operator Alliance Aviation Services Ltd.

The Australian domestic aviation market is largely a duopoly between Qantas and smaller rival Virgin Australia Holdings Ltd, both of which have increased fares and boosted domestic earnings by keeping a lid on capacity.

Qantas said forward bookings were up 6.8 per cent as of Dec 31 and domestic and international capacity would be flat in the second half.

Meanwhile, the airline will start the ball rolling on replacing its domestic fleet, including 75 Boeing 737s, toward the end of this year with a decision on the type and number of aircraft expected in 2020, Mr Joyce said.

The Australian carrier's move will launch yet another contest between Airbus SE and Boeing Co, the two biggest planemakers in the world.

The models under consideration will include Boeing's potential new mid-sized airplane which "on paper looks like it could be a great aircraft for the domestic market", Mr Joyce told Reuters.

Qantas will decide on a new long-haul jet capable of 20-hour non-stop flights between Sydney and London later this year before it launches the domestic fleet replacement competition, Mr Joyce said.

The airline is considering the 777-8 and A350-1000ULR models for the marathon flights but an order may also include other types such as the 777-9 or A350-1000 designed for shorter routes, he said. REUTERS