Qantas shocks market; shares plunge

antas Group warned yesterday of a steep fall in full-year profit. Photo by Reuters.
antas Group warned yesterday of a steep fall in full-year profit. Photo by Reuters.
Australian national carrier Qantas Group warned yesterday its profit could fall by up to 91% in the year ended June as it feels the hurt of increased fuel costs, the high value of the Australian dollar and weak markets.

Also, the company faced a $A100 million ($NZ128 million) one-off cost of industrial action during the year.

Qantas said in a statement it expected underlying profit before tax in the range of $A50 million to $A100 million, down from the $A552 million reported in the previous corresponding period. The earnings before interest and tax (ebit) loss was expected to be a loss of $A450 million compared with a loss of $A216 million in the pcp.

The share price dived 18% after the announcement to an all-time low of $A1.16. The share price was at its peak of $A6.06 in October 2007.

Qantas cited the group's highest yet jet fuel bill and substantial increases in the domestic market that reduced yields.

Qantas chief executive Alan Joyce said the tough and worsening environment reinforced the importance of the Qantas International five-year transformation plan announced in August last year.

"We have taken decisive action to mitigate losses in Qantas International by withdrawing from loss-making routes, reducing capital investment and transforming Qantas engineering. The introduction of a new Qantas Group structure with dedicated chief executives for Qantas International and Qantas Domestic will bring further rigour to our business," he said.

Craigs Investment Partners broker Chris Timms said the factors quoted by Mr Joyce were not unique to Qantas but it appeared the Australian carrier was in a markedly different position than Air New Zealand.

"Maybe Air New Zealand has a better hedging policy. The Australian dollar has been strong, and so have we been, and that should have made their fuel price cheaper."

Qantas had also experienced weakness in the UK and Europe markets, probably reflecting the competition on those routes. Air New Zealand had made a push into Asia and the latest statistics showed an increase in those markets, Mr Timms said.

The April Air New Zealand statistics showed that across the group, the number of passengers carried was up 1.8% against April last year, revenue per passenger kilometres was up 5.5% and available seat kilometres were up 4.6%.

Mr Joyce said Qantas continued to practise disciplined financial management. It had announced capital expenditure reductions totalling $A900 million for the full year, bringing the total for the year down to $A1.9 billion. Capital expenditure for next year would be at that level or lower.

With a cash balance of more than $A3 billion, an undrawn standby facility of $A300 million, 16 new unencumbered A320/B737 aircraft added in the past two years and the flexibility to reinstate or further reduce capital investment as appropriate, Qantas remained in a strong funding position, he said.

"We remain focused on returning Qantas International to profitability in 2014 and for Qantas International and Domestic combined to exceed their cost of capital on a sustainable basis within five years of August 2011."

Air New Zealand last traded at 84c, down 2.13%.

dene.mackenzie@odt.co.nz

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