Qantas expects AUD50-150 million profit in 1HFY2009/2010; Yields on the improve in Nov-2009


Qantas stated it expects to return to profitability in the current reporting period (six months ending 31-Dec-2009), with a profit before tax in the AUD50-150 million (USD44-133 million) range, due to "improving” passenger volumes and yields. The carrier reported a profit before tax of AUD288 million in 1HFY2009 (six months to Dec-2008), which was in turn down 68.2% on the result in the six months to Dec-2007.

Qantas posted its first half-year net loss in six years (and only the second half year period of unprofitability since 1995) of AUD93 million in the six months to Jun-2009), dragging down the carrier’s full year net profit by 88% to AUD117 million and annual pre-tax profit by 87% to AUD181 million. The main driver of the carrier’s profitability slump was plummeting Business demand and significant discounting by rival airlines.

Qantas profit before tax: 1999 to 1H2010F (financial year ended 30-Jun)

Qantas did not provide guidance for full year earnings, warning that "high levels of volatility in the economic outlook, industry capacity, passenger demand, fuel prices and exchange rates continue."

Yields on the improve

Qantas reported improved yields in Nov-2009, with domestic yields down by only 3.7% in Nov-2009, for the smallest contraction in ten months. International yields fell by 19.2%, for the smallest reduction since Apr-2009. The yield reductions also reflect structural changes in the group's flying operations involving the shift in capacity share from Qantas mainline operations to Jetstar’s lower cost (and lower yielding) operations over the past 12 months.

Qantas Group total domestic (Qantas, QantasLink and Jetstar Domestic) and total international (Qantas and Jetstar International) yield (excluding foreign exchange): Jul-2008 to Nov-2009

Fare increases covering both domestic and international routes

The yield improvements are expected to continue, with the carrier increasing fares on select international routes on 18-Dec-2009 - its first fare increase since Jun-2008. First and Business fares are being increased by 3% on popular routes, including services to Britain, Europe, Hong Kong and Singapore, while Premium Economy and Economy fares will rise by 5% on a larger number of routes, including services to North America.

The carrier, earlier in the month, had already increased domestic fares by 5-10%, covering 14 key routes, for the largest increase for the Group since the start of the global financial downturn in 2008.

CFO, Colin Storrie, stated the carrier expects domestic demand to recover faster than international demand, although Qantas is now starting to see an improvement in forward bookings for international operations. 

Load factor improvements a positive

In further positive news, Qantas Group load factors increased 4.0 ppts year-on-year to reach 82.3% in Nov-2009, as capacity (ASKs) was reduced by 2.0%. Group passenger numbers were also up by 9.7% year-on-year to 3.5 million, as traffic (RPKs) increased 3.0% in the month.

Qantas passenger numbers growth: Nov-2008 to Nov-2009

Importance of Jetstar shining through

Qantas Group’s Nov-2009 traffic results also clearly illustrate the importance of Jetstar to the Group’s operations. During the month, combined Jetstar Domestic and International passenger numbers  (1.0 million, +26.9% year-on-year) represented 30% of total Group passengers, and 21.3% of total capacity (ASKs), following a 23.0% year-on-year increase.

The Group’s 9.7% increase in passenger numbers in the month was driven predominantly by Jetstar, with a 4.9% increase in Jetstar domestic passengers, and a massive 129.8% increase in Jetstar International passenger numbers. Comparatively, Qantas International witnessed a 22.6% reduction, with Qantas Domestic and QantasLink passenger numbers up marginally, by 2.3% and 1.5%, respectively. 

Qantas passenger numbers contribution by each operation segment: Nov-2009

Growth returns at both Qantas and Jetstar; Virgin Blue suspends regional expansion

As a result of the improving demand, Qantas announced plans to begin increasing capacity across its domestic network from 29-Mar-2010, with the move to add more than 340,000 seats over the following 12 months, as its “restores capacity removed in response to the economic downturn”.

The changes will see the addition of 19 services, while capacity will be restored on other sectors, through an upgrade from B737 to B767 equipment.

CEO, Alan Joyce, commented that the airline is “seeing some improvements" in domestic demand, "so the time is right to begin restoring capacity to ensure we are well place to meet that demand”.

The capacity increase following Jetstar’s recent announcement (on 10-Dec-2009) that it plans to significantly grow its domestic Australian operations between Mar-2010 and Jul-2010 by introducing an additional 700,000 new seats p/a to select destinations, as it takes delivery of four new A320 aircraft.

The LCC plans to introduce 77 new weekly services, predominantly from its Melbourne and Sydney hubs to key leisure destinations, including the Gold Coast, Sunshine Coast, Cairns, Newcastle and Tasmania. CEO, Bruce Buchanan, stated the increased capacity would increase its market share by approximately 18% and passenger numbers by 7% year-on-year.

In contrast, Virgin Blue has suspended its regional expansion plans until the Australian Government "resolves differing security requirements for aircraft". The carrier stated its Embraer E-Jets currently undergo different security screening requirements than Qantas’ Q400 turboprop aircraft, forcing Virgin Blue to pay AUD20 per passenger for the screening. 

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