Qantas outlook improves; China's ‘Big Three’ and Jet Airways report double-digit pax growth


Shares in Qantas declined 1.2% yesterday, coinciding with the release of the carrier's financial results for the 12 months ended Jun-2010. Qantas reported a net profit of USD100.5 million (-4.5% year-on-year) and total revenues of USD12.4 billion (-4.2%) in the period, while operating costs were reduced by 5.8% to USD12.1 billion.

  • Qantas reports a net profit decline of 4.5% for the 12 months ended Jun-2010, but expects improved yields in the first half of FY2011.
  • Goldman Sachs, Deutsche Bank, and RBS maintain a "buy" rating for Qantas stock, citing positive outlook and earnings leverage.
  • Air China, China Southern Airlines, and China Eastern Airlines report strong double-digit passenger growth and improved load factors in Jul-2010.
  • Jet Airways also reports double-digit passenger growth in Jul-2010, with domestic and international load factors showing improvement.
  • Indian Ministry of Civil Aviation imposes a service tax on domestic and international air travelers.
  • Indonesian Government plans to launch Garuda Indonesia's USD400 million IPO at the end of Nov-2010 despite ongoing debt restructuring.

The carrier stated trading conditions have "steadily improved", with forward booking indicating "yields in the first half of FY2011 will be higher than the first half FY2010". Qantas reported domestic business and total international revenue is "expected to improve, while domestic leisure continues to be highly competitive. If present conditions continue, first half underlying PBT for FY2011 may be materially stronger than first half FY2010."

Goldman Sachs, Deutsche Bank and RBS maintain 'buy' ratings

Following the release of the financials, Goldman Sachs & Partners Australia said there is "no reason to change our positive view" on the carrier, maintaining its "buy" rating.

However, Goldman Sachs added "there was a lot of questioning around the company's ability to maintain its BBB credit rating given the financing requirements of its CAPEX programme". The carrier, however, noted they were "comfortable" with the company's ability to maintain a BBB rating and there would be no need to raise equity.

Meanwhile, Deutsche Bank stated: "We continue to be encouraged by the apparent momentum associated with premium travel recovery." It added the improved "price and volume momentum makes for a powerful earnings multiplier". Deutsche Bank, meanwhile, increased its price target to AUD2.90/share reflecting the better performance and improved outlook, and retained its "buy" rating.

RBS Equities also maintained its "buy" rating in Qantas stock and raised its target price from AUD2.99 to AUD3.05, commenting: "We think QAN remains an attractive investment given the earnings leverage it has to an improving operating environment."

However, RBS warned: "Although our macro view remains positive, risks remain around the ongoing competitive environment in the domestic leisure market. With Tiger increasing its presence over the next 12 months, we expect pressure on yields to remain. However, we do see the presence of Jetstar giving QAN an advantage in combating this threat."

See related reports:

'Big Three' Chinese carriers report strong traffic growth

In the Chinese market, Air China, China Southern Airlines and China Eastern Airlines reported strong double-digit passenger growth across the board, coupled with passenger load factor improvements in the 5-10 ppts range, in Jul-2010, with freight growth also soaring.

China Eastern Airlines Corporation Limited shareholding structure

Air China

% change

China Eastern

% change

China Southern

% change

Passenger numbers (mill)







Domestic (mill)





















Passenger load factor (%)


+5.0 ppts


+11 ppts


+6.3 ppts

Domestic (%)


+4.9 ppts


+10.2 ppts


+6 ppts

International (%)


+5.0 ppts


+13 ppts


+9.5 ppts

Regional (%)


+6.4 ppts


+14.6 ppts


+7.2 ppts

Cargo volume (tonnes)







Jet Airways reports double-digit pax growth

Jet Airways also reported double-digit passenger growth in Jul-2010, with domestic passengers increasing 15% to 782,343, international passenger numbers gaining 27.8% to 388,308 and JetLite passenger numbers increasing 16.3% to 327,361. Domestic and JetLite load factors increased by 4.2 ppts and 6.3 ppts - to 73.8% and 76.8% respectively - while Jet Airways' international load factors were slightly weaker, slipping 0.1 ppts to 83.1%.

Also in the Indian market, Indian Ministry of Civil Aviation imposed a service tax on all domestic and international air travellers. The rates of service tax on domestic air travel have been fixed at 10% of the gross value of the ticket or INR100 (USD2.16) per sector, whichever is lower. International passengers in economy and embarking in India will be charged 10% of the gross value of the ticket or INR500 (USD10.79) per sector, whichever is lower

Meanwhile, the Indonesian Government stated it now plans to launch Garuda Indonesia's USD400 million IPO at the end of Nov-2010. The government insisted the offering must go ahead as planned despite the carrier's ongoing delay to settle its debt restructuring with the European agencies.

Asia Pacific selected airlines daily share price movements (% change): 12-Aug-2010

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