Despite Qantas warning Monday of soft trading conditions as it battles the headwind of rising competition from rival airlines, analysts were upbeat, telling clients things could have been worse.
The December half underlying profit before tax will run at $800-$850 million, down from $921 million earned a year ago, the airline said on Monday even as it benefits from a further decline in oil prices.
Qantas CEO Alan Joyce. The airline has disclosed softer trading conditions for the December half.
Qantas CEO Alan Joyce. The airline has disclosed softer trading conditions for the December half. Photo: Cole Bennets
In the September quarter alone, domestic revenue slipped 3 per cent to $3.98 billion due to rising competition on international routes with domestic demand also subdued. Even so, it said the December quarter will see an improvement.
"We are seeing international airfares below wher they were 12 months ago, but the impact of that is tempered by the competitive advantages ... including our strong domestic position and diversified Loyalty business," the group's chief executive, Alan Joyce said.
International capacity grew a hefty 5.8 per cent but revenue fell an even larger 6.9 per cent.
International capacity grew a hefty 5.8 per cent but revenue fell an even larger 6.9 per cent. Photo: Glenn Hunt
"Qantas Domestic, Jetstar Domestic and Qantas Loyalty all continue to perform well with high operating margins in a stable market."
In the December half, the group's fuel bill is expected to fall to $1.5 billion from $1.7 billion, although for the full year it is expected to be little changed at $3.1 billion compared with $3.2 billion in the previous financial year, it said. Overall, passenger numbers rose 2.5 per cent.
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Capacity on international routes rose 5.8 per cent as the group shifted aircraft from domestic services to lift capacity mostly in Asia "in response to growing inbound demand from the region", it said. Domestic revenue slipped 2.9 per cent, as international revenue fell 6.9 per cent.
In the December half capacity growth has been cut from the earlier forecast 2.5-3 per cent to a more modest 1.5-2 per cent. The decision to shift capacity from domestic to international services will see international capacity rise 3.5 per cent with a 1 per cent decline in domestic capacity, Qantas said.
"We believe investors should breathe a sigh of relief,"J.P. Morgan told clients, with the decline in revenue per seat "a cyclical rather than a structural issue".
"The stock looks inexpensive, relative to global peers and the ASX industrials market, more broadly".
Macquarie Equities said the quarterly data was worse than expected, although capacity reductions will help to protect revenues.
"Qantas remains fundamentally undervalued and despite a lack of earnings momentum a return to dividends is evidence of management's confidence in the sustainability of earnings," it told clients.
Qantas shares were up 8c at $3.02 in closing trading.
