Soaring Qantas Hits Growth Headwinds

Qantas (QAN) says its first-quarter revenue is up 5.1% to $4.19 billion as trading conditions in both the domestic and international markets improved over the same period last year.

Ad the airline told the ASX that it is forecasting underlying profit to be between $900 million and $950 million in the first six months of the financial year, a small improvement from $852 million in the first half of 2016-17.

But the airline warned higher fuel costs will weigh on second-half earnings, as well as more intense competition and that warning and the implied pressure on profits sent the shares lower.

Qantas shares were down more than 7% at one stage yesterday after the airline warned about weaker second half revenue growth. They ended the day at $6.31, down 1.4%.

Qantas will hold its annual general meeting today.

Qantas said it expects group capacity to increase by 2% to 3% in the first half of financial year compared to a year earlier, despite a fall in domestic capacity of the same size during that period.

The airline said that its international competitors increased the number of seats being flown into and out of Australia by 3% in the current half, and that was set to grow to 6% to 7% in the second half.

“There’s been a welcome easing of capacity growth in the international market, but the indications are that it is likely to pick up pace again in the second half, “ chief executive Alan Joyce said in yesterday’s update.

Qantas grew its international unit revenue – measured as revenue divided by how many seats it flew and for how far – by 0.2% in the first quarter, compared to 6.9% growth in the first quarter of 2016-17.

The airline said it expected fuel costs – its largest single expense – in the first half would grow to around $1.55 billion, up from $1.49 billion in 2017 because of the run up in global oil prices.

For the full year Qantas’ fuel bill is set to rise by about $170 million from last year at $3.21 billion, based on a Brent oil forward market price of $74 per barrel.

Qantas said the domestic revenue was up by around 8% in the first quarter, as demand improved thanks to stabilisation of the resources sector. The airline said last year’s numbers were impacted by the negative effect of the 2016 Federal Election on passenger numbers.

“The high rate of revenue growth we’ve seen so far this year is likely to slow when compared with what was a strong second half last year," Mr Joyce said.

"The domestic market is healthy but remains very competitive".

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →