Fuel Headwinds Hit Qantas

By Glenn Dyer | More Articles by Glenn Dyer

A touch of turbulence for Qantas shares yesterday in the wake of the release of its 2017-18 results with the expected super profit and dividend, plus a buyback.

But instead of focusing on this it was the appearance of the airline’s greater exposure to rising oil prices that appears to have spooked investors, with Qantas’ shares diving more than 7% to a day’s low of $6.21 before they staged a slow rebound to end the day at $6.53 – down 2.8%.

Qantas Airways CEO Alan Joyce said the airline will largely absorb an expected 18% rise in fuel costs (to $3.9 billion) in the coming year thanks to strong forward bookings and further cost cutting

“We’re seeing healthy demand across key sectors matched with improving levels of capacity discipline, which is a positive sign for the year ahead," Mr Joyce said in a statement.

"This record result comes despite higher oil prices. We’re facing another increase to our fuel bill for 2018-19 and we’re confident that we will substantially recover this through a range of capacity, revenue and cost efficiency measures, in addition to our hedging program."

Analysts pointed out that the exposure to oil prices is higher than it was. Its fuel price is only 73% hedged for the remainder of this financial year compared to 86% cent last year and 90% in 2017.

Qantas expects its fuel bill to jump $690 million to $3.9 billion this financial year, while group expenditure would rise by around $250 million.

The airline though has altered its fuel hedging levels during the year based on its assessment of future oil price movements. The lower hedging level would indicate Qantas is a bit uncertain about the direction of oil prices next year.

The company said it would to pay out bonuses of $2,500 to its 27,000 pilots, cabin crew, ground staff and other workers, and return $500 million to shareholders via a $332 million share buyback and a 10 cents a share final dividend, up from 7 cents a year ago.

That took the total payout for the year to 17 cents, up from 14 cents in 2016-17.

It expects transformation (restructuring) benefits of $400 million in the current financial year. Qantas said its underlying full-year profit before tax has jumped 14% to a record high $1.6 billion, thanks to higher earnings in its domestic operations which earned more than $1 billion for the first time.

The group’s after-tax profit for financial year 2017-18 rose 15% to $980 million. Qantas posted a record full year underlying profit before tax of $1.6 billion, up 14%. Qantas’s domestic division delivered earnings of $1.1 billion, a 25% jump from the previous year, driven by efficiency gains and higher seat occupancy on its planes as the airline boosted premium offerings such as new lounges and free Wi-Fi, for passengers (that business includes Jetstar).

Qantas international division increased its earnings by 7% to $399 million.

Qantas said it paid $4 million in company tax – the first time it has paid corporate tax since 2009 as its improved profitability has eaten into past tax losses. That’s the best sign of the company’s operational strength.

Glenn Dyer

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.

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