Australia’s Qantas Airways warns of slower growth

Qantas Airways warned on Thursday that tougher domestic competition and higher fuel costs would slow growth in the second half of the financial year.

Shares in the airline dipped as much as 7.2 per cent on the day, dealing a blow to the carrier’s remarkable turnround since 2014 when it suffered the largest loss in its near-100 year history.

"The domestic market is healthy but remains very competitive. 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," said Alan Joyce, Qantas chief executive.

The carrier forecast domestic capacity to fall 2-3 per cent year-on-year in the six months to December 31st, and decline a further 1 per cent in the second half of the financial year to July 2018.

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Further pressures will come from higher fuel costs, with Qantas predicting a 5.2 per cent year-on-year increase to A$3.2 billion ($2.5 billion) for the 2018 financial year, hitting second-half earnings.

The carrier said revenue for the three months to the end of September had risen 5.1 per cent year-on-year to A$4.2 billion, while underlying profit before tax for the six months to December 31 was forecast to be A$900 million-A$950 million, up from A$850 million for the same period a year earlier.

Restructuring

The airline began a restructuring programme in 2014 involving 5,000 job cuts and wage freezes after suffering a A$2.8 billion annual loss.

But it bounced back to report a profit of A$852 million in the 12 months to the end of July 2017, and A$1.02 billion in the previous financial year.

Mr Joyce said at the time that the 2017 results “marked completion” of the airline’s turnround plan, having delivered A$3.5 billion in cumulative underlying profit. He was rewarded with a A$24.5 million pay packet after selling 3.75 million shares for A$21.5 million.

The carrier in August announced changes to its London routes – dropping its Dubai stopover in favour of Singapore – and expects to see the benefits from this change in the 2019 financial year.

Direct flights

Qantas also said it was investigating direct flights from Australia's east coast to London and New York by 2022. It said it had set Airbus and Boeing a challenge to make the direct flights possible with a full passenger load with the Airbus A350ULR and Boeing 777X under development.

Qantas shares are among the best performing stocks on the benchmark S&P/ASX 200 for the year to date, up 90.1 per cent. After falling more than 7 per cent, Qantas recovered slightly on Thursday to trade down 1.6 per cent.

Copyright The Financial Times Limited 2017