Qantas’ annual profit declines, share price rises on buyback

Australia’s Qantas Airways posted a 17% fall in annual net profit, driven by fuel costs and a weaker Australian dollar, but cheered investors with a A$400 million share buyback and higher dividend.

Qantas also said it would keep capacity flat in line with demand in a sluggish Australian economy.

“Looking ahead we are feeling very confident about this financial year,” Chief Executive Alan Joyce said.

Underlying pretax profit, the airline’s most closely watched measure, was A$1.30 billion ($881.66 million) for the year ended June 30, down from A$1.57 billion.

That was below a consensus estimate of A$1.36 billion, according to Refinitiv data, but investors were forgiving of the shortfall that was largely due to a one-off non-cash provision for items including employee leave provisions.

Revenue at the airline, which celebrates its 100th anniversary next year, rose 5% to A$17.97 billion. It plans to buy back up 79.7 million shares in an off-market tender and declared a fully-franked final dividend of 13 Australian cents per share, up from 10 cents.

Qantas shares were up 4.5% in midday trade. The stock has outperformed those of peers Air New Zealand, Virgin Australia Holdings, Cathay Pacific Airways Ltd and Singapore Airlines Ltd over the year-to-date.

Air New Zealand earlier on Wednesday reported a steeper 31% decline in pre-tax profit to NZ$374 million, hurt by higher fuel costs, weaker travel demand and engine issues.

Qantas’ fuel costs rose 19% and are forecast to rise by another A$100 million in the current financial year, for which it is already fully hedged.

“It’s a mixed bag, but there are certainly some reasons to be cheerful,” said Damian Rooney, director of equity sales at Argonaut.

“With a good hedging structure and an improvement in the Aussie dollar they will be able to improve,” Rooney added. “A buyback shows that they have a reasonably robust outlook, and it shows good capital management.”

International airlines have cut capacity to Australia for the first time in a decade as the weaker currency makes it a less attractive market. The domestic economy is expanding at its weakest pace since the global financial crisis.

Joyce said the airline was seeing weakness in the price-sensitive domestic leisure market served by budget carrier Jetstar, but premium leisure demand and corporate demand remained steady.

Joyce bucked recent practice and declined to provide investors with guidance on forward bookings.

“We don’t go into that level of detail,” he told reporters. “What we are doing is very much focused on managing capacity. The capacity settings we think are in balance.”

Qantas’ overall capacity is expected to rise 1% in the current first half - flat to slightly down in domestic and rising 1.5% in international.

Qantas bookings to Hong Kong have fallen 10% following anti-government protests and the airline plans to cut capacity by 7% over the next few months, Joyce said.

Qantas said it expected to make a final decision on whether to order planes capable of 21-hour non-stop Sydney-London flights by the end of the year.

Meanwhile, Cathay Pacific Airways is facing a decline in forward bookings for travel to Hong Kong “in the region of double digits” due to widespread protests in the Asian financial centre, a senior company executive said on Wednesday.

There is also some weakness in outbound traffic, Chief Customer and Commercial Officer Paul Loo said, adding that transfer traffic had been hit less but that the overall situation was placing pressure on average fares.

His comments came after Cathay swung to its first profit for the January-June period since 2016 and said the second half was likely to be better.

The airline reported an HK$1.347 billion ($171.84 million) net profit for the six months ended June 30, compared with an HK$263 million loss for the first half of 2018.

Rising passenger revenue and lower fuel costs helped to offset a decline in the air cargo market linked to the US-China trade war.

Cathay is a bellwether for Hong Kong’s economy, which grew less than expected in the second quarter as mass anti-government protests rocked the territory. The airline said widespread protests had reduced inbound passenger traffic in July and were adversely impacting forward bookings. The carrier cancelled dozens of flights on Monday due to a general strike.

Chairman John Slosar said people were taking a “wait and see” attitude before booking flights.

“The fact forward bookings are down doesn’t mean those bookings are gone,” he told reporters. “People just aren’t booking as far out as they were before.”

Reuters