Qantas soars but fuel costs scare investors
INVESTORS have overlooked a strong full-year profit announcement by Qantas Airways and have sold out of the airline amid concern about rising fuel prices.
Shares in the Flying Kangaroo fell more than 5 per cent during morning trade yesterday despite the revelation its net profit rose 15 per cent in the year to June, to $980 million.
They recovered some ground later in the day, but still ended the session 2.8 per cent, or 19¢, lower at $6.53.
Qantas revealed group revenue jumped to $17.06 billion over the year, helped by record sales – of $5.97 billion – at its domestic airline. A surge in the profit margin to almost 13 per cent in that division also bolstered the result.
Revenue from international travel was up 7.5 per cent to $6.89 billion but the profit margin was less than half that for domestic flights, at 5.8 per cent.
Shareholders, however, focused on a rise in fuel costs and forecasts for an increase in the fuel bill this financial year of almost $700 million.
“Like other airlines, Qantas faces the challenge of higher fuel prices,” chief executive Alan Joyce said yesterday.
The group’s fuel bill grew by almost $200 million in the past financial year, he said, “and we’re expecting it to be up another $690 million (this financial year)”.
Mr Joyce said the company would “substantially” recover the extra fuel costs from increased turnover and further restructuring.
Forward bookings for domestic flights were up about 6 per cent, which “will at least recover fuel and maybe do a bit better than that,” he said.
Within the international business, Qantas expected to “substantially recover” the extra fuel costs. Investors will share in the profit boost for the past financial year with a fully franked final dividend of 10¢ a share, up from 7¢ a year ago.
Underlying profit, which excludes one-off items, clocked in at a record $1.6 billion, up 14.5 per cent.
“These numbers show a company that’s delivering across the board,” Mr Joyce said in a statement.
“Today’s result is a credit to everyone at Qantas. Strategy drives our performance, but it’s our people who deliver on it.”
The airline announced an on-market share buyback of up to $332 million, as well as $67 million in bonuses at an average of $2500 each to be paid to 27,000 non-executive employees.
Motley Fool analyst Tom Richardson said the results confirmed the airline’s turnaround.
“(This is) another feather in the cap of chief executive Alan Joyce when many were calling for his head after the group had an underlying loss of $646 million in 2014, no dividend, massive job cuts and a promise to transform the business,” Mr Richardson said.
“It’s a real turnaround story supported as ever by the loyalty program and pulling power of Qantas points.”