Qantas, Air New Zealand profits buffeted by price war
Australian carrier’s underlying first-half profit down 7.5%; Air NZ pretax profit drops 24%
Qantas Airways Ltd and Air New Zealand Ltd reported first-half profit declines as an expansion in capacity by rivals hit international airfares, but both airlines said they expect the fierce competition to moderate.
Shares in the carriers climbed as Air New Zealand said it was already seeing a reduction in flights by Chinese competitors while Australia’s flagship carrier forecast a much slower pace of growth in capacity in the second half.
Lower fuel prices had encouraged carriers like American Airlines Group Inc and Qatar Airways to add flights to Australia and New Zealand, taking some of the shine off what has been a recent robust period or earnings for both firms.
“We’re at the high water tide mark of new competitors coming into the marketplace and we’re really encouraged by the fact that some of our competition’s already adjusting capacity downwards,” Air New Zealand chief executive Christopher Luxon said on a call with analysts.
He noted the first half had been “abnormal” as capacity on long-haul flights to the Pacific nation had risen 30 per cent.
Air New Zealand was hit harder during the period with profit before tax tumbling by a quarter to NZ$349 million and its revenue per available seat kilometre (Rask) dropping 14.3 per cent on long-haul international routes.
Dominant position
Qantas booked a 7.5 per cent slide in first-half underlying profit before tax, its most closely watched measure, to A$852 million ($656 million), beating guidance slightly. Its Rask fell 8.9 per cent on international routes. Despite the declines, the results measured up well historically with Air New Zealand — widely regarded as a well managed airline with a dominant position — reporting its second-best firsthalf performance.
Qantas, which has benefited from a cost-cutting programme and weakness at rival Virgin Australia Holdings Ltd in the domestic market, turned in its third-best result for a first-half. It also forecast the domestic market would improve in the second half.
Shares in Qantas surged as much as 6.5 per cent to their highest levels in nearly 10 months, while Air New Zealand’s stock climbed 3.7 per cent to a one-month high.