Cheap fuel tipped to pump up Qantas profit to $1 billion

PLUNGING jet fuel prices could give Qantas its best profit result in seven years, with predictions the group could finish the financial year up to $1 billion in the black.

QANTAS shares have reacted positively to predictions the group will finish the financial year as much $1 billion in the black.

Analysts UBS have forecast the strong result on the back of plunging jet fuel prices which are expected to deliver even greater savings in the second half of 2014-15.

If achieved, the pre-tax profit would be the biggest for Qantas in seven years and an astonishing turnaround after the group’s record $2.8 billion loss in 2013-14. News_Image_File: Qantas chief executive Alan Joyce is expected to have much more to smile about when this year’s financial results are announced. Pic: AAP /Paul Miller

In 2008, Qantas posted a $1.4 billion before tax profit, it’s best ever result.

Last October, Qantas chief executive Alan Joyce tipped a first half profit of up to $350 million as a result of the ambitious “transformation” program undertaken by the airline.

The program of redundancies, maintenance operation consolidation, fleet renewal and an end to the domestic capacity war helped deliver the drastic turnaround, along with significant savings on fuel bills.

In an analyst’s note, Simon Mitchell and Caitlin Heffernan from UBS said the higher profit forecast was based on the assumption lower jet fuel prices would result in $1.4 billion in savings compared to the previous year — when the fuel bill soared to $4.5 billion.

The analysts also raised share price targets from $2.80 to $4 a share.

In response Qantas shares climbed 2.7 per cent in morning trade to $2.47, after opening at $2.44.

Yesterday Mr Joyce announced an end to fuel surcharges on international routes, with Qantas to incorporate the cost into baseline fares. News_Image_File: Qantas Group CEO Alan Joyce in Sydney yesterday. Pic: Justin Lloyd. News Corp Australia

Only frequent flyers cashing in points for flights will see any benefit, paying about $130 less in taxes and charges on an international return trip.

But the move was welcomed by the Australian Federation of Travel Agents’ Chief Executive Jayson Westbury.

He said it meant travel agents would no longer have to explain the fuel surcharge to customers at the time of purchase.

“AFTA has advocated for airline pricing to be simple for years and with the never ending list of government levied taxes and charges on air tickets, fuel surcharges being removed simply means that travel agents don’t have to try and explain this when asked by consumers,” said Mr Westbury.