Domestic travel weakness hits Qantas bottom line
Weakness in domestic travel has hit Qantas’s bottom line, with business demand faltering.
Ongoing weakness in the domestic travel market has hit Qantas’s bottom line, with the airline earning less money per seat in the first quarter of the 2020 financial year.
A trading update on Thursday showed the Qantas Group domestic unit revenue fell 0.9 per cent for the quarter due to “mixed market conditions”.
Although resources industry traffic continued to strengthen, weakness in other sectors continued including financial services and telecommunications.
“Overall, corporate travel demand was flat and small business travel demand growth slowed,” said the update.
“Premium leisure demand remained steady (but) demand in the price sensitive leisure market weakened.”
As a result, Jetstar’s unit revenue fell by 2.6 per cent, the update noted.
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The Qantas International business was expected to face a $25m hit from protests in Hong Kong in the first half of the year, as a result of reduced capacity into the market.
In the first quarter, capacity decreased 2.5 per cent but unit revenue was up 6 per cent.
Overall group revenue for the quarter increased 1.8 per cent to a record $4.56bn, driven largely by the performance of Qantas International.
Shares in the group fell 3.7 per cent to $6.28 on Thursday.
Chief executive Alan Joyce said the group continued to perform well, with strength in “key parts of our portfolio helping to offset softness in other areas”.
“Given the slower revenue environment, we have a strong focus on cost reduction to make sure we keep delivering on our transformation targets,” Mr Joyce said.
“Part of this is about taking opportunities to reduce complexity and constantly improving how efficiently we manage our business.”
Looking ahead, Qantas was expecting modest 0.5-1 per cent growth in capacity in the first half, with increases in both domestic and international flying.
The group’s fuel cost was fully hedged, with the ability to benefit from significant price falls. The full year fuel bill was now expected to be $3.98bn, up $29m in the first half compared to the same period last year. In a worst-case scenario, the total fuel bill would be no more than $4.05bn, the update said.
Qantas Loyalty continued to kick goals for the company with “improvements to the frequent flyer program delivering increased member engagement” in the first quarter.
“New growth-focused ventures will be announced shortly,” the trading update said.
Qantas’s annual general meeting will be held in Adelaide on Friday.
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