Flying start to financial year for Qantas despite higher fares

Higher airfares have failed to dampen demand for seats on Qantas.

Qantas chief executive Alan Joyce. Picture: AAP

Higher airfares have failed to dampen demand for seats on Qantas, with the airline making its best ever start to a new financial year.

A first-quarter trading update revealed record levels of revenue on the back of a 5.4 per cent increase in fares and a 0.3 per cent capacity reduction.

The 6.3 per cent growth in revenue to $4.41 billion helped offset higher fuel prices and the impact of a weaker dollar.

Fuel continues to pose the biggest headwind for the airline, with Qantas now forecasting the full-year fuel bill to top $4bn, compared to $3.23bn last financial year.

On the upside, forward bookings are up 8 per cent on the same period last year and group cap­acity is expected to remain unchanged or decline by up to 1 per cent in the first half of the 2019 ­financial year.

Chief executive Alan Joyce said that, based on the value of forward bookings and broader market conditions, he was confident in the company’s ability to manage higher fuel costs and keep investing.

“When you look across our portfolio, we have a number of factors that help us manage cyclical headwinds impacting the sector,” Mr Joyce said.

“We have a leading position in the domestic market, structural advantage in our international businesses and diversified earnings from Loyalty.”

CommSec market analyst Tom Piotrowski described the trading update as “very encouraging in the context of the industry”.

“Capacity is the key because historically we’ve seen when you’ve got that price war and cap­acity is not disciplined then everybody suffers,” Mr Piotrowski said.

“In the context of this forward-looking environment around higher fuel costs, most carriers are prepared to be a little bit more ­disciplined when it comes to the capacity side of things.”

Earlier this week Virgin Australia announced 9.7 per cent revenue growth in the first quarter and an expected half-year before-tax profit of $100 million.

Adding to the positive momentum for Qantas was the announcement of a new First Class lounge at Singapore’s Changi Airport, plus the expansion of the existing business lounge.

Aviation consultant Neil Hansford said the multi-million-dollar investment spoke volumes about the success of Qantas’s decision to pull out of Dubai.

“The fact that they’re having to redo their facilities in Singapore shows how successful it’s been to get off Dubai and get on Singapore,” Mr Hansford said.

“Dubai (airport) is a nightmare, and Qantas was missing its slots at Heathrow because their flights weren’t getting turned around in the appropriate time.”

Despite the strength of the Qantas figures, shares in the airline group could not escape the negative momentum of the day’s trade, closing 26c lower at $5.36.

Today board members will join Mr Joyce in Brisbane for the Qantas annual meeting, which is expected to be targeted by asylum-seeker support groups.

The SumOfUs, Australian Centre for Corporate Responsibility and Refugee Action Coalition want the airline to end its involvement in what they call the federal government’s forced deportation of unsuccessful asylum-seekers. Shareholders will also be asked to vote on a resolution to change Qantas’s constitution to allow a follow-up vote on the “involuntary transport of refugees”.