Market cheers Qantas for upward trajectory

Qantas boss Alan Joyce has revealed the airline is expecting a record pre-tax profit this year.

Qantas chief Alan Joyce says the leisure market is vibrant.

The market for corporate travel was “doing really well”, Qantas boss Alan Joyce declared as the airline revealed it expected to post a record underlying pre-tax profit this year.

Qantas shares surged to close 47c higher at $6.27 after the marquee Australian carrier said it expected an underlying pre-tax profit of between $1.55 billion and $1.6bn — eclipsing the $1.53bn reported for 2016.

In its trading update for the third quarter of the 2018 financial year, Qantas posted strong revenue growth and confirmed it had ordered six more Dream­liners from US aircraft giant Boeing.

Qantas has flagged the strong result despite the recent resurgence of the oil price, which is expected to add $200 million to the fuel bill this year.

The carrier foreshadowed a further benefit to shareholders enjoying the company’s turnaround effort, saying the board would consider further capital management initiatives when the full-year results were delivered in August.

For the third quarter, group revenue was up 7.5 per cent at $4.25bn from the same period in the previous year.

For the group’s domestic unit, comprising Qantas and Jetstar domestic operations, revenue was up by 8 per cent as demand was buoyant across key markets and the resources sector continued to recover.

WEB business Qantas share price

Again underscoring the climate since the bruising capacity war with Virgin ended, the carrier said group domestic capacity had decreased by 1.9 per cent for the quarter.

Mr Joyce said that “leisure is doing really well, people are travelling”.

“The corporate market in all sectors is doing really well,” he said, adding that there was now “good growth” in the resource sector.

“So we are seeing all cylinders of the economy humming at the moment,” he said.

Mr Joyce said the strong performance had allowed the investment in further Dreamliners, which would mean Qantas International has a fleet of 14 Boeing 787-9s by the end of 2020. Qantas said the 787-9 was about 20 per cent more fuel efficient than the “queen of the skies” 747.

In a note, analysts at Citi said that with accelerating costs, especially fuel, “we expect rational behaviour to consolidate”.

“Cost-saving initiatives within the international business are likely to provide some buffer against rising costs, but the outlook for earnings is less certain,” the note said.

On the international front, unit revenue was up 5.2 per cent.

Mr Joyce pointed to rises in RASK (revenue per available seat kilometre), which is a financial measure that combines the share of seats filled and average airfare prices.

“Oil prices are going up and you have seen an improvement in our RASKs in the domestic market and international market which has helped us offset those fuel costs,” Mr Joyce said.

By the end of April, the group had hedged about 70 per cent of its expected fuel costs for the 2019 ­financial year. In its statement to the ASX, Qantas said “ongoing transformation as well as capacity and revenue management will help mitigate the impact of higher fuel costs”.