Qantas posts 17pc fall in annual net profit, reflecting cutthroat international competition

Qantas’s lower net profit of $852m reflects tough global competition, but it says its turnaround plan has paid off.

Qantas and Jetstar aircraft at Sydney Airport.

Qantas Airways says its annual net profit fell by 17 per cent, reflecting cutthroat competition on international routes.

Qantas (QAN) announced today that net profit totalled $852 million in the year through June.

Its underlying profit before tax of $1.40 billion was down 8.6 per cent from last year’s record $1.53bn, but was still the second-best underlying figure in the airline’s 97-year history.

The underlying result is fractionally above what Qantas had told the market to expect in May, largely because the domestic business has picked up.

Qantas chief executive Alan Joyce said the result represented the finish of the Flying Kangaroo’s three-year turnaround plan.

“Aviation is a competitive business,” Mr Joyce said today.

“We take nothing for granted and we have no intention of being complacent.”

The statutory profit before tax was $1.81bn.

The company also announced a new share buyback program worth up to $373 million.

Qantas International reported underlying earnings before interest and tax of $327m, a $185m decline that was largely attributed to capacity growth in the broader market.

“Qantas International came under continued pressure from excess capacity in the market, but these forces eased later in the year and the airline delivered the second highest result in its history,” Mr Joyce said.

Looking forward, the carrier expects to increase its international capacity by about 5 per cent, focused on Asian markets.

The Qantas domestic division reported underlying EBIT was $67m higher at $645m. This was a record result.

In the domestic market, when Qantas and budget subsidiary Jetstar are combined, the underlying EBIT is at $865m — making them Australia’s two most profitable airlines. This figure gives them about 90 per cent of the total domestic profit pool, Qantas said.

The popularity of frequent flyer programs saw the underlying EBIT for the Qantas loyalty division up $23m to $369m.

Investors will receive a fully franked dividend of 7c per share.

Mr Joyce has delivered what is widely viewed as a major turnaround.

Just a few years ago, Qantas was pushing for a federal bailout.

But since then, the company has cut costs, including by laying off staff, moved away from loss-making routes and concentrating its efforts on booming markets including China.

“Three years ago, we started an ambitious turnaround program to make the Qantas Group strong and profitable,” Mr Joyce said. “We tackled some difficult structural issues, became a lot more efficient and kept improving customer service. Today’s announcements shows this plan has well-and-truly paid off.”

He said that Qantas would continue to target an average of $400m in savings a year.

The Qantas results are in contrast to rival Virgin, which has reported a $185.8m statutory after-tax loss, though it has made headway on balance sheet repair.

Both airlines have had to confront competition on international routes amid a tourism boom for which Australia has been a beneficiary.

The two airlines were both bruised by an earlier domestic price war where they cut fares and added capacity. That ended in 2014.

In other developments, Qantas confirmed it was pushing the giant aeroplane makers Airbus and Boeing to stretch the maximum range of planes being developed so that it could start running services from Australia’s eastern seaboard capitals to New York and London by 2022.

The flag carrier is taking delivery of two Dreamliners in the first half of the 2018 financial year and will have eight of the new plane in the fleet by the first half of the 2019 financial year.

Meanwhile, the carrier has retired one 747-400 jumbo to the Mojave Desert in California and will retire a total of five of the older jumbos to make way for the Dreamliners.