Qantas forecasts airline’s biggest ever annual profit of $2.475bn

Qantas is raking in the cash from high airfares, putting the airline on track for a record a full year profit of almost $2.5bn.

Qantas is raking in revenue from high airfares with the airline on track for a record full year profit of almost $2.5bn, eclipsing the airlines’ previous best of $1.6bn in 2018.

An underlying profit in the range of $2.425bn to $2.725bn was expected by the airline, representing a $4.3bn turnaround on last year’s $1.8bn loss.

Strong travel demand, lower fuel prices and high airfares were driving the result, even as flying remained below pre-pandemic levels.

Revenue for domestic operations was at 118 per cent of pre-Covid levels, and at 123 per cent for international, Qantas said in a quarterly update.

At the same time group capacity - or the total number of airline seats available - was at 87 per cent of 2019 levels.

The profit guidance followed other record results by Singapore Airlines and Emirates in recent weeks, as carriers rebounded strongly from the pandemic thanks to pent up travel demand.

A strong balance sheet was also expected to be produced by Virgin Australia, ahead of a planned return to the ASX in the second half of the year.

US owners Bain Capital were understood to be targeting November for the initial public offering.

Qantas’s next CEO Vanessa Hudson. Picture: NCA Newswire / Gaye Gerard

Qantas chief executive Alan Joyce said more capacity would be added into operations in the coming months with the airline expected to get to 93 per cent by the end of the year.

“We’re seeing the broad trends we expected as the industry recovers and trading conditions remain very positive,” Mr Joyce said.

“More parts of the aviation supply chain are returning to normal which means we’re able to put some of the spare aircraft and crew we kept in reserve back in the schedule. That’s combining with lower fuel prices to put downward pressure on fares which is good news for customers.”

Fares were still expected to remain significantly above pre-pandemic levels, however, with Mr Joyce acknowledging an ongoing “mismatch between supply and demand, especially for international flying”.

The update implied that domestic fares were 10 to 15 per cent ahead of 2019 levels, and international prices about 30 more per cent more expensive, according to Citi analyst Samuel Seow.

“Overall we see a steady result and expect eyes to turn to medium to long term strategy at the investor day (next Tuesday),” said Mr Seow.

RBC analyst Owen Birrell questioned whether the strong financial position including a significantly lower debt range, meant a major step up in fleet expenditure was ahead.

The existing on-market buyback was increased a modest $100m from the $500m announced in February, and capital expenditure for the year was tipped to come in between $2.6bn and $2.7bn.

Morningstar analyst Angus Hewitt recently suggested Qantas would have to spend $15bn over the next five years to update an ageing domestic fleet, and bulk up an international fleet so depleted two A330s from Finnair were being wet-leased later this year.

Qantas shares closed down 2.1 per cent at $6.36.

The Transport Workers Union called the forecast profit “obscene” and a result of “Qantas management bleeding dry workers, passengers and taxpayers”.

“The right thing to do would be to pay back every dollar of no-strings government handouts Qantas received from Scott Morrison before it trashed every essential section of the airline to prop up executives and shareholders,” said TWU national secretary Michael Kaine.

ACTU president Michele O’Neil also lashed out, accusing Qantas of “driving down wages and conditions for employees by outsourcing their jobs to multiple companies”.

“Qantas customers know that standards have fallen dramatically, with constant flight delays and lost luggage, all because good, secure jobs were outsourced to drive down wages and conditions, hurting both workers and customers,” Ms O’Neil said.

“The Australian people know that Qantas took $2bn of taxpayers’ money during 2020 and 2021 under cover of the pandemic then unlawfully sacked 1600 workers.”

Mr Joyce has consistently rejected calls for Qantas to pay back JobKeeper or other government assistance, pointing out much of the support compensated the airline for essential repatriation and freight flights.

On the issue of outsourcing, Qantas was awaiting a High Court ruling on the decision to contract out its ground-handling operations in late 2020, to save $100m a year.

Forward bookings for international flights are particular strong said Alan Joyce. Picture: NCA Newswire / Gaye Gerard

Qantas also announced changes to its board ahead of the retirement of long-serving director Michael L’Estrange AO.

His seat on the board will be filled by former American Airlines CEO and chairman Doug Parker who said it was an honour to join “one of the world’s great airlines”.

Qantas chairman Richard Goyder said the changes would help maintain the depth and breadth of experience on the board, as the group entered the next phase in its history under new CEO Vanessa Hudson.

Mr Parker’s directorship would begin on Tuesday ahead of a shareholder vote at the AGM on November 3.

Mr Goyder thanks Mr L’Estrange for his “huge contribution over the past seven years”.

Ms Hudson who is currently Qantas’s chief financial officer is due to take over the top job later this year.