Qantas gets a lift with domestic turnaround

Qantas has been buoyed by data that shows it had arrested the slide in profitability for its domestic operations.

Market sentiment on Qantas has improved slightly after the group said it had arrested the slide in a crucial measure of profitability, though only in its core domestic operations.

Analysts were also cheered by assertions that changes to credit card surcharge regulations would not impact profit.

Qantas stock slumped more than 6 per cent on the final two trading days of last week after the Reserve Bank said it would crack down on excessive card surcharges from September 1, eyeing the disproportionate fees charged by taxis and airlines in particular.

However, the airline is confident it can retain its margins without the bloated surcharges, a signal it will work the fee cuts into higher advertised prices. “The new standard relating to card payment surcharging … is not anticipated to have a negative impact on Qantas Group earnings,” the airline said.

Last week’s losses extended a downward trend in the firm’s shares after it downgraded its capacity guidance on April 18, with a quarter of its value lost in the following six weeks. While the April numbers confirmed soft pre-election demand — domestic capacity was reined in 0.5 per cent — there were signs it was turning a corner amid improvement in domestic group revenue per available seat kilometre, a key profitability and efficiency measure.

“Due to the action taken to reduce group domestic capacity, the negative domestic RASK trend was arrested in April, with improved trends through May and into forward bookings for June,” Qantas said.

Still, domestic RASK slid for the second straight month, with the figure now flat for the financial year to date. International RASK was down for the month and the year-to-date, owing most recently to discounting on US and UK routes and as Jetstar International sought to fill larger planes on Thailand and Bali routes.

Macquarie analysts said the comments around the domestic unit represented an encouraging development, with the RASK turnaround coming quicker than expected. “The traffic stats suggest that weakness will be addressed prior to the end of the second-half, highlighting the speed at which capacity cuts have taken effect.”