Qantas lifts revenue but sees challenges ahead

Qantas has posted a 5.1pc rise in first quarter revenue to $4.19bn but warned of tougher trading conditions in the second half.

CEO Alan Joyce says Qantas is on track for a successful full year. Pic: AAP

Qantas has posted a 5.1 per cent rise in first quarter revenue to $4.19 billion but warned of tougher trading conditions in the second half.

The airline is forecasting underlying profit to be between $900 million and $950 million in the first six months of the financial year, an improvement from $852 million in the prior corresponding period,

Qantas (QAN) expects group capacity to increase by two to three per cent in the first half of financial year compared to a year earlier, despite a two to three per cent decrease in domestic capacity during that period. Domestic capacity is set to fall one per cent in the second half.

International capacity will likely increase by around 5 per cent in the first half of financial year and 3 per cent in the second half.

But Qantas is bracing for tougher trading conditions in the second half due to increasing fuel costs and fiercer international competition.

Qantas shares sank as much as seven per cent in early trade but later recovered to be 2.4 per cent lower at $6.25.

In its quarterly trading update, the airline said it expects its full year fuel cost to be $3.21 billion, up from $3.04bn for the 2017 financial year. For the first half, Qantas expects its fuel cost to be $1.55bn, up from $1.49bn.

The company expects international competition to grow by around 3 per cent in the first half and 6-7 per cent in the second half.

“Despite an uptick in fuel costs and the challenges from competitor capacity growth on the international side, the group remains on track for another strong underlying first half and a successful full year,” CEO Alan Joyce said.

“The domestic market is healthy but remains very competitive.

“The high rate of revenue growth we’ve seen so far this year is likely to slow when compared with what was a strong second half last year.

“There’s been a welcome easing of capacity growth in the international market but the indications are that it is likely to pick up pace again in the second half.”

Revenue from the domestic unit rose 8 per cent, as the company saw an increase in demand due to the stabilisation of conditions in the resources market. Revenue from the international business unites increased by 0.2 per cent “in the face of a 3 per cent increase in competitor capacity”, the airline said.

Qantas has faced tough competition on its international routes amid an uptick in tourism to Australia, and its domestic business has faced challenges as a resources boom in the western part of the country eased. Still, the airline has returned to profit in recent years after launching a cost-cutting program.