Qantas lifts profit, awards bonuses, but warns on fuel costs

Qantas staff will be rewarded with bonuses after another lift in profit, but rising fuel costs pose a challenge for the carrier.

Business class in a Qantas Dreamliner

Qantas Airways says annual net profit rose by 15 per cent, continuing a multi-year turnaround for the previously struggling airline, but warned that rising fuel costs would be a challenge for the upcoming year.

It came as the carrier committed to a second pilot training facility and rewarded staff members with bonuses of $2500 each.

Qantas said statutory net profit was $980 million for the year through June. Revenue rose by 6 per cent to $17 billion.

Underlying profit before tax was a record $1.6 billion, compared to guidance of between $1.55 billion and $1.6 billion.

Statutory net profit before tax was up 18 per cent to $1.4 billion thanks to strong performances in all parts of the business, led by Qantas Domestic and Qantas Loyalty.

The airline declared a final dividend of 10 cents per share and announced an on-market share buyback of up to $332 million.

Looking ahead, however, the airline (QAN) didn’t provide specific profit guidance for fiscal year 2019.

Instead, it expects its full-year fuel bill to be $3.92 billion, up about $690 million.

Group capacity would increase by up to 1 per cent. Net capital expenditure would be $1 billion and benefits from a cost-cutting transformation program would be $400 million.

Rising fuel costs are a big concern across the industry and some investors fear that will soon cut into profits. Qantas said it is 87 per cent hedged on fuel in the first half of the 2019 fiscal year.

“This record result comes despite higher oil prices,” said chief executive Alan Joyce. “We’re facing another increase to our fuel bill for FY19 and we’re confident that we will substantially recover this through a range of capacity, revenue and cost efficiency measures, in addition to our hedging program.”

Qantas CEO Alan Joyce. Pic: AAP

Qantas also announced an extension of its lounge-upgrade program as it seeks to woo lucrative business and first-class passengers.

Despite a 2.4 per cent reduction in capacity, higher fares saw Qantas Domestic rack up $768 million in earnings before interest and tax — a 19.1 per cent increase on 2017.

Qantas International also increased earnings by 7.5 per cent to $399m in the face of strong competition and higher fuel prices.

Low fares carrier Jetstar continued to deliver for the group, with earnings up 10.6 per cent to $461m.

Mr Joyce said the results reflected the strong market as well as the benefits of ongoing work to improve the business and build long-term shareholder value.

“These numbers show a company that’s delivering across the board,” Mr Joyce said.

“The overall value for the travelling public remains extremely strong with domestic sale fares almost 40 per cent lower in real terms than they were 15-years ago.”

Mr Joyce said all non-executive staff would receive a $2500 bonus worth a total of $67m, and announced a 10 cents a share ordinary franked dividend plus a market buyback of up to $332m.

Qantas also committed to a second pilot academy facility in regional Australia, at a total cost of $20m.

Nine towns are in the running for the academies including Toowoomba, Mackay, Tamworth, Launceston, Wagga Wagga, Dubbo, Busselton, Bendigo and Alice Springs.

Looking ahead, Mr Joyce said after 98-years the national carrier was the “strongest it’s ever been”.

Mr Joyce said current events in Canberra were “disappointing and frustrating” and he indicated Qantas would continue to speak out about controversial issues, under a potential, conservative Peter Dutton-led government.

“Business likes certainty, it likes confidence in what’s going to happen in the future and I think anything that generates uncertainty which is what we’re seeing in Canberra is not helpful,” Mr Joyce said.

He said Qantas would be keen to see the company tax reforms revisited in the future, to make the corporate tax structure “more competitive”.

“We need a competitive tax structure to make sure this economy continues to outperform, continues to produce jobs and produce confidence,” said Mr Joyce.

“Similarly in energy policy, we need certainty on that. People have to make investments, to know where the energy policy is.

“We are in a good position in the economy today, and to maintain that I think these issues need to be resolved and resolved as soon as possible.”

Although he would not be drawn on his opinion of Mr Dutton, Mr Joyce said Qantas would always speak out on issues such as gender equality, marriage equality and indigenous rights.

“Nothing’s going to change our position of being outspoken on issues that are important to our customers, our employees and our shareholders and that will continue,” he said.

With Dow Jones Newswires