Qantas cuts capacity guidance

Qantas stock tumbled as economy and election worries pushed it to slash forecasts for domestic passenger growth.

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Qantas shares tumbled after worries about the upcoming federal election and dwindling consumer confidence pushed the airline to slash expectations for capacity growth as the end of the financial year looms.

The revised guidance sent the airline’s shares falling as much as 14 per cent in early trade. By the end of trade, the stock was pricing at $3.62 a share, down 10.8 per cent from its last close. At their lowest, the shares touched their weakest point in five months.

Qantas (QAN) warned its domestic capacity growth over the last three months of the 2016 financial year will now be negative compared to the same time last year.

“Some softness in demand, related to the upcoming federal election and recent drop in consumer confidence in Australia, began to emerge over the peak Easter and school holiday period in late March and continued to be seen in forward bookings in April and May,” Qantas said.

Domestic capacity growth across the group over the second half of the financial year had now been revised to between 0.5 and 1 per cent, down from a prior estimate of 2 per cent.

From mid-April, Qantas also said it was removing three Sydney-Los Angeles services and redirecting capacity to Singapore and Hong Kong to meet the demand from those markets.

Consumer worries about the federal election and soon-to-be revealed budget have been exacerbated by fears of another austere program of government cuts. Malcolm Turnbull has been urging Australians to “live within our means”.

The latest piece of downbeat confidence data was last week’s monthly consumer confidence index from Westpac, which fell sharply to 95.1 in April, down from 99.1 in March and a further fall before that. A figure below 100 indicates there are now more pessimists about the economy than optimists.

The further fall in confidence suggested that the apparent weakness in consumption growth in the first quarter may continue into the second. Annual growth in retail sales recently slumped to its slowest rate since late 2013.

Official sales data showed turnover was completely unchanged in February, on a seasonally adjusted basis, coming in far below economist expectations. The soft retail figures in February also followed a sluggish 0.2 per cent rise in January and a 0.3 per cent lift in December. The results suggest that retail growth will only add very modestly to GDP growth over the March quarter.

A falling Australian dollar had until now been supporting a revival of the tourism and manufacturing sectors and bolstering exports over the latter half of last year. But the currency, which had slipped down to US68c by February, has since surged around 13 per cent over the last two months, rocketing above US77c last week following strong China export figures.