SYDNEY—Qantas Airways Ltd.’s fiscal first-half net profit shrank by 72% from a year earlier and it said that it won’t pay a dividend given a challenging environment, disappointing investors and sending its shares down 8.1%.
Australia’s top carrier by traffic also unveiled details of a US$360 million reconfiguration of its aircraft cabins, citing an industry shift away from premium-priced first-class seats.
Qantas said Thursday that rising fuel costs and higher depreciation costs mean that underlying profits could slow in the second half of the year ending June 30. The airline forecast a full-year underlying profit before tax of 300 million to 400 million Australian dollars (US$270 million to $360 million), with A$267 million of that amount made in the first half.
Analysts had been expecting full-year profit of A$530 million. Qantas’s shares ended at A$2.73, down 24 Australian cents, outpacing a 0.3% drop in Australia’s benchmark S&P/ASX 200 stock index.
Chief Executive Alan Joyce defended the result, saying that it was a significant improvement over expectations last year of a loss in the latest period. “We are seeing yields and revenue continue to improve with revenue set to be higher in the second half than in the first half,” he said in an interview. Yields are an airline industry measure of profitability.
Qantas returned to profitability after a loss in the second half of last fiscal year following quick action by the airline during the global aviation downturn to reduce capacity. Also important was the resilience of its diverse product range, with its low-cost carrier Jetstar continuing to grow strongly and producing a record profit while its full-service business languished.
Reflecting a fundamental shift in global air travel away from premium class seats, Qantas unveiled details of its long-awaited cabin reconfiguration, which the airline said would be funded through cash flow and existing debt facilities.
Qantas will carry first class passengers on only 12 of its Airbus A380 aircraft, while 29 aircraft—both Boeing 747s and some of the remaining A380s on order—will have a three-class configuration that includes economy, premium economy and business. While removing a large proportion of first class seats, Qantas will add business class and premium economy seats.
“Every full-service operator in the world…has suffered,” Mr. Joyce said during a conference call. “That’s because…premium traffic dropped by between 20% and 30%” as a result of the global economic crisis.
He said international yields are improving but lagging a recovery in domestic yields with the airline struggling on Australia-London and Australia-U.S. routes.
“The Pacific [routes] still continue to be over supplied with all carriers losing money,” Mr. Joyce said.
Reflecting the difficulty faced by full-service airlines, Qantas’ mainline operations recorded underlying earnings before interest and tax of just A$12 million in the first half.
Overall, the airline’s first half net profit was A$58 million, swinging from a loss in the second half of last fiscal year but down from a profit of A$210 million in the first half of last fiscal year.
Analysts’ forecasts centered on net profit of A$68 million, with expectations ranging between A$49 million and A$97.3 million, according to a survey of seven analysts by Dow Jones Newswires.
In the six months to Dec. 31, the airline had sales and other income of A$6.91 billion, down from A$8.07 billion a year earlier.
Qantas said it wouldn’t pay an interim dividend after paying a six cent dividend for the same period a year ago.
“Remaining uncertainty in the economic outlook, particularly in international markets, industry capacity, passenger and freight demand and high levels of volatility in fuel prices and exchange rates continue,” Mr. Joyce said in a statement.
“In this context, coupled with a significant capital expenditure program associated with fleet renewal, the board considers it prudent not to pay an interim dividend, and future dividends will be assessed against ongoing earnings performance and capital requirements.”
Analysts said that despite the conservative full year profit forecast, there were positive aspects to Qantas’ results. Citi analysts said they maintain their “buy” rating and target price of A$3.55. “This result in our opinion signals an inflection point in earnings,” they said.
Source:WSJ
