Qantas profit up despite fuel increases and natural disasters

Qantas mainline and Jetstar have both posted profitable results. (Seth Jaworski)

Qantas Group has posted a 46 per cent lift in underlying profit before tax (PBT) for the 2010-11 financial year to $552 million, on an eight per cent rise in revenue to $14.9 billion, thanks to solid results from its frequent flyer, Qantas mainline and Jetstar businesses.

Qantas CEO Alan Joyce said the result was the group’s “best performance since the global financial crisis”, achieved despite a “28 per cent increase in average fuel prices” and the impact of a string of natural disasters estimated at $224 million in FY11.

“We are pleased to report improved earnings for Qantas Domestic and Qantas Freight and record results for Jetstar and Qantas Frequent Flyer. Given the aviation sector’s inherent volatility, the flexibility to generate revenue from different parts of the business and different market sectors is a major strength for the Group,” said Joyce.

“But it is important to put the result in context. The Group’s planned capital expenditure over the next two years exceeds $5 billion. Fuel prices are expected to remain high and there is considerable uncertainty in the global economy. Qantas International reported a loss of over $200 million in FY11 on invested capital of over $5 billion, an unacceptable return. Continuing down this path would be unsustainable,” he said.

Joyce noted that all segments of the Qantas Group had reported improved earnings in FY11, with Qantas mainline – despite international losses – recording an underlying earnings before interest and tax (EBIT) of $228 million, compared to $67 million during the previous year. Jetstar followed with an underlying EBIT of $169 million.

“Qantas remains the most profitable domestic airline, offsetting the losses in the international business. During FY11 we strengthened our business travel credentials with new aircraft and new airport infrastructure while the acquisition of the WA based charter airline Network Aviation increased our presence in regional Australia,” Joyce said of the segment results.

“Qantas Frequent Flyer increased underlying EBIT to $342 million, also a record result. It is Australia’s leading loyalty program and during FY11 continued to add new partners and launch new initiatives to improve benefits for its eight million members,” he continued

“Underlying EBIT for Qantas Freight Enterprises was up 48 per cent to $62 million in a year which saw a number of important initiatives for the business, including the addition of a new freighter aircraft dedicated to trans-Tasman operations.”

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While categorising the “general operating environment” outlook as “challenging and extremely volatile”, Qantas expects higher yields in the first half of FY12 over FY11, but was unable to issue a profit guidance due to volatility and the company’s “transformational change agenda”.

“The Group expects to increase capacity in the first half of FY12 by eight per cent compared to the first half of FY11, while maintaining flexibility,” Qantas said in a statement.

“As at 22 August 2011, underlying fuel costs for the first half of FY12 are estimated to increase by circa $500 million from $1.7 billion to circa $2.2 billion due to higher forward market jet fuel prices and increased flying.”