Qantas has forecast an improved second half as it further screws down on costs and realises further gains from lower fuel prices after reporting its best first half result in five years.
The airline group said net profit for the six months to December 31 2014 came in at $203 million, a big turnaround from a net loss of $235 million in the prior corresponding period.
Chief executive Alan Joyce said the return to profitability was a result of the company’s three-year transformation program, which aims to take out $2 billion in costs by the end of the 2016/17 financial year.
The program achieved $374 million in benefits in the first half of 2014/15, with comparable unit costs across the group falling 4.8 per cent.
“That is the entire profit for the first half,” Joyce told reporters at the company’s first half results presentation in Sydney on Thursday
“We have to complete the transformation program, deliver the $2 billion in savings and we believe that will set the business up to be a resilient business that can take advantage of the good times and manage itself through tough times when they come again.”
Qantas said in a slide presentation accompanying the first half results the transformation program was forecast to achieve $675 million in savings by the end of 2014/15. Some 4,000 of the 5,000 planned job cuts were expected to have been made by June 30 2015.
All of Qantas’s operating segments were profitable in the first half, with Qantas International returning to the black for the first time since the global financial crisis and Qantas Domestic resuming its historic position as the earnings powerhouse of the group with underlying earnings before interest and tax (EBIT) of $227 million, a fourfold increase from the prior corresponding period.
Its frequent flyer division continued to post strong earnings growth, while Qantas Freight had its best half year result in eight years as better loads on international routes lifted yields.
The Jetstar group of airlines also reported better results – the low-cost carrier’s Australian domestic and international flying posted positive underlying EBIT while its Asian-based franchises had a “reduction in losses” for the half.
Qantas said underlying profit before tax – which the airline regards as the best indicator of financial performance – was $367 million for the first half, compared with a $252 million loss in the prior corresponding half.
It was the company’s best first half performance since 2010 and above its own estimates of a $300-350 million result.
Revenue rose 2.1 per cent to $8.071 billion, Qantas said in a statement to the Australian Securities Exchange on Thursday.
“Today’s results are good and we take pride in our progress so far,” Joyce said.
“Transformation has been central to our recovery and we will drive it forward with all our energy.”
Joyce said Qantas retained an “overwhelming 80 per cent revenue share” of the Australian corporate market, having renewed 113 large corporate accounts, won 42 new accounts and lost four.
Slumping oil prices provided a $33 million gain in the first half and were expected to provide a “significant boost to the bottom line” in the current half.
In terms of the outlook, Joyce said the operating environment for the second half had improved after turbulent period.
The Qantas boss said demand was mixed in the domestic market and steady in the international market, noting that capacity had moderated in both segments and was now more closely aligned to demand.
“We expect all operating segments to be profitable in the full year,” Joyce said.
However, Qantas did not offer specific profit guidance for the the rest of 2014/15 citing the “high degree of volatility and uncertainty in global economic conditions, fuel prices and foreign exchange rates”.
Qantas was also coy about its capacity plans for the rest of 2014/15, noting only that capacity across the airline group – Jetstar’s orange star and Qantas’s red tail – was expected to increase by 1.5-2 per cent in the second half compared with the prior corresponding period.
“A large element of the capacity growth is coming from increased utilisation on international markets,” Joyce said, citing extra flights such as seasonal services to Los Angeles, Santiago and Vancouver.
“In the domestic market the demand environment is mixed. We are not seeing levels of growth or expecting levels of growth in capacity on that market going forward.
“We are not giving a domestic capacity forecast given the fact that we have seen a huge amount of flux in the domestic capacity.”
Qantas’s slide presentation said its group domestic capacity was forecast to remain moderate in line with market conditions, “maintaining flexibility to adjust as conditions require”.
The airline group expected to retire up to eight aircraft in the current half – one Boeing 747-400, one Q300 turboprop, and “up to” six 737-800s – and pick up one 787-8.