Qantas has reported a decline in first half net profit amid red-hot competition on international routes and a subdued domestic market and announced plans to defer deliveries of Airbus A320neos for Jetstar.
The airline group posted net profit after tax of $515 million for the six months to December 31 2016, down 25 per cent from the bumper $688 million result in the prior corresponding period.
Underlying profit before tax, which removes one-off items and was regarded as the best indication of financial performance, fell 7.5 per cent to $852 million, from $921 million in the prior year.
The result was at the top end of company guidance of between $800 million to $850 million issued in October and above market consensus of $829 million, according to Bloomberg.
Revenue fell 3.3 per cent to $8.18 billion, Qantas said in a regulatory filing to the Australian Securities Exchange on Thursday.
Qantas chief executive Alan Joyce said its international division was “not immune” from the impact of lower oil prices and new entrants to Australia.
“In the international market conditions are challenging,” Joyce said in prepared remarks.
“As travellers are very much aware, cheaper oil has led to strong capacity growth on international routes – pushing fares down and impacting all major markets.
“However, the work we’ve done to transform our international business means we are still delivering a much better margin than our main competitors.”
Qantas said its cost reduction program yielded $212 million in savings in the half, bringing to $1.9 billion the total savings achieved as part of the airline’s $2.1 billion transformation program.
While all Qantas’s business units were profitable in the half, Qantas’s international and domestic units reported a drop in earnings.
Qantas’s international flying achieved underlying earnings before interest and tax (EBIT) of $208 million, a decline of $62 million from the prior corresponding half. International revenue fell 8.9 per cent.
Meanwhile, Qantas domestic posted underlying EBIT of $371 million, which was $16 million lower than the prior corresponding period. The Flying Kangaroo reduced capacity, measured by available seat kilometres (ASK) by 1.5 per cent in the half.
On a more positive front, the airline group’s low-cost arm Jetstar reported underlying EBIT of $275 million, an improvement of $13 million from the prior year.
“This is a strong group performance, and one that reflects the impact of transformation in every part of our business,” Joyce said.
Looking ahead, Qantas said it expected to cut domestic ASKs across the airline group by about two per cent in the second half, with unit revenues, measured by revenue per available seat kilometre (RASK) tipped to increase in the six months to June 30.
International ASKs were forecast to grow three per cent.
The company declined to offer profit guidance for the second half.
“Our group portfolio means we’re well placed relative to the rest of the industry,” Joyce said.
“Internationally, the market will remain challenging, but we expected the revenue trend we saw in the first half to moderate.”
In terms of fleet developments, previously Qantas had targeted first delivery of the 99 Airbus A320neo (new engine option) family aircraft the airline group has on order from the end of calendar 2017. The order is for 54 A320neo and 45 of the larger A321neo.
It was understood the new delivery timeline will be a delay of about nine months from the previous timeline, with the company deciding to push the capital expenditure for these new aircraft into the 2018/19 financial year rather than 2017/18.
The aircraft are ostensibly destined for Jetstar as older A320s are paid off and to cover growth.
Qantas is expected to run a competition between the 737 MAX and A320neo at some future point for the replacement of its existing 737-800 fleet.
During the first half, Jetstar leased two Airbus A321ceos to “meet demand in short-haul leisure markets”, Qantas said.
Meanwhile, Qantas also purchased three Fokker 100s that have been deployed in resources-related markets, replacing larger aircraft such as the Boeing 737-800 that previously operated those routes.
Qantas declared an interim dividend of seven cents per share, half franked.