Qantas says it is well positioned for the future thanks to its transformation program after reporting a drop in full year profit amid weakness in the resources sector and intense competition on international routes.
Net profit for the 12 months to June 30 2017 came in at $852 million, down 17.2 per cent from $1.03 billion in the prior corresponding period. The result was below market forecasts of $1.1 billion.
Revenue fell 0.9 per cent to $16.1 billion, Qantas said in a regulatory filing to the Australian Securities Exchange on Friday.
Qantas chief executive Alan Joyce said it was the company’s second highest result in its history.
“Our domestic business got stronger, with growth in the business and leisure segments more that offsetting a continued decline in resources,” Joyce said in prepared remarks.
“Qantas international came under continued pressure from excess capacity in the market, but these forces eased later in the year.”
After posting the highest profits in its history in 2015/16, Qantas has battled increased competition on international routes and a sluggish domestic market that is weighed down by weakness in the mining and resources sectors.
In response, the airline group has been taking domestic capacity out of states such as Queensland and Western Australia that have been most heavily impacted by the changes in the mining industry and redeploying those aircraft on more profitable routes on the east coast.
And despite the rush on new capacity on international routes, Qantas has found opportunities to expand its overseas flying such as a seasonal return to Osaka Kansai and new widebody services on Sydney-Auckland following the withdrawal of alliance partner Emirates’ A380 tag flights from the route.
The airline group is also aiming for cost savings of $400 million a year for the three years to 2019/20 led by its fleet renewal program as the Boeing 787-9 replaces older 747-400s and the use of new technology and innovation to support a more efficient operation both on the ground and in the air.
Qantas noted the drop in statutory profit in 2016/17 reflected the fact that the 2015/16 result included a one-off gain from the sale of the Sydney Airport domestic terminal.
Underlying profit before tax, which removes one-off items and was regarded as the best indication of financial performance, fell 8.4 per cent to $1.40 billion, from $1.53 billion achieved in 2015/16.
The result was within company guidance issued in May for underlying PBT to be between $1.35 billion and $1.40 billion and broadly in line with market consensus of $1.38 billion.
In terms of the outlook, Qantas said it planned to cut capacity in the domestic market across its Qantas and Jetstar units by one per cent in the first half of 2017/18, while unit revenues were tipped to increase on stronger demand.
And its international network capacity was forecast to expand five per cent as a consequence of previously announced net routes.
Meanwhile, Qantas said it would add more premium seats to its fleet of 12 Airbus A380 aircraft as part of a cabin upgrade set to commence in the second quarter of calendar 2019 and be completed by the end of 2020.
While the total number of seats would is being increased by one to 485, the split between the four cabin classes is changing.
First class stays the same at 14 seats, while the business cabin will expand to 70 seats, from 64 currently and feature the airline’s latest seat seen on the 787-9. There is a big increase in premium economy from 35 to 60 seats, while the economy cabin is being cut by 30 seats to 341 seats.
The upper deck will be reconfigured to only business and premium economy cabins, while first and economy will be on the lower deck.
“We’re seeing increased demand for premium economy and business class on the long-haul routes that the A380 operates, including from people using their Qantas points to upgrade,” Joyce said.
Qantas declared a final dividend of seven cents per share, unranked. It also announced an on-market share buyback worth $373 million.