Qantas’s international operations are expected to make a positive contribution to the airline’s return to profitability in the first half of 2014/15 as the carrier makes “rapid progress” with its three-year, $2 billion cost cutting program.
Despite the brighter outlook for the long-suffering international arm, Qantas chief executive Alan Joyce says the airline will maintain a cautious approach to exercising options for new aircraft such as the Boeing 787.
In an update to the market on Monday, Qantas said all its operating segments were on track for a profitable first half of 2014/15, with the overall airline group forecast to post an underlying profit before tax of between $300 million and $350 million for the six months to December 31 2014.
This includes Qantas International, which posted a underlying earnings before interest and tax loss of $262 million in the first half of 2013/14 and has not posted a profitable half since the company started reporting its performance as a separate operating segment in 2012/13.
“This is a significant turnaround in that business,” Joyce told reporters during a conference call on Monday.
“This is great progress that the business is starting to show signs of delivering on profitability and international is starting to show signs of turning around.”
Prior to 2012/13, Qantas did not split out the performance of its mainline domestic and international operations. However, the airline said in 2012 its international arm had met its cost of capital three times in the past 15 years.
Qantas has 50 options and purchase rights for the Boeing 787, and the airline group has 11 787-8s on firm order for low-cost unit Jetstar.
So far Jetstar has taken delivery of seven 787-8 aircraft, which had enabled the low-cost carrier to transfer Airbus A330-200s back to Qantas. In turn, that will allow Qantas to retire its fleet of 767s
Joyce said although there was good progress being made, there was still a long way to go before the airline turned its attention to the 787 options.
“We have other targets we want to achieve this year – paying down a billion dollars of debt, strengthening our balance sheet and getting into a position where the business is making sustainable profits going forward to invest in aircraft and product as we have been doing over the past five years,” Joyce said.
“This is a great first step on that path but I think it is too early to talk about those things until we complete the transformation program.”
Meanwhile, Qantas said the lower fuel price would have a $30 million benefit in the first half.
However, there were no plans to alter the airline’s level of fuel surcharges on international flight until there was a sustained and significant reduction in fuel prices.
“We are long way away from seeing sustainable fuel price reductions that would allow us to start alleviating and pulling back on the surcharges,” Joyce said.
Joyce said the current level of fuel surcharges on its tickets did not cover Qantas’s fuel bill for its international operations. Moreover, an airfare from Australia to London has fallen by 30 per cent over the past 10 years.
“Consumers have it a lot better than they have had in a long time,” Joyce said.
He noted that the Qantas’s international fuel bill would be about $2 billion this year, while the fuel surcharges would bring in about $1 billion.