Qantas chief executive Alan Joyce says the local economy is “humming on all cylinders” as the airline group looks set to post a double digit improvement in underling profit for the full 2017/18 financial year amid an improving resources sector and more moderate international capacity growth.
The airline group said in a trading update on Wednesday it expected underlying profit before tax (PBT) – which excludes one-off items and which it regards as the best indication of financial performance – for the 12 months to June 30 2018 to be in the range of $1.55 billion and $1.6 billion.
If the result is in line with guidance, it would represent an improvement of up between 10 and 14 per cent from underlying PBT of $1.40 billion in 2016/17.
Qantas chief executive Alan Joyce said the company was experiencing “solid results” from each of its business units, which comprise the Qantas and Jetstar domestic and international flying brands, as well as its loyalty division.
Joyce said the domestic economy in particular was doing well, with the continued recovery in the resources sector and good demand for leisure travel.
“We are dependent on all Australian businesses doing well. We are dependent on the Australian economy doing well. That’s the biggest driver of our business,” Joyce told reporters in Sydney when announcing an order for six more Boeing 787-9s.
“The reason we are doing well today is because the Australian economy is humming on all cylinders.
“Leisure is doing really well, people are travelling. And the corporate market in all sectors is doing really well. We are now for the fist time seeing real good growth in the resources sector.”
That improving domestic economy helped support an eight per cent improvement in revenue per available seat kilometre (RASK), a measure of demand, across its Qantas and Jetstar operations in the three months to March 31 2018. Domestic capacity, measured by available seat kilometres (ASK), was down 1.9 per cent in the quarter, compared with the prior corresponding period.
Meanwhile, Qantas said RASK at the airline group’s international operations was up 5.2 per cent in the quarter, “driven by underlying demand growth and higher load factors”, as well as recent network adjustments including the start of Perth-London Heathrow flights and a additional flying across the Tasman due to the withdrawal of alliance partner Emirates on certain routes.
Qantas and Jetstar’s international ASKs rose 2.3 per cent in the quarter, compared with a five per cent increase in the overall international market.
Joyce said the more moderate international capacity growth from other carriers had helped support the improved RASK performance.
“Capacity is obviously a driver of where airfares go and that is actually helping as well,” Joyce said.
Also, Joyce said he expected the some short term “negative impact” from Air New Zealand’s decision to walk away from its alliance with Virgin Australia on trans-Tasman routes from October 2018.
Air New Zealand and Virgin Australia have both announced plans to add extra flights across the Tasman once their alliance ends and that capacity increase is likely to put downwards pressure on ticket prices.
More recently, Qantas has added extra flights from Brisbane, Melbourne and Sydney to Auckland, as Emirates withdrew its A380 services to New Zealand’s largest city.
The company’s market update said revenue across the airline group for the three months to March 31 2018 was $4.25 billion, up 7.5 per cent compared with the prior corresponding period.
In February, Qantas said it expected its total fuel bill for 2017/18 to be no more than $3.24 billion, compared with $3.04 billion in the prior financial year.
Looking beyond 2017/18, Qantas said on Wednesday that the end of April 2018 it had hedged about 70 per cent of its expected fuel costs for FY19 and retained “significant participation to falls in oil price”.
“In addition, ongoing transformation as well as capacity and revenue management will help mitigate the impact of higher fuel costs,” Qantas said.
In April, crude oil prices reached their highest levels since November 2014, with Brent crude oil contracts briefly breaking through US$75 per barrel. This compared with below US$30 a barrel in 2016.