CAPA: Qantas breaks the billion barrier

Qantas delivered a record operating profit of just over AUD1 billion for the 12 months ended 30-Jun-07, up almost 54% on the previous year. The result was also ahead of its last official profit upgrade in Mar-07 (of the three upgrades in the past year) to around AUD940 million.

Qantas was also out of the blocks quickly for fiscal 2007/08, predicting that operating profits would be around 30% higher than the 2006/07 result, or AUD1.34 billion - which is a 9% upgrade on the AUD1.23 billion forecast by the carrier in Mar-07.

According to Qantas, the first six weeks of 2007/08 were “very strong” for all flying businesses, while forward bookings “are equally buoyant” through to the end of the calendar year.

Qantas now sits on a cash pile of AUD3.4 billion and announced a healthy dividend and a share buy-back of approximately 10% of outstanding shares. The buyback will amount to a reduction of capital of over $1 billion.

But the airline stopped short of announcing details of its planned restructure of its Frequent Flyer, Freight, Fleet and Holiday divisions. “Potential new ownership structures and strategic acquisitions” for these units, as part of a programme to unlock their value, would be announced during the current financial year.

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Jetstar was pivotal to the result, earning an operating profit of AUD112 million in 2006/07 “from routes that in 2003/04 Qantas either lost money on or realised a very small profit”, according to Qantas CEO, Geoff Dixon. Overall, Jetstar is estimated to have contributed AUD250 million in operating profits to the Qantas bottom line over the past three years.

The result was also aided by the “robust” economic environment, domestically and internationally, with high levels of demand in both business and leisure markets leading to a 6.9% yield improvement and a 2.9 ppts improvement in passenger load factor to 79.9%. Unit costs also improved by 1.9% following a further AUD753 million in efficiencies achieved by the Sustainable Future Programme.

Dixon foreshadowed rising competition in the coming 12 months, in the form of rising Middle East hub carrier capacity, new LCC entrants in Tiger Airways and AirAsia X, as well as the commencement of trans-Pacific services by Virgin Blue towards the end of 2008. However, Qantas is very well placed to weather these competitive impacts, with its strong balance sheet and highly successful two-brand strategy.
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