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Qantas Leads the Way

Qantas strengthened its credentials as one of the world’s most profitable airlines today after its domestic strength and improving international performance delivered a 28% increase in net profit for the six months to 31 December 2004.Ê
“The AUD458.4 million (USD360 million) half year profit announced by Chief Executive Geoff Dixon reflected the value that can be extracted from a good strategic model moulded to market conditions,” the Centre for Asia Pacific Aviation’s Managing Director Peter Harbison said.

“Qantas has become a benchmark for what most other operators aspire to, and sadly do not achieve. It has evolved a structure that seemingly can cope with whatever the market throws at it, and still grow profitability.”

The airline’s domestic operations were particularly strong, increasing earnings before interest and tax by 20.5% to AUD390.1 million despite a 5.3% fall in yield in a period where a large amount of new capacity was added by both Qantas’ low-cost subsidiary Jetstar and Virgin Blue.Ê

“Clearly, Jetstar has had a considerable initial impact on the market, earning AUD19 million in the half year amid some tough pricing skirmishes with Virgin Blue,” Mr Harbison said. “But it’s still relatively small, accounting for some 5% of Qantas domestic earnings.”

Despite adding 14% international capacity and a reduction in load factor of 4.7%, Qantas’ focus on its premium product showed rewards, with international yields actually increasing by a strong 3.6%. EBIT for the international operation grew by 14.4% to AUD229 million.


Mr Harbison commented that the comprehensive fuel hedging undertaken by Qantas still saw fuel costs up 32%, against an increase of 13% in ASKs and manpower costs increased almost 12%, as staff numbers increased 5%. However, with capacity increases, group unit costs, including all domestic and international, decreased by 4.0%.Ê Qantas achieved a further AUD245 million in savings, half of the anticipated AUD500 million in efficiency gains targeted this year.

Strongest revenue growth was on Pacific and Asian routes, while European revenues grew at a more modest rate. Despite significant increases in capacity on New Zealand routes, revenue was flat, implying substantial reductions in yield on trans-Tasman operations.

Qantas expects to realise a full year result in line with consensus market forecasts, despite a relatively small negative impact on revenue of the tsunami disaster and difficulties in securing rights for Jetstar Asia to operate out of Singapore to a number of other countries.

“This result places Qantas squarely as the most profitable international airline in the world at present - perhaps a sad reflection on the industry, for as CEO Geoff Dixon notes, this result still does not meet the cost of capital,” Mr Harbison said, “But, on the bright side, Qantas and Virgin Blue now appear to have the Australian domestic market to themselves, which, barring major setbacks, presents a near-guarantee of profitability for both for the medium term.”