News Backgrounder
Qantas rebounds on fuel price fall
June 1st 2015
Qantas Group CEO, Alan Joyce, told investors last month that the company is set to deliver one of the biggest turnarounds in the carrier’s history. Read More »
Long lambasted for delivering a litany of losses at the group, Joyce told an investor briefing he would announce an underlying profit, for the year to June 30, of US$700 million, $170 million more than the consensus profit forecast by analysts.
Considering that the group’s red ink stretched to the horizon less than a year ago, it was good news for investors to hear Joyce say returns to shareholders were “top of mind” at the carrier.
Since reporting a loss for the 2013-2014 year of US$2.6 million, a combination of factors had turned the tide for Qantas with the dramatic decrease in the price of fuel since last June the most important factor. Joyce said the Qantas fuel bill will be $426.1 million lower in the current year, down from $3.5 billion 12 months ago.
Joyce’s massive transformation program, that is eliminating 5,000 jobs, trimming routes and cancelling or delaying aircraft deliveries to achieve savings of $1.55 billion by 2017, is paying dividends. The program will reduce costs by $678 million this year and keep Qantas on track to cut debt by $775 million.
According to Joyce, the carrier is positioned to outperform in the international market through its budget network, strong international alliances and a favourable competitive environment because of a lower Australian dollar.
He argued the airline has long-term advantages in the domestic market, where it has a 63% market share, as it narrows the cost difference with rival, Virgin Australia.
“We are looking at our own game and we believe, even if Virgin Australia achieves 100% of their program, that we will get our cost base within 5% [of them]. “If they don’t achieve that, the cost difference will narrow even further,’’ Joyce said.
Qantas is making “rapid progress” towards delivering its business transformation and its credit profile was expected to “reach its target two years ahead of the initial time frame”. Maintaining an optimal capital structure would provide the opportunity to return capital to shareholders or reinvest in the business, Qantas said.
The airline group is protecting itself against unfavourable movements the fuel and foreign exchange markets with a hedging program. Official results for the year ended June 30 will be announced in August.
