Qantas Airways says it expects to increase capacity by eight per cent and improve yields during what is tipped to be a challenging and volatile first half of 2011/12.
However, the airline group declined to offer earnings guidance, citing high fuel prices, foreign exchange rates, protracted industrial disputes and recently-announced changes to its loss-making international business.
Qantas reported net profit of $250 million for the 12 months to June 30, 2011, more than double the $112 million in the prior corresponding period.
A large chunk of the annual profit – $241 million – came in the first half, as natural disasters at home and abroad hit hard in the final six months of 2010/11.
Tropical cyclones, earthquakes, a tsunami and volcanic ash cloud, most of which occurred in the second half, cost $224 million for the year, Qantas said.
Qantas has flagged eight per cent capacity growth across the group during the first half of 2011/12, compared with the prior corresponding period.
“At this stage, yield in the first half of FY12 is expected to be higher than the first half of FY11,” Qantas said in a statement.
Chief financial officer Gareth Evans said Qantas domestic and international capacity growth – that is, planes sporting a red tail and white kangaroo – would be 3.6 per cent.
Meanwhile, subsidiary Jetstar would add an extra 19 per cent capacity across its operating businesses in Australia, New Zealand, Singapore and Vietnam.
Mr Evans said the vast majority of the additional Jetstar seats would be in Asia.
Qantas said fuel costs in the first half of 2011/12 were expected to be $2.2 billion, up half a billion from the prior corresponding half.
“We are still operating in an extremely high fuel price environment,” Mr Evans said.
A breakdown of the full year results showed a strong performance from Qantas mainline in the Australian domestic market propelled the airline to an underlying profit before tax (PBT) of $552 million, up from $377 million.
The result, the airline’s preferred measure of financial performance, was at the top end of company guidance and above market consensus.
Qantas mainline reported underlying earnings before interest and tax (EBIT) of $228 million in 2010/11, up more than threefold from the prior year.
Given chief executive Alan Joyce said Qantas international lost $216 million in 2010/11, it followed that the domestic business made $444 million.
The figure eclipsed the frequent flyer business, which reported underlying EBIT of $342 million.
Morningstar analyst Nachiket Moghe said Qantas domestic business was “rock solid”, benefiting from the limited competitive landscape, particularly in corporate travel.
“Qantas domestic is a powerhouse, it is a cash cow, it is just dominant,” Mr Moghe said from Auckland.
Qantas, which said it had renewed 99.5 per cent of corporate accounts, closed down two cents at $1.52.
Mr Joyce said the current share price was “disappointing” and did not reflect the full value of the business currently, nor the “high potential for tomorrow”.
City Index chief market analyst Peter Esho said Qantas represented “great value” at current prices.
“But we struggle to find the catalyst that will close the gap between share price and book value,” he said in a research note.
No dividend was declared.
