Qantas Airways Ltd., Australia’s largest carrier, returned to full-year profit as a tie-up with Emirates helped it rein in losses on long-haul routes amid domestic competition with Virgin Australia Holdings Ltd.
Net income was A$5 million ($4.5 million) in the year ended June 30, compared with a loss of A$245 million in the previous 12 months, the Sydney-based company said in a regulatory statement. Pre-tax profit excluding one-time items was A$192 million, beating the A$76 million average of seven analyst estimates compiled by Bloomberg.
Qantas has dropped unprofitable routes, retired older planes and allied with Dubai’s Emirates to stem international losses that had mounted to A$450 million amid competition for long-haul passengers and rising fuel costs. Chief Executive Officer Alan Joyce also added more domestic routes to defend the carrier’s 65 percent market share it considers the most profitable.
“It has been a challenging year for captain Joyce and the crew at Qantas but the ability to contain costs and take some bold steps in the international division is starting to show some positive signs,” Peter Esho, chief market analyst at Invast Securities Co., said in a note to clients after the result was announced. “There is no doubt that the operating environment has been difficult for Qantas but it seems as though the diversified group has held up relatively well in light of all the circumstances.”
Shares of Qantas fell 3.5 percent to close at A$1.23 in Sydney Wednesday. The stock has fallen 17 percent this year, compared with a 9.4 percent gain for the S&P/ASX 200 index.
Excluding one-time items, losses before interest and tax at the international division narrowed to A$246 million from A$484 million a year earlier, the company said.
The Ebit measure fell 21 percent to A$365 million in Qantas’s domestic unit and grew 13 percent to A$260 million in the frequent flyer loyalty business, the company’s biggest- earning segment between 2009 and 2012.
At the Jetstar budget carrier, Ebit excluding one-time items dropped 32 percent to A$138 million, Qantas said. The unit is Asia’s second-largest low-cost airline after AirAsia Bhd. with stakes in Jetstar-branded carriers in Australia, Singapore, Vietnam, and Japan. Jetstar is also seeking to win approval for a Hong Kong venture.
Joyce, who took over in November 2008, has promised to return Qantas’s international unit to profit by the year ending June 2015 by using the Emirates alliance to exit loss-making routes.
The carrier spent A$4.2 billion buying fuel during the year, equivalent to 27 percent of group sales, which rose 1.1 percent to A$15.9 billion.
An 11 percent fall in the Australian dollar in the year raised the price of jet fuel, prompting Qantas last month to increase surcharges by as much as A$75 a leg on international flights. The airline pays U.S. dollars for fuel.
“Qantas effectively has a net A$4 billion short position in the U.S. dollar,” Simon Mitchell, an analyst at UBS AG in Sydney, wrote in a note to clients last month. Each 1 U.S. cent weakening in the Australian dollar “would lower pre-tax earnings by A$40 million,” he wrote.
Virgin, whose chief executive officer John Borghetti was a senior Qantas executive before quitting the company five months after Joyce took the top job, has been buying bigger planes and adding flights to challenge Qantas’s dominance of domestic corporate travel.
“A high degree of capacity growth” was pushing down profitability in the local market, Joyce said in a May 3 speech.
Virgin will make a net loss in the range of A$95 million to A$110 million when it reports annual results this week, the Brisbane-based carrier forecast Aug. 5.
Net debt shrank 8 percent to A$3.23 billion over the year, and fell 10 percent to A$4.82 billion including liabilities for Qantas’s leased aircraft.
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