Qantas H1 profit may be 'materially stronger'

Qantas Airways Ltd said first-half earnings 'may be materially stronger' after Australia's biggest airline returned to profit on rebounding corporate travel and higher income from frequent flyers. "We can see as the recovery happens that the leverage to earnings in our airlines increases dramatically," chief executive officer Alan Joyce said in a telephone interview today The carrier had a net income of A$54 million ($48 million) in the second half ended June compared with a year-earlier loss of A$93 million, based on annual results. The carrier boosted earnings at its frequent-flyer program 12% in the second half and the Qantas-brand unit returned to profit on rising business travel and a company-wide cost- cutting program. Profit at the Jetstar budget unit fell as rising competition from Tiger Airways Holdings Ltd and Virgin Blue Holdings Ltd squeezed fares on domestic routes. "They've done very well in tough conditions," said Will Seddon who helps oversee A$350 million at White Funds Management in Sydney. "The worst is now behind them in terms of demand and yields, and the cost structure is now much leaner, so that bodes well for earnings growth." Joyce, 44, cut costs by A$533 million in the 12 months ended June, the first year of a three-year plan. The airline intends to save A$1.5 billion over the course of the program by flying more direct routes, using more fuel-efficient aircraft and paring the time planes spend taxiing to runways. The carrier fell 1.2% to A$2.48 in Sydney, matching the drop in Australia's benchmark S&P/ASX 200 index. Qantas hasdeclinedl7% this year, the second-worst performance among the 31 stocks in the Bloomberg World Airlines Index. First-half profit in the current fiscal year "may be materially stronger" than a year earlier subject to fuel prices and trading conditions continuing, Qantas said without providing a specific forecast. The carrier plans to increase group capacity 9.6% from a year earlier, it said. The airline's full-year net income fell 4.3% to A$112 million, trailing the A$181 million average of eight analyst estimates compiled by Bloomberg. Sales declined 5.4% to A$13.8 billion. Full-year pretax profit to-taled A $377 million, compared with the airline's forecast of A$300 million to A$400 million. The result included a A$46 million impact from the Icelandic volcanic ash cloud that shut much of European airspace in April. "The A$46 million wasn't originally in our outlook when we talked aboutA$300to A$400 million," Joyce said. "The number we reported today would have been better by that amount if the volcano hadn't occurred." Second-half underlying earnings before interest and tax at the carrier's frequent flyer program, its most profitable unit, rose to A$171 million.

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