Qantas First-Half Profit to Fall as International Fares Drop

(Bloomberg) -- Qantas Airways Ltd. said first-half earnings may fall as much as 13 percent as competition drives down international air fares.

Underlying profit before tax will be between A$800 million ($608 million) and A$850 million for the six months ending Dec. 31, the Sydney-based airline said in a statement Monday. The figure was A$921 million in the same period a year ago.

A smaller fuel bill and a cost-cutting program won't be enough to compensate for declining revenue, Qantas said. Worldwide, the falling price of jet fuel -- typically an airline's biggest expense -- is encouraging carriers to lay on more flights. That's driving down ticket prices.

Qantas faces “a more challenging international revenue environment,” Qantas Chief Executive Officer Alan Joyce said in the statement. “Like most carriers globally, we are seeing international air fares below where they were 12 months ago.”

Shares in Qantas rose 1 percent to A$2.97 at 11:15 a.m. in Sydney, trimming this year's decline to 27 percent. Within the first hour of trading, the stock dropped as much 9.2 percent and traded up as much as 5.4 percent.

Qantas reined in planned capacity growth by as much as 50 percent. Across the group, capacity in the first half will increase between 1.5 percent and 2 percent, down from earlier expectations of 2-3 percent growth, it said.

Revenue at Qantas in the three months ended Sept. 30 declined 3.2 percent to A$3.98 billion from a year earlier, even as passenger numbers grew 2.5 percent.

First Dividend

The airline in August announced its first dividend since 2009 and handed bonuses to 25,000 workers as Joyce's A$2 billion turnaround program delivered a record annual profit. Joyce has cut thousands of jobs, deferred aircraft and dropped unprofitable routes.

The airline had previously said that domestic traffic in July and August was hurt by softening demand stemming from Australia's federal election in July. Qantas said Monday the local market stabilized in September, other than those routes affected by the end of the nation's commodities boom.

Qantas's first-half fuel bill will be about A$1.5 billion, it said. For the full year, the cost will be A$3.15 billion and no more than A$3.2 billion. Qantas's fuel expenses were A$3.25 billion for the whole of last year.

Monday's statement is the first quarterly update to replace the airline's monthly release of traffic statistics.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net. To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Edward Johnson