West Australian Newspapers Limited:
Dollar gives Qantas a delayed updraft
By Geoffrey Thomas
THE recent appreciation of the Australian dollar will net Qantas Airways up to $1.3 billion in capital savings on aircraft and $14 million a year in operating costs for every cent gained but hedging will delay the impact until the 2003 financial year.
According to Katie Hudson, airline analyst with JBWere, the airline has comprehensive hedging in place for fuel and the US dollar (USD) and this means rapid currency appreciation will not affect the airline's result this year.
"It will be the second half of 2002-03 before the full effects are felt," she said. The airline's chief financial officer Peter Gregg has put the gain at $14 million for every US1¢ the Aussie dollar moves upwards against the greenback.
That appreciation, which is nearly US8¢ in the past 12 months, is more positive news for the airline which is expected to post a 40 per cent increase in net profit to $407.7 million on better than expected traffic figures and yields.
Last year, Qantas recorded a slump of 36 per cent in net profit to $290.9 million after abnormal gains, despite an 11.9 per cent lift in revenue to $10.18 billion. For the six months to December 31, it recorded a 41.6 per cent drop in net profit to $153.5 million.
As well as fuel, Qantas pays for its aircraft purchases and leases in US dollars and has an extremely ambitious fleet plan in place for A380s, 747s, A330s, 737s and 717s.
In November 2000, the airline bought 31 jets from Boeing and Airbus for $8.8 billion, which was $2 billion off the list price as the airline was a launch customer for the A380. Last year Qantas committed to 15 Boeing 737-800s worth $1.84 billion.
Both purchases were priced at an exchange rate of US50¢, which has since climbed to US57¢ giving the airline potential savings of $1.3 billion over the life of the aircraft deliveries.
Qantas chairman Margaret Jackson said the deals would be funded by a mixture of operating cash flow, debt and equity to maintain existing target gearing levels.
The 15 Boeing 737s will be delivered by July and the first of the A330s and 747s will start arriving in October, while the giant A380 is due in 2006.
The rapid appreciation of the dollar is yet another positive for Qantas, according to Singapore-based equity research group Goldman Sachs. It suggests a 12-month share price of $6.50 and the appreciation of the dollar as a catalyst.
In an another development, Virgin Blue has signed a code-share deal with United Airlines which was a co-founder of the Star Alliance link between Brisbane and Sydney.
Since the demise of Ansett, Star Alliance airlines, such as Singapore Airlines and Air New Zealand, have been booking their passengers in and out of Australia on Qantas, which belongs to rival alliance, oneworld.
According to Ms Hudson, the code-share with United will be extended to other destinations around Australia. She suggests the move lessens the chance of Star Alliance airlines starting a new domestic airline in Australia.
However, Star Alliance airlines will have to offer premium-class passengers flights on Qantas domestic business class if they are to maintain their rigorous standards.
Interline traffic, including Qantas, accounts for 15 per cent of the domestic market and JBWere suggests the long-term impact of the Virgin Blue-United deal could put at risk 5 per cent of Qantas' passenger loads. Qantas shares closed 1¢ lower yesterday at $4.50.
© 2002 West Australian Newspapers Limited
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