news.com.au
Qantas profit doubles, cuts loom
February 20, 2003 11:22 AEDT
THE departure of rivals from Qantas's domestic and international route has propelled earnings for Australia's biggest airline, which today reported a more than doubling of its first half profit, but 1500 staff cuts loom pending global tensions and slump in demand.
Qantas Airways today reported a net profit of $352.5 million up 129.6 per cent.
Analysts were expecting a net profit of between $300-$350 million.
The result was well up from the previous half's $153.5 million, after its international operation slumped into the red because of the post September 11 drop in global travel.
But events like the October 2002 Bali bombing and potential upcoming conflict in Iraq continue to subdue the outlook for passenger growth.
Qantas chief executive officer Geoff Dixon said the airline had taken steps in recent weeks to meet the changing market and economic conditions.
Assuming no further deterioration in demand, he said, the airline was still on track to achieve its full year profit target.
However, he said in recent weeks the recovery seen in international markets and the growth in domestic flying had come under pressure from the tensions surrounding Iraq and the very public threat of terrorism.
"Forward bookings for the next 16 weeks have slowed considerably in some markets, including Japan, Europe and the United Kingdom. All carriers appear to be affected," he said.
Unions yesterday were outraged at reported plans by Qantas to sack 2500 staff - 10 per cent of its workforce - if war breaks out in Iraq.
They accused the airline of leaking the plan to boost its share price and give it the upper hand in pay negotiations.
An angry Australian Services Union assistant national secretary Linda White, representing Qantas ground staff said there was "no justification" axing so many jobs on any scenario.
Mr Dixon said Qantas's contingency plans in case of a downturn included the use of accumulated annual and long service leave entitlements to reduce staffing between now and June 30, 2003, by the equivalent of 1500 full time employees.
As well reductions in planned flying from March in both the domestic and international operations and a freeze on discretionary expenditure were on the cards. "However, if tensions continue around Iraq and terrorism, bookings could further deteriorate," he said.
"In such an environment, our profit target would certainly become more difficult to achieve."
He said Qantas, which is hoping for regulatory approval to secure a stake in Air New Zealand, was well positioned to maximise its opportunities when the global travel market recovered.
Qantas chairman Margaret Jackson described today's profit result as pleasing, particularly given challenges and difficulties in the aviation industry.
"The world's airlines lost about $US18 billion in the 2001 calendar year," Ms Jackson said. "Losses are expected to total $US12 billion in 2002.
"In the United States, two of the largest carriers - United Airlines and US Airways - have filed for bankruptcy protection. Many other carriers in the United States, Europe and South America continue to report losses, shed staff and retire aircraft.
"The performance of Qantas in this environment is a tribute to the efforts of staff and management." Mr Dixon said the result had been achieved in circumstances where domestic air fares were at historic lows, with the Bureau of Transport and Regional Economics revealing discount domestic fares were 23 per cent cheaper than three years ago.
The airline continues to benefit from the collapse of rival Ansett in September 2001, which then held around 42 per cent of the Australian market, although Virgin Blue has now taken between 20-25 per cent of the domestic market.
Qantas had grown some 50 per cent domestically.
Mr Dixon said that by the end of this financial year, Qantas will have invested approximately $6 billion on new aircraft, inflight entertainment, seating and other product initiatives since the collapse of Ansett.
Mr Dixon said while all areas of the business had contributed to the result, the improvement of the international operations stood out.
International operations earnings before interest and tax (EBIT) totalled $263.9 million compared to an EBIT loss of $15.5 million previously.
Revenue Passenger Kilometres (RPKs) for international operations increased by 2.5 per cent on reduced capacity of 3.3 per cent, leading to an improvement in load factors of 4.6 percentage points.
Yield, excluding the impact of unfavourable movements in foreign exchange, increased by 4.3 per cent with nearly all route groups providing a positive return.
Domestic airline operations, including QantasLink, contributed $197.9 million in EBIT, 1.7 per cent less than the previous corresponding period.
Qantas Holidays increased EBIT by 14.2 per cent to $19.3 million, primarily due to growth in the domestic market. The outbound market was detrimentally affected by the Bali bombings and travel warnings to destinations including Thailand and Malaysia.
QantasLink improved its EBIT result by 78.3 per cent, to $37.8 million.
Australian Airlines, which commenced operations in late October 2002, achieved an underlying operational EBIT of $4.4 million for the period to 31 December 2002.
The net impact of favourable foreign exchange movements was a $32.5 million benefit to profit.
The result comes as Qantas flight attendants announced strike action next week over the airline's sluggish response to their claim for a pay increase of 7 per cent as a reward for productivity gains made by cabin crews.
The Flight Attendants' Association of Australia said its 4000 members had accepted a wage freeze imposed on them by management as well as a reduction in cabin crew numbers since February 2002, estimated to save more than $40 million a year.
Qantas has maintained its interim dividend at a fully franked eight cents per share.
Qantas shares were down 30c at $3.50 at 11:22 AEDT