Old 22nd Feb 2003, 03:29
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Qantas profits expected to soar despite war jitters

Sat "Australian Financial Review" 22/2/03

Qantas profits expected to soar despite war jitters
Feb 22
Jane Boyle

Analysts expect Qantas Airways can lift its net profit this financial year by more than 40 per cent, despite concerns about the effects of war and terrorism on travel.

After nosediving on Thursday in reaction to cautious management commentary on the outlook, the stock ended 3 higher at $3.39 on Friday as analysts said Qantas was well-placed to withstand a down-turn and emerge leaner after more cost-cutting and restructuring.

However, the airline faces two other damaging events, including a claim by an academic that it is likely to be a target for terrorists because of its global brand identification with Australia.

Qantas responded by saying it had security measures in place and was in constant contact with security organisations.

"There is no indication at all that the airline is a specific target of a terrorist attack as a result of Australia's possible involvement in a war in Iraq," the airline said.

Meanwhile, the Flight Attendants Association of Australia, which is in the midst of a pay dispute with the airline, accused Qantas of plans to use inexperienced contract labour during a stopwork by FAAA members next Tuesday.

Qantas said it would use Qantas-trained cabin crew who met regulatory requirements as part of plans to keep operating international flights during the stopwork.

Meanwhile, analysts predict the airline will lift net profit to between $563 million and $615 million for fiscal 2003, with most leaning towards the higher end of the range, compared with $428 million the previous year.

However, the threat of war and terrorism to earnings is weighing on the share price, and has prompted Deutsche Bank and Macquarie Bank to drop their ratings to "hold" and "market perform" respectively.

Some analysts suggested the fall in the share price provided a buying opportunity. Salomon Smith Barney analyst Jason Smith has retained a bullish six-month valuation of $5.20, while Morgan Stanley has a 12-month target of $5 and UBS Warburg has a target of $4.90.

Qantas has flagged $1 billion in cost savings over the next three years through a combination of measures that it has yet to detail.

Centre for Asia Pacific Aviation managing director Peter Harbison said it needed to cut costs to be competitive with rival carriers, but also needed to retain flexibility to take advantage of a sharp upturn in revenue when fears about a war in Iraq subside.
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