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Qantas profit forecasts slashed after Alan Joyce's warning
BY:STEVE CREEDY From: The Australian May 07, 2013 12:00AM
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DEUTSCHE Bank has slashed its full-year earnings estimate for Qantas by more than 60 per cent after chief executive Alan Joyce revealed last week it was doing it tough in the current fiscal half.
Analysts Cameron McDonald and Entcho Raykovski revised their prediction that the carrier would scrape over the line with an underlying second-half pre-tax profit of $8.8 million to a loss of $135.8m.
That would mean a bigger deficit than last year's equivalent second-half loss of $107m and lowers Deutsche's full-year underlying profit-before-tax forecast from $232m to $87m.
The analysts expect the half to be challenging as aggressive competition from rival carriers erodes yields in both domestic and international markets.
"In our view the pressure on yield will compete away a large portion of the unit costs benefits we previously expected Qantas to achieve in 2H1," they said, adding that it also reflected $25m in back pay the airline had agreed to pay international pilots.
The Deutsche analysts acknowledged that the cut was a "significant downward adjustment" but believed it appropriately reflected the yield headwinds facing the company.
However, they expected the market to focus on the 2014 financial year when benefits from the international transformation program would roll through and the domestic capacity war eased, and kept their share price target unchanged at $1.70 while retaining their "hold" recommendation.
In an otherwise upbeat speech, Joyce told a conference last week that the airline was looking for an improvement next financial year from initiatives introduced across the business.
But he warned there would be cost impacts in the traditionally weaker second half, including the $25m in pilot back-pay and the $50m cost of transferring its hub from Singapore to Dubai.
"We've always made it clear that long-term gain can't be achieved without the short-term cost of transition," he said.
Joyce predicted the airline next financial year would reap the benefits of moves to modernise operations, maximise partnerships, reduce costs and upgrade its product and service.
In the international business, he said major reforms continued and management would look for opportunities to reduce costs and improve productivity.
The domestic Qantas business remained strong but faced a tough environment with a high degree of capacity growth on the market, which was pushing down yields and profitability.
"While we do not expect any improvement this half, capacity growth is alleviating, which will lead to a healthier capacity position in FY14," he said.
Jetstar was progressing as it built scale in Asia.
Separately, Air Pacific has tapped senior executive Aubrey Swift as acting chief executive while the search continues for a permanent replacement for departing boss David Pflieger.
This is bizzare. Now Alan Joyce says that the initial surge in bookings following the EK partnership has tapered off, competitors like CX and SQ have responded aggressively?
Seeing as unprofitable routes like:
SINFRA (highly unprofitable)
BKKLHR
HKGLHR
PERHKG
ADLSIN
AKLLAX
SYDEZE
SINBOM
One PERSIN
have been cut, why isn't QF any more profitable
