Leaner Qantas eyes near-record profit

[Wirraway]

Tues "Sydney Morning Herald"

Leaner Qantas eyes near-record profit
By Scott Rochfort
February 17, 2004

Qantas's two-year mission to slash $1 billion off its cost base will come under close scrutiny on Thursday, when the airline is expected to report a near-record first-half result and provide more details on its low-cost domestic subsidiary Jetstar.

With the stronger dollar and buoyant domestic aviation market expected to counter the impact of SARS on the airline's international operations, the result is expected to be slightly below last year's record first-half net profit of $352.2 million, bar any unforeseen abnormal costs.

Goldman Sachs JBWere has tipped a net profit of $314.2 million, Citigroup $336 million and UBS $326.8 million.

Forecasting a net profit of $330 million in a recent note, ABN Amro has cast doubts over Qantas's two-year Sustainable Future Program, which it "conservatively" assumes may cut only $600 million from airline's cost base.

While ABN Amro expects Qantas to meet its target of slashing $350 million in costs over 2003-04, the investment bank said there was still a "question mark" over the flagged $650 million in cuts over 2004-05, which it said were still largely contingent on union approval.

Qantas expects to save $385 million in labour costs over the two years - via job cuts, improved productivity and the increased casualisation of its workforce. The airline, however, is yet to reach agreement with its 14 unions over the wage and working conditions for Jetstar.

The Australian Services Union's assistant national secretary, Linda White, said: "We will certainly go wild if people lose their jobs because of Jetstar."

Set to start flights in May, Jetstar will operate Qantas's existing fleet of 14 Boeing 717s - fitted with 10 extra seats - before leasing its first 177-seat Airbus 320 in July.

CommSec analyst Matt Crowe estimates Jetstar could boost Qantas pre-tax profits by $60 million in 2004-05 and $365 million by 2010-11, assuming the airline expands passenger numbers at 4.5 per cent a year.

After putting aside $100 million to set up Jetstar, it is estimated Qantas will spend another $US1 billion ($1.26 billion) on buying Jetstar's 20 A320s, which it plans to have in service by mid-2006.

Qantas shares rose 3c to $3.54.

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[Keg]

The devil will be in the detail. Since we've been preached to for so long about the 'tough' conditions, it wouldn't suprise me at all if we retire a HEAP of debt as well to keep the profit below the 'record' half year results and keep the unions just that bit toey.

I remember about four or five years back when the yearly profit was about $600 million and they retired almost $400 mill in debt as well! :eek:

Interesting times. About time the stock went north again- they jumped 11 cents today (3. something percent.)!

[boocs]

And let me guess..................

The response from Canberra, and in particular from one "leader" will be something along the lines of "Well we would very much like to welcome competition in Australia for Qantas as it can be only good for the consumer, however as these are uncertain times........." and I think we know how the rest goes.

I do hope the likes of Emirates (and no, I don't work for them) can get their desired slots along with other international carriers while this so called "national carrier" continues to reap the benifits of protectionism at its worst!

Hard times for QF????? You be the judge.

[Wirraway]

Wed "Australian Financial Review"

Qantas weathers unfavoranle flying conditions
Date February 18th, 2004

Qantas Airways looks to be flying into its clearest skies for years, underpinned by a strong Australian dollar, a reinvigorated domestic travel market and the gradual return of international passengers.

The conditions are a turnaround from the tumultuous past few years.

Analysts and investors say at its current price, Qantas looks cheap compared with its domestic rival Virgin Blue, and international competitors such as British Airways and Singapore Airlines.

Whether they are right will become apparent tomorrow when it reports its first-half profit.

Last year, Qantas more than doubled its December-half net profit to $352.5 million as it recovered from September 11, 2001.

This year, the result is expected to be lower because of severe acute respiratory syndrome and the war in Iraq. But it is also tipped to contain positive signs for the full-year result because of the macro-economic environment, the strong dollar and cost-cutting initiatives.

The environment is perfect . . . the broader macros are unreal,'' Macquarie Equities analyst Ian Myles said.

Deutsche Bank is expecting half-year earnings of $282 million , Macquarie Equities is tipping $303 million , Goldman Sachs JBWere predicts $314 million, and ABN Amro has forecast $330 million .

The big question that remains relates to Qantas's partially unveiled weapon in the fight against Virgin Blue its new budget carrier, Jetstar.

Many in the market are sceptical about how Qantas will achieve its stated claim of having a lower cost base than Virgin Blue, which has snared about 30 per cent of the market in some three years and is forecasting a $150 million profit in the full year to March 31.

But regardless of how successfully Qantas utilises Jetstar as an agent to lower costs at its main carrier and stop Virgin Blue's march up the market-share scale, it is viewed as a good 12-month buy compared with its Australian listed rival.

Virgin is pretty fully priced,'' said Deutsche Asset Management's Shawn Burns , who holds shares in both airlines.

Over a longer period though, opinions on which is the more attractive airline stock start to swing. Many analysts believe Qantas is a good short-term trade, but that Virgin Blue has the upper hand in the long term because of its core cost advantage. On a forward price-earnings valuation, Qantas is trading on a multiple of 11.11 times, compared with Virgin Blue on 15.73 and Singapore on 22.74 .

Qantas's domestic operations are going pretty well and I think Virgin Blue is starting to slow,'' Mr Burns said. ``I suspect Qantas is starting to hold Virgin off along the eastern corridor and the new pricing structure appears to be working well for them.''

Qantas introduced more flexible fares and a different pricing structure last year, in reaction to Virgin's ticketing options.

From currency alone, Mr Myles expects Qantas to reap a pretax benefit of between $78 million and $90 million in the first half, based on an average dollar valuation of US69 ¢ , compared with US55 ¢ in the previous corresponding period.

Currency is very important,'' Mr Myles said. ``But international is where the growth is.''

Qantas said yesterday that it would resume flights to Mumbai, which were cancelled after September 11, and intended to start flying to Shanghai by year-end.

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