View Full Version : Qantas First-Half Profit Probably Doubled, Buoyed by International Demand

17th Feb 2003, 05:16
Mon, 17 Feb 2003, 05:01pm EDT

Qantas First-Half Profit Probably Doubled, Buoyed by International Demand
By Margreet Dietz

Sydney, Feb. 17 (Bloomberg) -- Qantas Airways Ltd., Australia's largest airline, will probably report that first-half profit doubled to a record because it attracted more U.S. passengers from bankrupt UAL Corp.'s United Airlines.

Qantas will probably say on Feb. 20 that net income rose to A$343 million ($200 million) in the six months ended Dec. 31 from A$153.5 million in the year-earlier period, according to the average estimate of seven analysts surveyed by Bloomberg News. Forecasts ranged from A$302 million to A$401 million.

Earnings at Qantas are rising as European and U.S. rivals report losses or file for bankruptcy. The Sydney-based airline is also benefiting from the collapse its main local rival, Ansett Holdings Ltd., in September 2001. Qantas's dominance of the local market should help it cope with any drop in overseas demand in the event of a war in Iraq.

"We are looking for a reasonable period from them both domestically and internationally,'' said Rohan Walsh, who helps manage A$2 billion at Invesco Asset Management (Australia) Ltd. "Yields have been pretty good. Volumes have been pretty good.''

Qantas shares rose 3.6 percent to A$3.76 at the 4 p.m. close of Australian Stock Exchange trade in Sydney, paring their decline the past six months to 19 percent.

Increasing Share

The airline filled 80.5 percent of international seats in the five months through November, up from 75.6 percent in the year- earlier period, while it cut capacity 4.5 percent, it said.

Qantas probably increased its market share on routes to North America to 62 percent in the three months ended September 2002 from 58 percent, Macquarie Equities (Australia) Ltd. analysts Ian Myles and Paul Huxford said in a note to investors.

United Airlines' financial difficulties, culminating in the airline's bankruptcy in December, helped Qantas gain passengers on these routes, analysts said.

Analysts say Qantas boosted its share on Japan routes to 51 percent from 43 percent, as well as on routes to Europe, Hong Kong and New Zealand.

At the same time, Australians have more money to spend overseas after the economy expanded by 3.8 percent in 2002, analysts said.

The collapse of Ansett increased the Australian market share held by Qantas to 75 percent from half. Virgin Blue Airlines Pty, which started operations in August 2000, has most of the remainder.

Qantas is trying to capture some of the international low-fare leisure market, pre-empting Virgin Blue's planned services abroad, with all-economy unit Australian Airlines.

Australian Airlines may add A$20 million to Qantas's earnings before interest in the year ending June 2004 and A$34 million in the following year if it adds two more planes, Deutsche Bank AG analyst Kevin O'Connor said in a Jan. 17 note.

Virgin Blue

Qantas's dominance at home is making it harder to win approval for international alliances to boost profits. It may have to give some ground at home in order to be able to expand abroad, investors said.

The airline has asked regulators in Australia and New Zealand for approval to buy as much as 22.5 percent of Air New Zealand Ltd. for NZ$550 million ($303 million) and share services in both countries. Virgin Blue opposes the move.

At the same time, Qantas may need a stronger Virgin Blue to stem regulatory concern competition will disappear after the Air New Zealand link. Even so, Qantas will want to limit Virgin Blue's growth to prevent erosion of its profits.

As the discount airline expands, Qantas is "able to point to Virgin Blue as a viable competitor to allow them to go ahead with their sewing up of closer ties with Air New Zealand,'' said Andrew Cain, whose A$1.3 billion of investments at Dimensional Fund Advisors includes Qantas shares. "On the other hand, Qantas would want to make sure that Virgin Blue didn't become too much of a threat.''

Pic: Qantas A330-200 VH-EBA "City Flyer" on finals to
rwy 1 on its first visit to Bribane on 13th Dec 2002.
Photo by Wirraway (Ian Sharp)