Qantas Shares Plunge Over 6% Following First-Half Profit Report
Qantas Airways has experienced a substantial decline in its share value, dropping over 6% after the airline released its first-half profit report. The company reported a statutory profit after tax of $925 million, marginally increasing by $2 million compared to the previous year. While sales grew by 3% over six months, the earnings per share of 61 cents fell short of market predictions of 66 cents.
Financial Highlights from Qantas’ First-Half Report
- Statutory profit after tax: $925 million
- Sales growth: 3%
- Pre-tax earnings per share: 61 cents (below market expectations)
- Fully franked dividend: 19.8 cents per share (below expectations)
- Underlying profit before tax: $1.4 billion (up 5.1% year-on-year)
Initially, Qantas shares surged by 4% following the announcement, but market reactions quickly turned negative, leading to a midday trading price of approximately $9.98 per share, marking a 6.34% decline. Analyst Tony Sycamore remarked that investors struggled with disappointing profits and escalating costs that could threaten future margins.
Management Insights
Vanessa Hudson, Group CEO of Qantas, noted that the airline is actively pursuing its largest fleet renewal in history, a move that has positively influenced financial results. The arrival of six new aircraft in the first half and an additional 30 expected in the coming 18 months is anticipated to further bolster the airline’s performance.
Hudson stated, “Around 60% of Jetstar’s increase in profitability was driven by its new aircraft.” This investment is aimed at not just replacing old aircraft but also expanding service capabilities, including the long-range A350s designated for Project Sunrise flights.
Recent Challenges and Penalties
Despite these advancements, Qantas reported a 15% drop in operating cash flow to $1.75 billion, attributed to increased tax liabilities and a $90 million penalty for unlawfully outsourcing over 1,800 ground handling jobs during the pandemic. The airline also anticipates that recent government wage laws may impact wage costs by about $95 million by FY2026, although this effect is expected to ease over time.
Future Outlook
Looking ahead, Qantas is optimistic about strong travel demand, although it is closely monitoring economic changes in the United States. The Group Domestic unit generated $1.05 billion in underlying EBIT, up 14%, and domestic revenue increased by 5% with a 4% boost in capacity.
- Group Domestic EBIT: $1.05 billion
- Domestic revenue growth: 5%
- New aircraft introduced: Six new A321XLRs in service
Jetstar and Loyalty Program Performance
Jetstar, Qantas’s budget airline, reported impressive results, carrying over 8.5 million passengers and achieving a 38% rise in underlying EBIT. This expansion was powered by the delivery of two new A321LRs, allowing for increased flight capacity on popular routes.
Qantas’s loyalty program also showed resilience, with underlying EBIT reaching $286 million, reflecting a 12% increase. The Frequent Flyer program attracted over 18.3 million members, and retail partnerships saw a 20% rise in point earnings.
Summary
In summary, while Qantas faces short-term challenges reflected by falling share prices and penalties incurred due to previous operational decisions, the airline is focused on strategic fleet expansions and enhancing its loyalty offerings. These initiatives aim to position Qantas for long-term growth against the backdrop of a recovering travel market.
