Qantas cautious on record profit

Qantas

Qantas to fly higher?  

Australia’s largest carrier Qantas Airways has reported a record profit before tax of $1.4 billion for 2007-08, but said oil prices would continue to pose a significant challenge for the carrier’s future.

While the company’s net profit of $969 million fell a little short of market forecasts of $1.04 billion, it jumped 46 per cent compared with the previous year, with revenues reaching $16.2 billion.

CEO Geoff Dixon said the key drivers of the uplifting results were strong domestic and international demand and the continued success of the group’s two brand strategy using Jetstar and Qantas.

He said its sustainable future program was another key contributor, which achieved a further $747 million of efficiencies, cumulating $3 billion since its inception five years ago.

“The program is critical to our strategy and to our ability to compete successfully in the international market. To this end we are targeting to achieve further cumulative savings of $1.5 billion by June 2010.”

Mr Dixon said the strong performance was underpinned by continued major investment in product and service over the past five years, including an annual average of $2 billion on new aircraft, $120 million in new product and over $300 million on engineering and maintenance facilities.

“Our significant investment in product and service has ensured Qantas’ customer satisfaction levels remain high,” he said.

“This has been reconfirmed by our performance in the 2008 Skytrax World Airline Awards, where Qantas was ranked the world’s number three airline, out of a field of more than 160 carriers.”

As part of the group’s business segmentation strategy, the full year results for the first time included separate reporting for the Qantas Frequent Flyer (QFF) unit and Qantas Freight Enterprises (QFE), which comprises Qantas Cargo, Express Freighters Australia and the group’s equity investments in Star Track Express and Australian air Express.

While the provision for freight cartel settlement cost the group $64 million, up from $47 million in the prior year, QFE profits were down $1 million on last year’s result, making a profit before tax of $64 million.

Faced with challenges

Over the past few weeks, Qantas has frequently appeared in the headlines with a run of incidents, following an explosion that punched a hole in the fuselage of its Melbourne-bound jet last month.

Problems with a rudder on a jet caused a 15-hour flight delay and a hydraulic failure affected the steering of a Boeing 767 as it landed at Sydney Airport last week. Another aircraft lost an inspection panel mid-air.

Commenting on a recent string of maintenance glitches, he admitted the safety issues along with the persistent industrial action caused significant disruption for its passengers, and financial and operation performances. 

“We understand the level of scrutiny we are being subjected to at present. We will work through these issues and implement any changes that may be required, but our commitment to safety should never be questioned.

“Qantas has an unrivalled safety record, and safety will always remain our number on priority,” Mr Dixon said.

Although fuel prices have eased over the past month, the company said they have not declined to levels that will sustain the current level of profitability, and fuel and economic conditions continue to be uncertain.

Virgin Blue has recently posted a depressing annual net profit of $97.9 million, a 55 per cent fall on the previous year, with its shares stumbling. The International Air Transport Association has projected a loss of over $6 billion for the global aviation industry.

 “At current prices our fuel expenses will be over $1.6 billion higher in 2008-09. We have hedged 81 per cent of our crude oil price exposure at a worst case all-in cost of USD 118 a barrel,” he said.

“We have reacted quickly and have already announced a number of steps to reduce costs, adjust capacity and increase fares.

“The strategies we have worked hard to implement over the past few years…have put us in a strong position to deal with the current challenges,” Mr Dixon said.

Revolving doors at Qantas HQ

Meanwhile, Qantas’s chief financial officer Peter Gregg has stepped down after eight years in the job, only weeks after Jetstar’s chief Alan Joyce was appointed as the airline’s new chief executive.

Analysts said while Mr Gregg’s resignation was expected, his announcement came much sooner than they had predicted.

Mr Gregg was reportedly one of the front-runners for the CEO role to replace Geoff Dixon, along with another internal contender, executive GM John Borghetti.

He said now was the right time to announce his resignation.

“It has been a privilege to have contributed to the management and strategic development of this great company,” Mr Gregg said.

“With a new incoming CEO, I believe that signalling now my intention to step down from both my executive and non-executive roles in the best interests of shareholders and the company.”

Qantas CEO Geoff Dixon has announced deputy CFO Colin Storrie would succeed Mr Gregg, assuming the role on September 30.

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