Qantas boss Vanessa Hudson has unveiled a 13 per cent decline in first-half profits as airfares softened, and flight capacity increased, in her first set of financial results since she took over from Alan Joyce in September.
Profit after tax fell to $869 million in the six months to December 31, down from $1 billion in the prior-year period and margins have tightened but Hudson said she’s confident demand will remain high amid increased cost of living pressures and lower returns from airline competitors including Air New Zealand and Singapore Airlines.
“We’re seeing really strong demand across our networks. We’re seeing demand domestically in premium leisure but also in corporate travel,” she said and added she was not concerned that the costs associated with the businesses recent High Court loss and looming Federal Court case lodged by the consumer watchdog would prevent further product investment.
Qantas is preparing to unveil Wi-Fi on international flights by the end of this financial year. Its capital expenditure will increase to between $3.7 billion and $3.9 billion in the financial year of 2024-25, up from $3 billion and $3.2 billion this year and it announced plans to order eight additional A321XLRs to bolster the domestic fleet.
While no dividend was declared for the half, the carrier announced another share buyback of up to $400 million on top of the $452 million it has bought back since August.
Underlying earnings before interest, tax, depreciation and amortisation– the metric most closely watched by investors– fell 13 per cent to $1.3 billion as the cost of airfares fell and number of flights increased after the pandemic, putting pressure on its passenger and freight yields.
Qantas posted a record $2.47 billion in profit in the 2022-23 financial year to the delight of investors and chagrin of customers who felt the airline group had prioritised its bottom line over passenger experience. Hudson said in August that record profit was not as good as it will get for Qantas.
Commenting on the result on Thursday, she struck a conciliatory tone, saying there was “a lot happening to lift our service levels, and the early signs are really positive”.
“We know that millions of Australians rely on us, and we’ve heard their feedback loud and clear,” she said in the results announcement. “We understand the need for affordable air travel and fares have fallen more than 10 per cent since peaking in late 2022.”
“We need to deliver a service that is consistently better in order to succeed long term and that’s what we’re focused on,” she added.
The airline announced a share buyback of up to $400 million.
Qantas launched a gruelling cost-cutting program in 2020 which cut $1 billion from its cost base last year. It announced earnings margins of more than 8 per cent for this financial year, underpinned by its plan to roll out direct flights between Europe and Australia’s east coast by 2025. The airline business flagged this rollout has been pushed back by six months on Wednesday to accommodate for a delivery delay of the first A350.
Hudson said the business is still on track to meet its domestic full-year earnings margin target from 13 per cent in 2019 to 18 per cent in 2024.
Lower fares contributed to reduced revenue per available seat kilometre – which is how airlines measure their yields – which had around a $600 million impact on profit, while freight yields fell by $146 million.
“However, this was mostly offset by contribution from increased flying of $485 million and unwinding of transition costs from the post-COVID-19 restart of $179 million,” the company said.
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