Paul Phelan/SYDNEY

Qantas has warned that increasingly desperate competition from rivals in the region will make it difficult for the Australian airline to sustain the record profits it has just declared for the 1997/8 financial year.

Operating profit was up 13.6% on the previous year at US$282 million, on revenue that rose by 3.8% to $4.8 billion. Earnings in the domestic market were largely responsible for the improvement, rising by 26.8% to $126 million before interest and tax. Revenue from international operations remained static at $160 million. After-tax profit amounted to a record $180 million.

Aside from domestic market growth, the carrier attributed its improved performance to several factors, including redeployment of former Asian capacity on to European and US markets, a debt reduction programme, and cost savings worth a further $280 million, including $89 million in productivity improvements.

Chairman Gary Pemberton, however, warns that the results may be unsustainable as regional competitors resort to increasingly "desperate measures" in the face of falling revenues and yields. "The reactions of other carriers in terms of prices and capacity as a result of conditions in Asia have been well documented, and will lead to more market volatility and uncertainty in market conditions in 1998/89," he says, adding: "In the light of that uncertainty, we are not making specific profit predictions for this year, but we have signalled that it will be difficult to maintain this level of profitability ahead."

Managing director James Strong says Qantas plans more aggressive moves to improve its position, having committed a further $148 million investment in product improvement, along with the acquisition of three Boeing 747-400s from Asiana and another Asian carrier. Although Strong will not disclose details, the proposal to buy two Malaysia Airlines aircraft may have stalled on price.

Source: Flight International