Qantas saw its half-year underlying profit before tax come in flat at A$771 million ($512 million), with higher revenues helping to offset external headwinds.
Group revenue for the first half of its 2020 fiscal year, which ended 31 December, rose 3% to A$9.46 billion. A 3% climb in passenger revenue helped the carrier to offset a 6% decline in cargo revenue.
The increase in group revenue was notable, despite what the carrier calls “temporary headwinds” from the protests in Hong Kong, weaker freight demand from the US-China trade war, increases in non-fuel costs due to foreign exchange, and a loss of earnings from the sale of its domestic terminals to airport operators.
The airline also saw its statutory net profit declining 4% to A$445 million.
Qantas’s domestic unit saw its underlying earnings before interest and tax (EBIT) declining 2.7% to A$465 million, with revenue coming in at A$3.22 billion. It attributed the results to mixed demand conditions.
The airline’s international unit delivered a 2.5% lift in EBIT to A$122 million. The 4.1% rise in revenue to A$3.84 billion was partially aided by capacity contraction from its competitors, Qantas growing its Boeing 787 fleet and phasing out 747s, and recording a continued strong performance on the Perth-London route.
Having chosen Airbus A350-1000s as the preferred aircraft for ultra-long-haul services, Qantas is working to obtain regulatory approval for such flights. A decision to proceed has been deferred to end-March, pending negotiations with pilots.
At low-cost unit Jetstar, EBIT fell 13% to A$220 million as weaker domestic demand, higher fuel costs and foreign exchange, and employee industrial action offset 3.5% revenue growth to A$2.12 billion.
Jetstar’s Asian also had a challenging six months. While Jetstar Japan remained profitable, Jetstar Pacific has been impacted by “aggressive expansion” by competitors. Jetstar Asia sees continued challenges from rising airport charges.
Cash and cash equivalents across the group as of 31 December 2019 amounted to A$1.75 billion, up from A$1.5 billion at the start of 2019.
In its outlook, Qantas group chief executive Alan Joyce says the impact of the coronavirus outbreak has led to the suspension of its Sydney-Shanghai service, and that it is seeing demand weakness from other Asian routes.
As a result, the company will cut capacity to Asia by 15% “at least until the end of May,” domestic capacity by 2%, and on trans-Tasman services, by 6%.
“We have a lot of flexibility in how we respond across the group. We can extend these cuts, cut deeper if we need to, or add capacity back in. Maintaining our strategic position is also key,” says Joyce.
It will also look to bring forward the maintenance of 18 aircraft.
“When you combine the capacity action we’re taking, with the drop in fuel price since coronavirus [outbreak] escalated, we expect to mitigate the total impact on our bottom line to somewhere between A$100 million and A$150 million in the second half,” adds Joyce.