Qantastic: After a mediocre first half of the decade, Qantas is like a kangaroo on a trampoline
Things could hardly be more different for two airlines in the same country. In one corner of the ring, Virgin Australia is bloodied and battered. In the other, Qantas has never looked stronger.
Last week, as pilots at Virgin’s Tigerair unit threatened a work slowdown before coming to terms with the airline (see page seven), Qantas enthusiastically forecast a record profit for its fiscal year, which ends next month. This would follow an outstanding performance for calendar year 2017, in which net profit excluding special items reached $983m, accompanied by a 10% operating margin. It was the carrier’s third straight calendar year of double-digit operating margins after never having reached even 5% in the first half of the decade.
Everything seems to be jumping for the flying kangaroo. The Sydney-based airline spoke of positive market conditions, industry capacity discipline and growing benefits from the company’s own cost-cutting program. Fuel prices are up, no doubt, but executives are confident of recovering the additional costs with higher revenues, while mitigating the impact with hedge protection on about 70% of planned fuel consumption. Qantas is winning market share from Virgin and others in the small business sector, aided by an SME-tailored loyalty program. For the first time since 2014, it’s seeing demand recovery from Australia’s large natural resource sector, whose earlier bust erased about $240m from the Qantas revenue base.
During the calendar first quarter, Qantas saw total groupwide unit revenues spike an impressive 6% y/y. The Easter shift was partly responsible but irrelevant to the broader trend: That was the carrier’s fourth consecutive quarter of RASK gains, with the current quarter (April through June) also looking strong and next quarter (July through September) looking even better. Since the current fiscal year began last July, unit revenues are up 4% compared to a year earlier.
Thanks in part to Virgin’s struggles, and to Virgin’s capacity cuts at home, Qantas is producing its strongest profit margins domestically within Australia. In 2017, its domestic mainline business alone earned an operating margin of almost 13%, a bit higher than Jetstar’s worldwide figure (Qantas didn’t provide domestic-only margins for Jetstar) and a lot higher than mainline international flying (5%). The good times at home just keep on rolling, with calen…
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