Qantas’ Half Yearly report is in and their results are very good. Qantas reported an underlying profit of $852 million for the 6 months to December 31st. This was down 7.5% on last year. However, considering the tough economic conditions this was a terrific result and showed Qantas’ resilience. Bearing in mind its main competitors Virgin recorded a $21 million loss for the same period and Air New Zealand reported a 24% fall in its profits. The share market also agreed with this assessment with Qantas shares up 5%.
Low oil prices have resulted in fierce competition in international travel with international capacity jumping by 11%. This has forced Qantas to lower its ticket prices on key international routes which has eroded its profitability. Earnings from its international business fell 22% but remain profitable. The slowdown in the mining and resource sector has not helped domestic earnings either.
Qantas’ resilience is a result of Alan Joyce’ Transformation program where he slashed costs to make Qantas more efficient. Qantas cost base used to be 40% higher than its competitors but now Qantas is much leaner than its rivals. Qantas is in better shape to cope with a downturn in demand or rivals flooding the market with cheap airfares. Joyce has proven that Qantas’ profit recovery is sustainable even when industry conditions take a turn for the worse.
Rather than Qantas shrinking parts of its business the company is well and truly in the renewal stage of the Product Life Cycle. The great result will also allow Qantas to focus on new products such as high speed in-flight Wi-Fi and fleet renewal. The airline is expecting the arrival of the new Dreamliner aircraft later this year. Qantas also needs to decide which aircraft to buy for its direct long haul flights to New York and London.
Source: Qantas margins will help it weather international storm by Michael Smith Australian Financial Review Feb 23rd, Qantas profit slides as international competition revs up by Patrick Hatch SMH Feb 23rd.