Qantas Half Yearly report is in and Qantas has once again delivered strong earnings. Qantas’ underlying profit before tax was $771m (down only $4m or 0.5 percent on the previous corresponding period). This was despite challenges from the external environment such as weaker demand (slowdown in the economy), disruption in Hong Kong, industrial action on Jetstar, foreign exchange costs due to the falling $A and increased domestic airport overheads.

Alan Joyce was upbeat and described Qantas’ performance as “very positive” and said it showed Qantas was in a strong position going forward. As a comparison, their trans-Tasman competitor Air New Zealand reported a 33 percent fall in profitability their lowest in seven years.

Qantas announced anticipated earnings fall of $150 million due to travel bans and
quarantine restrictions from the coronavirus. Two weeks later this appears optimistic with the spread of the virus into Europe and North America which brought about a sudden and significant drop in forward travel demand. A silver lining for Qantas has been a significant fall in jet fuel prices which is tipped to soften the blow by $122m.

Qantas has just announced further cuts in its capacity by slashing almost a quarter of its international flights through to mid-September (the biggest reductions remain focused on Asia). Rather than exit routes altogether, Qantas will use smaller aircraft and reduce the frequency of flights. Alan Joyce said Qantas was a strong business in a challenging environment and was in a “good position to ride this out”. Ultimately Qantas is still in good shape.

To avoid job losses staff have been asked to take paid leave owed to them and any new recruitment would be frozen. It says a lot about Qantas that it can absorb such a big hit without massive job cuts. Alan Joyce has announced that he will not take a salary for the next 3 months and salaries of the group executive management team will be slashed by 30 percent.

Aviation is probably the sector most impacted by the coronavirus due to flight reductions and significant financial losses. Not surprising Qantas has had to make some big changes and flag a substantial loss in profits. Qantas is now a much more resilient airline under Alan Joyce and in a much better position to absorb these challenges than many of its rivals (particularly those closer to China like Cathay Pacific and Singapore Airlines). Weaker airlines in the Asia Pacific region could easily be consolidated, bailed out by their government or go out of business.

Source: Qantas slashes flights to manage $150m virus hit by L Baird SMH Feb 20th, Qantas slashes Asia flights as coronavirus threatens $150m full-year profit hit by R Ironside The Australian Feb 20th. Alan Joyce forgoes salary as coronavirus forces Qantas to slash international capacity by R Ironside The Australian Mar 10th .

David Broadbridge

David Broadbridge holds a Bachelor of Commerce at the UNSW and a Dip Ed at UNE. He is the former Head Business Studies teacher at Pymble Ladies College. Follow David on Twitter or read his Qantas News Blog.