Qantas revenue has jumped but fuel costs are rising

Business class inside the Qantas Dreamliner. Image: Supplied

Qantas today posted a 5.1% rise in revenue to $4.19 billion for the first quarter on the back of improved demand for airline seats on both domestic and international services.

“The domestic market is healthy but remains very competitive,” says CEO Alan Joyce.

Revenue for a combined domestic Qantas and Jetstar increased 8% compared to the same three months last year.

“The domestic demand environment improved due to stabilisation of conditions in the resources market and the impact in the prior year of the subdued demand overhang from the 2016 federal election,” says Qantas.

Revenue from international services, including Qantas, Jetstar International and Jetstar Asia, increased by 0.2% in the face of a 3% rise in competitor capacity.

Qantas warned of rising fuel prices. First half fuel costs are expected to be $1.55 billion, compared to a $1.49 billion in the first half.

Based on a Brent forward market price of $A74 per barrel for the remainder of financial year 2018, full year fuel costs would be $3.21 billion, up from $3.04 billion last financial year.

In early trade, Qantas shares fell 3.9% to $6.15.

Qantas expects an underlying profit before tax of between $900 million and $950 million for the first six months of this financial year. This compares to $852 million in the same six months last year.

However, Joyce says the high rate of revenue growth so far this year is likely to slow when compared to what was a strong second half last year.

“There’s been a welcome easing of capacity growth in the international market but the indications are that it is likely to pick up pace again in the second half,” says Joyce.

“We’ve announced some significant changes to our international network that leverage our competitive strengths better.

“We’ll rely on Emirates to take our customers through Dubai and on to continental Europe while Qantas focuses on flying to London via Singapore and direct from Perth.”

Joyce says Qantas is making good progress towards the annual target of $400 million in cost and revenue improvements.

“Overall, despite an uptick in fuel costs and the challenges from competitor capacity growth on the international side, the group remains on track for another strong underlying first half and a successful full year,” he says.

Last week Qantas took delivery of its first 787-9 Dreamliner. It will start flying from Melbourne to Los Angeles in December and from March next year, the 787 will fly non-stop from Perth to London.

In August Qantas posted its second-highest underlying profit result in the 97-year history of the national airline.

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