Qantas revenue is under pressure as oil prices rise

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Deutsche Bank has just cut its earnings assumptions for Qantas as domestic demand for plane seats slips and oil prices rise.

“We have reduced our yield assumptions given the ongoing revenue pressures,” Deutsche Bank analyst Cameron McDonald says in a note to clients.

Deutsche Bank has reset its share price target down by 85 cents to $4.30 but has kept the BUY recommendation.

Qantas shares are trading at 3.06 today, up 1.3% on Thursday, down from a high of $4.21 in April.

The shares started slipping in after Qantas sounded a warning about slowing domestic travel.

Qantas cut its capacity growth after seat demand began to ease over Easter.

Deutsche Bank also reduced its full year net profit forecast for the airline by 4% to $1.008 billion.

In February, Qantas posted a 239% increase in half year profit to $688 million, further building on Australia’s biggest corporate turnaround.

The result was at the high end of Qantas’ own expectations and comes on the back of a $2 billion cost cutting program, savings in fuel from lower oil prices and the benefit to the end of a seat war with Virgin Australia, meaning better profit margins per customer.

However, that benefit from cheaper oil prices is being squeezed.

Oil prices increased to $US49.76/bbl from $US38.61 in the June quarter.

Qantas is due to give an outlook for 2017 when it releases its full year results next month.

“We expect that QAN will give guidance on fuel hedging and capacity growth,” says Deutsche Bank.

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