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Apr-28-2008Qantas expects to meet profit goal despite oil cost(topic overview)
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Qantas will increase its domestic and international air fares, becoming the latest airline to buckle to increased fuel pressures. Qantas chief executive Geoff Dixon said the airline was confident of meeting its guidance for 2007-08 of at least 40% higher than the 2006-07 reported profit before tax. It would mean increasing fares from May 9 across Qantas and QantasLink by about 3.5% domestically and 3% on international flights. Jetstar is still reviewing its position. Mr Dixon said Qantas would also suspend its $1 billion share buyback plan, which started in September last year and has so far returned $500 million to shareholders. Mr Dixon said the group's fuel hedging program, its two brand strategy and efficiency gains from its sustainable future program to had enabled it to manage higher fuel costs to date. ''The continuing rise of jet fuel prices is of concern, however we have hedged 34% of our 2008/09 needs at a price of $US90 per barrel,'' he said. Qantas said the majority of its hedging is in the first half of the fiscal year and is predominantly in the form of options contracts. ''But if high fuel prices persist beyond this point it would be of increasing concern,'' Mr Dixon said. Mr Dixon said the group was trying to minimise the impact of fuel through its ongoing initiatives to reduce overall costs, including a hiring freeze and cutting back on non-essential spending. ''However, an increase in base fares is now necessary to partially bridge the widening gap between the actual increase in the cost of fuel and the amount we offset through surcharges or non-fuel cost improvements,'' he said. [1] Qantas chief executive Geoff Dixon said the airline had opted for a rise in base fares, as opposed to another lift in fuel surcharges, to bridge the widening gap between the actual cost of fuel and the amount that gets offset through surcharges and non-cost fuel improvements. Mr Dixon said that in light of the fuel price volatility, it had decided to suspend its share buyback. He said Qantas had returned more than $500 million to shareholders. "Qantas is working hard to counter the rise in fuel prices with further efficiency improvements through an extension of its Sustainable Future program, as well as a hiring freeze and cutbacks to non-essential expenditure," he said. The airline said its profit guidance remained unchanged and its fundamentals remained strong.[2]
SYDNEY (Reuters) - Qantas Airways Ltd (QAN.AX: Quote, Profile, Research ), Australia's biggest airline, said on Monday it was confident of meeting its 2007/08 target of at least 40 percent profit growth despite a surge in jet fuel prices. It said it would raise domestic and international fares by 3.5 percent and 3 percent respectively to help combat rising fuel prices. It also said it would suspend its share buyback, cut non-essential spending and impose a hiring freeze. Two weeks ago Qantas's main domestic rival, Virgin Blue Holdings Ltd (VBA.AX: Quote, Profile, Research ), more than halved its profit outlook for this year on high fuel costs and increaed competition. For next year, Qantas said it had hedged 34 percent of its fuel needs at $90 a barrel for benchmark crude oil WTI, mostly for the first half of the 2008/09 fiscal year. "But if high fuel prices persist beyond this point it would be of increasing concern," Qantas Chief Executive Geoff Dixon said in a statement.[3] Qantas will increase its airfares by up to 3.5 per cent and suspend its share buyback program due to ongoing increases in the cost of jet fuel. The national carrier says that, while the rise in fuel prices is a concern, it remains confident of meeting its guidance for a lift in 2007/08 pre-tax profit of at least 40 per cent, from the previous year's $1 billion result. Domestic airfares will rise by around 3.5 per cent and international fares sold in Australia will increase by about three per cent, both from May 9.[4]
Domestic fares will climb by 3.5 per cent, while international fares will be up by around 3 per cent from May 9th. At this stage Jetstar is still reviewing its prices. In light of the fuel price volatility the company is also suspending its share buyback after returning more than $500 million to shareholders. CEO Geoff Dixon says he is confident of meeting profit guidance for this financial year of a 40 per cent increase in earnings.[5]
Qantas is raising fares sold in Australia in response to rising jet fuel prices, and fares sold outside Australia are under review. Qantas chief executive Geoff Dixon said today the group had been able to manage higher fuel costs to date through hedging, its two brand strategy and sustainability gains. He said, the price hike in base fares was necessary to help bridge the widening gap between the actual increase in the cost of fuel and the amount offset through surcharges. Qantas had hedged 34 per cent of its 2008/2009 needs at $US90 per barrel of which the majority was in the first half of the fiscal year, but past that point, continuing high prices would be a concern.[6] Qantas chief executive Geoff Dixon said the group's fuel-hedging program, two-brand strategy and efficiency gains had thus far enabled it to manage higher fuel costs. "We have hedged 34 per cent of our 2008/09 (fuel) needs at a price of $US90 per barrel," he said. Qantas said the majority of its hedging is in the first half of the fiscal year and is predominantly in the form of options contracts. "But if high fuel prices persist beyond this point, it would be of increasing concern," Mr Dixon said.[7]
The news comes after world oil prices pushed higher over the weekend, closing in on $US120 after the shutdown in Britain of a major North Sea pipeline added to supply worries. Mr Dixon said the group's fuel hedging program, its two brand strategy and efficiency gains from its sustainable future program had enabled it to manage higher fuel costs to date but that the continuing rise of jet fuel prices was of concern. Qantas has hedged 34 per cent of its 2008/09 fuel needs at a price of $US90 per barrel, mostly for the first half of the fiscal year. "But if high fuel prices persist beyond this point it would be of increasing concern," he said.[4]
SYDNEY (AFP) — Australia's national airline Qantas said on Monday it will increase air fares from May 9 to counter the impact of rising fuel costs and protect its profitability. International fares will rise by about 3.0 percent and domestic fares will increase by about 3.5 percent, the airline said, adding that its budget offshoot Jetstar was reviewing its own fare levels. Chief executive Geoff Dixon said that while higher fuel prices remained a concern, the group's fundamentals remain strong with its flying businesses well positioned in their markets.[8] Qantas chief executive officer, Geoff Dixon said the company would increase its domestic fare by 3.5 per cent and international airfares by 3 per cent from 9 May 2008. Mr Dixon, said the carrier's successful fuel hedging program, the benefits of its Two Brand Strategy and efficiency gains through the Sustainable Future Program had enabled it to manage higher fuel costs to date.[9]
Qantas has bought back more than $500 million worth of shares since the program began last September. Virgin Blue, in its profit warning earlier this month, said it would increase airfares by $10-$12 per sector from May 1 if fuel costs continued at high levels throughout April. Air New Zealand last month raised its short-haul fares by an average of three per cent, but said it would take a wait-and-see approach to the international market.[4]
Qantas will increase airfares sold in Australia from May 9, with domestic fares rising by approximately 3.5 per cent and international fares rising by about 3 per cent. The airline's low cost offshoot Jetstar is reviewing its fares.[10] All Qantas domestic fares will increase by 3.5 per cent from May 9, while international fares will increase by 3 per cent. The airline says fares for its Jetstar services are also being reviewed.[11]
Domestic fares will increase by approximately 3.5 percent, while international fares are set to rise by around 3 percent. Jetstar is also reviewing its fare levels, while increases to Qantas fares sold outside Australia are also under consideration.[12] Last year, Qantas reported pretax profit of A$1.03 billion ($963 million), up from the previous year's A$671.2 million. The group said Jetstar is reviewing its fare levels and increases to Qantas fares sold outside Australia are also under consideration.[13]
Jet fuel prices rose to a record $144.35 last week in Singapore. Virgin Blue Holdings Ltd., Australia's No. 2 carrier, this month cut its earnings forecast and said it may raise prices. Qantas has suspended its share buyback indefinitely given the impact of the fuel price. The company's low-cost Jetstar unit is reviewing its fares, although no decision has been made, Qantas said.[14] Qantas also said it had implemented a hiring freeze and cut back non-essential expenditure to minimise the impact of fuel prices. Under the circumstances, Mr Dixon said, the group believed it was "prudent" to suspend its on-market share buyback program.[4] "We remain confident of meeting our guidance for a 2007/08 result of at least 40 per cent higher than the 2006/07 reported profit before tax." In light of the fuel price volatility, Qantas had decided it was prudent to suspend its share buyback, he added.[6] Mr Dixon has steered Qantas through some of the biggest crises in the industry and his final months come as some carriers are buckling under record fuel prices, a credit crunch and a potential global slowdown. Qantas is bucking a local trend by sticking to its previous profit guidance that its pre-tax profit will be at least 40 per cent higher than last year's result of just over $1 billion. This is despite moves by Virgin Blue and Air New Zealand to downgrade their forecasts because of record fuel prices and other factors.[15] "Our fundamentals remain very strong. Our flying businesses are well positioned in their markets, we are progressing plans to unlock value in our portfolio businesses and our balance sheet is robust, providing flexibility to fund our future growth." Mr Dixon also said that the carrier has hedged 34 per cent of it's 2008/09 needs at a price of $US90 per barrel WTI, of which the majority is in the first half of the fiscal year and is predominantly in options. "But if high fuel prices persist beyond this point it would be of increasing concern[9]
Chief Executive Geoff Dixon said the group has hedged 34 percent of its year to June 2009 fuel needs at $90 per barrel of West Texas Intermediate (WTI) crude, of which the majority is in the first half of the fiscal year and is predominantly options. 'But if high fuel prices persist beyond this point it would be of increasing concern,' Dixon said in a statement. He said the group's fundamentals remain strong with its flying businesses well positioned in their markets. There are also plans to unlock value in the company's portfolio including selling its frequent flyer program business.[13] Chief Executive Officer Geoff Dixon joins Air New Zealand Ltd, Delta Air Lines Inc. and All Nippon Airways Co. in raising fares since late March amid a 71 percent jump in jet-fuel prices during the past year. Qantas, which has implemented a hiring freeze and efficiency initiatives, has 34 percent of its 2009 fuel needs hedged at $90 a barrel.[14] Chief executive, Geoff Dixon, said the airline was raising fares, making cutbacks to ''non-essential'' expenditure and instituting a hiring freeze to minimise the impact of the surging jet fuel prices. ''An increase in base fares is now necessary to partially bridge the widening gap between the actual increase in the cost of fuel and the amount we offset through surcharges or non-fuel cost improvements,'' he said in a statement today.[16] '''An increase in base fares is now necessary to partially bridge the widening gap between the actual increase in the cost of fuel and the amount we offset through surcharges or non-fuel cost improvements,''' Dixon said in a statement to the ASX. '''We will continue to monitor fare and surcharge levels and review our network and schedule to optimise capacity.''' Qantas is reviewing fares for its Jetstar discount airline.[17] "An increase in base fares is now necessary to partially bridge the widening gap between the actual increase in the cost of fuel and the amount we offset,'' Dixon said in the statement. Qantas shares rose 5 cents, or 1.5 percent, to A$3.42 at 10:45 a.m. in Sydney, paring this year's decline to 37 percent.[14]
The country's second-largest airline, Virgin Blue, is also set to raise one-way fares by up to $12 next month because of the high fuel prices. Another option the airline has been considering is to introduce a further fuel surcharge because of its inability to keep absorbing the fuel costs. Qantas also announced today that it would suspend the buying back of its shares, which it described as "prudent'' in light of the fuel price volatility. [16] April 28 (Bloomberg) -- Qantas Airways Ltd., Australia's largest airline, will raise airfares to limit the impact of record fuel costs, joining at least seven other global carriers in increasing ticket prices this year.[14]
"And what we're seeing is the more we push the boundaries, the more we're seeing further things we can do." One of these is a change to the mantra that Qantas and Jetstar should not compete on the same routes. Customers now see the two as separate airlines and the carrier's experience on routes such as Perth suggests they can co-exist. "What we are seeing -- and we've experimented with it and each time we've done it it's been successful -- we're now seeing we can run both Jetstar and Qantas on the same route and both carriers do very well," Mr Dixon said. Other reasons for the strong position included the airline's constant push to boost efficiency and cut costs through its multi-billion-dollar Sustainable Future program and its decision to segment its businesses. Qantas now estimates its unit costs across the group will be lower than Virgin's by the middle of next year, a situation that even its efficiency-obsessed chief executive did not foresee.[15] While stressing the importance of flexible agreements with unions, the Qantas chief said improving efficiency was not simply a question of cutting labour costs but of changing the way the airline operated. He cited the airline's $30 billion fleet renewal program as an example, noting that the Boeing 787 Dreamliner would reduce costs by 20 per cent and the double-decker Airbus A380 by 15 per cent. Almost a third of savings in the past five years came from distribution changes, such as greater use of the web and new ways of dealing with travel agents, he said. The decision to segment its businesses had given it the ability to see what was really happening in each unit, forcing the segments to compete for capital and also for work. This process was now giving the group the ability to realise better value from some of its units through deals, such as the recent merger between Jetset and Qantas Holidays. "I think Jetset's operations will prove to be very, very good," he said. "It seems to have gone under the radar a bit but there is a potential for those two brands under Jetset to become a real powerhouse in wholesaling and just the general travel market." The airline's frequent flyer program, which will be radically revamped on July 1, is likely to be next off the rank with an initial public offering, believed to be about 40 per cent, possible later this year.[15]
The airliner blamed higher jet-fuel costs for the moves. The national carrier said it remained confident of meeting its guidance for at least a 40 per cent lift in reported pre-tax profit for 2007/08 over the previous year.[7] "We remain confident of meeting our guidance for a 2007/08 result of at least 40 per cent higher than the 2006/07 reported profit before tax,'' Mr Dixon said.[9]
QANTAS will lift its base fares by up to 3.5 per cent as it moves to protect its profits against soaring fuel prices.[2] SYDNEY, April 28 (Reuters) - Australia's Qantas Airways Ltd (QAN.AX: Quote, Profile, Research ) said on Monday it was confident of meeting its 2007/08 profit target despite a surge in jet fuel prices.[18] FARE TAKEOFF: Rising jet fuel prices are prompting Qantas to raise fares sold in Australia, with the airline putting fares sold outside Australia under review.[6]
Chief executive officer Geoff Dixon says the rise of jet fuel prices is a concern. "Qantas is working hard to counter the rise in fuel prices with further efficiency improvements through an extension of its sustainable futures program, as well as a hiring freeze and cutbacks to non-essential expenditure," he said.[11] Prices on domestic routes will rise by 3.5% and international flights will jump by 3% from 9 May, as rising fuel costs bite into the company'''s earnings. Dixon says that while the company has tried to cut costs through a hiring freeze and other methods, the company has to raise prices to meet its guidance of a 40% increase in profit before tax for 2007-08.[17] Domestic airfares will rise about 3.5 percent and international prices are to increase 3 percent, Sydney-based Qantas said in a statement today. The company reiterated its forecast for record earnings, with profit before tax to rise at least 40 percent in the 12 months ending June 30.[14]
Fares on international flights will rise about 3 percent and domestic airfares would rise 3.5 percent, effective May 9, Qantas said in a statement. Qantas budget subsidiary Jetstar also was reviewing its fares, the company said.[19]
Domestic fares will rise by approximately 3.5 per cent and international fares will go up by about 3 per cent. Its low-cost offshoot, Jetstar, was reviewing its fare levels.[7] Virgin Blue has also signalled that it is likely to boost fares or fuel surcharges by up to $12 a sector but has yet to officially announce an increase. Jetstar is also reviewing its fares and is looking at increasing fares on international routes but may shy away from significant increases in domestic fares because of a softening of demand at the low end of the market.[2]
Domestic fares across all classes of flights on Qantas and its regional subsidiary, QantasLink, will rise by about 3.5% from May 9, while the price of international tickets will increase by 3%.[16] Qantas says it will raise its fares for all of its domestic and international routes because of rising fuel prices.[11] Qantas will raise domestic and international airfares by as much as 3.5% early next month to offset the soaring cost of jet fuel prices.[16]
High fuel prices are pushing up the cost of air travel worldwide, but competition means that airlines will still discount fares to fill seats on low-demand routes.[2]
The BITRE did not explain April's sharp increase but it comes as airlines are under pressure to raise fares or fuel surcharges to offset soaring oil prices.[20] The pressures on discount fares from high fuel prices are being offset by a rise in capacity and a reluctance by leisure travellers to pay higher prices. Experts believe these factors and the entry of Tiger will ensure discounting continues at the low end of the market. The other big change this month has been for people travelling on fully flexible economy fares, which dropped sharply when the BITRE expanded its sampling to include Virgin Blue's Corporate Plus Fare.[20] From here you can use the Social Web links to save Qantas lifts fares to offset fuel rise to a social bookmarking site.[2]
We will continue to monitor fare and surcharge levels and review our network and schedule to optimise capacity," says Dixon. He says Qantas will therefore continue with efficiency improvements through an extension of its Sustainable Future Program, as well as a hiring freeze and cutbacks to non-essential expenditure. They have also announced plans to freeze the company's share buyback program.[12] "We will continue to monitor fare and surcharge levels and review our network and schedule to optimize capacity." He said the company viewed it as prudent to suspend its share buyback. Qantas announced last August it planned to buy back up to 10 percent of its issued capital, depending on market conditions.[19]
Mr Dixon said fuel-price volatility had led the group to believe it was "prudent" to suspend the on-market share buyback program, which began last September. The group has so far returned more than $500 million to its shareholders.[7] ", he added. Qantas has also decided to suspend its share buyback.[9]
Shares of Qantas (ASX: QAN: quote ) were up 6 cents, or 1.78 per cent, to $3.43 in early trading. [7] Oil futures hit a record just short of $120 a barrel on Monday on supply fears and tensions between the United States and Iran. Qantas shares last traded at A$3.37, down 38 percent so far this year, underperforming an 11.9 percent fall in the S&P;/ASX 200 index.[3]
"You're going to have to be more efficient, prices would have to go up and, if that hit peak demand, it would mean that there would be quite a few of the less robust carriers probably disappearing. "There's one thing this industry has shown in recent times, and that is, it comes to its own equilibrium at some stage or another." Mr Dixon said the industry was more robust than it was seven or eight years ago and even government-owned airlines had been forced to get their houses in order. He said aviation had been a beneficiary of globalisation and Qantas was well placed to take advantage of this. This was one of the reasons the airline was not changing its 2007-08 profit outlook. "I don't think a lot of investors have noticed that and they're not going to put globalisation back in a bottle," he said. "People are out there, travelling around the world -- to China and the States, you name it -- and they're going to continue to travel.[15] QANTAS chief executive Geoff Dixon expects more airlines to fold in the current industry shake-up but believes the flying kangaroo will come through the uncertainties ahead of the game. In a wide-ranging interview with The Australian, Mr Dixon also put paid to rumours he was considering leaving the airline before the end of the year. Looking fit and trim after heart surgery late last year, Mr Dixon said he expected to deliver next financial year's first-half results. He said a decision on his departure was "entirely up to the board" but he had committed to stay after the failed private equity bid until mid-2009. "Certainly, I would expect to be doing the half-year results next year and then we'll see where it goes," he said, but would not comment on a succession. "It could be about this time next year, depending on who they select. If it's an outsider it may go right through to June. If it's an insider, depending on which insider it is, it would probably be about now."[15] Your next business trip is about to get that bit more expensive. Qantas chief executive Geoff Dixon has announced that the airline will increase fares on its Qantas and QantasLink flights.[17]
Increases to Qantas fares sold outside Australia were also under consideration. Its budget subsidiary Jetstar, which operates out of Christchurch to several Australian cities, was also reviewing its fares. [6] A rise in fares sold outside Australia also is under consideration. Qantas's low cost offshoot, Jetstar, is reviewing its fares, too.[4]
Proposed increases to Qantas fares sold outside Australia are also under consideration.[7] The fare increase will apply to all Qantas and QantasLink routes across all fare classes sold in Australia.[12]
Qantas' low-cost offshoot, Jetstar, is also likely to increase fares as it undertakes a review of prices.[16]
"We are, day in and day out, a very good carrier." Helping Qantas, according to Mr Dixon, is its controversial decision to split into the low-cost Jetstar and up-market Qantas brands. He said this had given the airline a unique advantage, allowing it to concentrate on its "DNA" of business travel. "Jetstar will make very decent money this year, Qantas will make very decent money," he said.[15] We've got over $3 billion on our books right now." Mr Dixon predicted the airline would also still separate out its fleet but said how that proceeded would depend on the market. "Obviously what's happening out there now now is not as conducive. as it was before," he said. "That doesn't mean we won't do it." Asked about the influence of private equity consortium Airline Partners Australia on the airline's current plans, Mr Dixon said Qantas had already been considering plans for the holiday, frequent flyer and freight operations when APA launched its bid but the bidders had suggested the fleet strategy. "I don't think I'm wimping but I'll leave that for others," he said. "And the only reason -- I don't usually take a backward step in these things -- is that it created so much heat and so much emotion. I think everybody believes they were right at the time." He said that the airline's much criticised board "behaved impeccably" in response to the bid.[15] Mr Dixon said Qantas was "extremely strong" on domestic and global markets, despite continuing weakness on Japanese routes and fluctuations in the British market. Qantas was reaping rewards from its work to lift efficiency and a decision to invest about $2 billion in new product between 2003 and 2010.[15]
"We remain confident of meeting our guidance for a 2007/08 result of a least 40 percent higher than the 2006/07 reported profit before tax," Dixon said. [8] The airline said it remains confident of meeting its forecast for a lift in pretax profit for the year to mid-2008 of at least 40 percent from the previous year.[19]
The uncertainties have killed off several carriers, particularly in the U.S., but Mr Dixon believes the effect on the industry is not uniform. He said that chaotic conditions in the U.S. were not necessarily translating to Europe and the Asia-Pacific. Much of the industry was far from being in turmoil and, while he conceded no airline would escape high fuel prices, he questioned whether fuel would keep rising. [15] The group was trying to minimise the impact of fuel prices through overall cost-reduction initiatives, including a hiring freeze and cutting back on non-essential spending.[7]
QANTAS will increase airfares for domestic and international flights and suspend its share-buyback program. [7] DISCOUNT fares this month were more than 13 per cent higher than a year ago, reversing a downward trend in the first quarter of this year.[20] The best discount fares were down about 6per cent in January, almost 10per cent in February and more than 22per cent in March as Jetstar and new entrant Tiger Airways Australia slugged it out at the low end of the market.[20]
SOURCES
1. Qantas flags higher fares | smh.com.au
2. Qantas lifts fares to offset fuel rise | The Australian
3. Qantas expects to meet profit goal despite oil cost | Markets | Reuters
4. Qantas to lift fares, suspends buyback
5. Sky News: Qantas fares
6. Qantas ups fares sold in Australia, others under review - New Zealand's source for travel news on Stuff.co.nz
7. Qantas to lift fares, halt buyback | The Australian
8. AFP: Australia's Qantas hikes air fares, citing fuel costs
9. Business Spectator - Qantas fares to go up
10. Qantas to hike airfares | Herald Sun
11. Qantas hikes fares - ABC News (Australian Broadcasting Corporation)
12. Queensland Business Review - PSA media
13. Australia's Qantas lifts airfares, expects FY pretax profit up at least 40 pct - Forbes.com
14. Bloomberg.com: Australia & New Zealand
15. Qantas will fly through turbulence | The Australian
16. Qantas to raise airfares | theage.com.au
17. Qantas raises fares as fuel costs bite -
18. Qantas says to meet profit target despite fuel cost | Industries | Industrials, Materials & Utilities | Reuters
19. Qantas to raise fares, suspend share buyback program due to fuel price rises - International Herald Tribune
20. Airfares change altitude | The Australian
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