The Qantas Group today announced its preliminary trading update for the third quarter of financial year 2017, reflecting improving performance from its domestic operations and a slight moderation in the challenging conditions within the international market.
The Group confirmed that it expects to report a full-year Underlying Profit Before Tax in the range of $1.35 billion to $1.40 billion, which would represent the second highest result in Qantas’ history.
Third Quarter Trading
Group Domestic Unit Revenue for the third quarter increased by 4.6 per cent compared to the prior corresponding period. Proactive capacity management continued across all markets with Group Domestic capacity down 3.7 per cent predominantly from the resource sector which saw a 19 per cent reduction in capacity.
As expected, the tough conditions in the International market eased slightly with the downward trend in Group International Unit Revenue moderating as capacity growth in the broader market slowed. Third quarter Unit Revenue decreased by 5.6 per cent year-on-year and Group International capacity increased 2.2 per cent.
Qantas International increased capacity by 4.8 per cent, driven by the impact of previously announced routes servicing the growing Asian market. As a result of the transition of the Melbourne to Narita service to Qantas International to improve brand alignment to customer demand, Jetstar International capacity declined by 1.8 per cent.
Despite the tough international market, the strength of our portfolio of businesses limited the fall in Group revenue to 1.4 per cent to $3.96 billion compared with $4.01 billion in the third quarter of financial year 2016. Group Unit Revenue declined 1.8 per cent.
Full Year Outlook
The positive trend in Unit Revenue for Group Domestic is expected to continue into the fourth quarter.
The decline in Unit Revenue for Group International is expected to continue moderating in the fourth quarter, as competitor capacity growth reduces to around 5 per cent for the second half from the high levels seen in the first half of financial year 2017.
Taking this into account the Qantas Group expects to report an Underlying Profit Before Tax in the range of $1.35 billion to $1.40 billion for financial year 2017. This reflects improving performance from Group Domestic and Qantas Loyalty partially offsetting a relatively weaker, but resilient, Group International performance in a highly competitive market.
The guidance and expectations above do not include the impact of bond rate movements on the valuation of employee leave provisions since 31 December 2016. As at 1 May 2017 the fall in bond yields since 31 December 2016 would result in an adverse non-cash impact on the estimated full year Underlying Profit Before Tax of $25 million.
Qantas CEO Alan Joyce said the Group’s quarterly performance had met expectations and laid the ground for another strong full-year result.
“Last year we posted the highest earnings in Qantas’ history and our guidance today would make this year’s underlying profit the second best in almost 100 years. It shows we’re able to keep performing in a mixed global environment,” Mr Joyce said.
“Between our domestic flying businesses, Qantas and Jetstar, and Loyalty we are delivering solid earnings growth.
“Internationally it’s still tough, with high levels of capacity growth pushing fares down, but we’ve seen those conditions ease slightly. Because of the work we’ve done to transform Qantas and expand into growth markets, our international businesses are navigating the headwinds better than our key competitors.
“Over the past three months, we’ve launched free Wi-Fi on our domestic network, opened new customer lounges in Brisbane and put the world-first Perth to London service on sale. These are all things that improve our position in a competitive market and encourage more people to choose Qantas,” added Mr Joyce.