Qantas Airways Ltd Issues Profit Warning
AAP | Jun. 21, 2006
National carrier Qantas Airways Ltd's profits will fall by more than a quarter in 2005/06 on the back of record fuel prices and redundancy payouts.
Qantas chief executive Geoff Dixon warned Wednesday that more cost cutting will be necessary if fuel prices remain at current levels, although the airline declined to say whether that would involve further job cuts.
Australia's biggest airline has also decided to hold on to its catering business and restructure it instead of going ahead with a planned sale, with up to 30 jobs set to go.
Mr Dixon forecast that Qantas will post a pre-tax profit of around $670 million for 2005/06, after restructuring costs of approximately $153 million.
That represents a 27 per cent decline on 2004/05's $914.3 million profit before tax.
It is also at the bottom end of analysts' forecasts, which ranged between $670 million and $895 million for pre-tax profit after restructuring costs.
The news sent Qantas shares tumbling almost five per cent, closing down 15 cents at $3.03.
Qantas had previously warned that it would not achieve the same level of profitability in the current financial year as in 2004/05, with global airlines battling soaring fuel costs because of record high world oil prices.
"This position has been reinforced by a $1 billion increase in fuel costs for 2005/06 after hedging, a significant amount of which will not be covered by surcharges," Mr Dixon said.
Qantas, which lifted its fuel surcharge on tickets in April in response to rising fuel costs, has said its 2005/06 fuel bill is expected to reach $2.9 billion this financial year - about $1 billion higher than for 2004/05.
But a Qantas spokesperson said the airline had no plans to increase existing fuel surcharges.
Mr Dixon said Qantas was making solid progress towards its target of $3 billion of benefits through its `Sustainable Future' restructuring program for the five years to June 2008.
"These reforms will lead to an improved cost structure in future years," he said.
"However, if fuel prices continue at this level, further restructuring will be required."
The Qantas spokesperson would not say whether the flagged restructure entailed further job cuts.
In March Qantas announced 480 job cuts linked with a decision to relocate its heavy maintenance operations from Sydney to Melbourne, although redeployments have reduced the number of job losses to 340.
The airline also plans to axe about 1,000 management, support and administration positions in the first half of 2006/07.
Qantas said up to 30 jobs would go in a restructure of its catering facilities after the airline decided not to sell the operations.
"The offers we received for our catering business did not represent good value compared to the benefits we expect to achieve by retaining the business and restructuring it," Mr Dixon said.
Qantas executive general manager associated businesses, Grant Fenn, said the restructure would initially focus on QFCL Sydney at Qantas' Sydney Jetbase and Caterair Sydney at Mascot Airport, which handle the bulk of the catering work.
"As many as 30 redundancies may be required but we expect these will all be achieved through expressions of interest," Mr Fenn said.
Treasurer Peter Costello said Qantas was facing tough conditions.
"It's a very difficult market, it's got to compete," he said.
Shaw Stockbroking analyst Brent Mitchell said it was hard to know how many more jobs could go if further restructuring was required.
"(Mr Dixon) may use the jet fuel prices to bash the heads of the unions a bit in terms of maybe moving jobs offshore or changing the structure of their workforce," he said.
Qantas' net profit for the first half of the current year fell 9.6 per cent to $352.6 million on the back of soaring fuel costs and redundancy payouts.
Qantas reported a net profit of $688.5 million for 2004/05, restated under the new financial reporting standards.