Qantas Rides Out Rising Fuel Costs As Quarterly Revenue Lifts 


Qantas Airways (ASX: QAN) flags record level of revenue for the first quarter of fiscal 2019 despite facing headwinds from higher fuel costs. The total revenue achieved in Q1 FY19 was $4.41 billion, up 6.3 percent from previous corresponding period.

The weaker Australian dollar and rising fuel cost had made it quite obvious to predict the results,  but Qantas has turned the tables on capitating new customers. Revenue from new passengers shot straight up to mend the rough patches of higher fuel cost. As total passengers carried, increased to 14,103,000 in first quarter of FY19 from 13,842,000 in previous corresponding period, i.e. 1Q FY18. The growth was such that it offered to partially offset a rise in non-fuel costs such as higher commissions paid to travel agents.

Let’s see what’s there on the segment front

While flying within Australia region the unit revenue across Qantas’ group domestic operations has increased by 6.8 percent on the back of strong travel demand across business and leisure market. However, it was observed that group’s domestic available seat kilometers have dropped in decimals, i.e. 0.2%. 

On international front, Group’s International unit revenue grew 4 percent underpinned by substantial growth in Qantas International and Jetstar International over and above the decline in Jetstar Asia operations. Broadly, Qantas’ international network has contributed to the group’s revenue growth, including the Perth-London route, renewed codeshare agreements and traffic flows associated with refocusing on the Singapore hub.

However, total Group capacity was down by 0.3 per cent, with decreases in both the international and domestic market. Further going forward group’s capacity for the first half of FY19 is now expected to be flat, with Group’s Domestic capacity expected to fall by approximately 0-1 percent and Group’s International capacity to be flat.

Headwinds from Fuel Cost

The group may still have to face the struggle of higher fuel prices in the remaining financial year 2019 as based on jet fuel forward market price of A$130 per barrel, Group’s full year fuel cost is now expected to be $4.09 billion compared with $3.23 billion for financial year 2018.

However, Qantas continues to speculate the fuel prices in order to get benefitted in future. So far it has hedged 76 percent of its fuel for full Fiscal 2019 whereas for Fiscal 2020, 39 percent of it has been hedged.

Qantas Group CEO Alan Joyce stated that based on the value of forward bookings and broader market conditions, the company has the ability to manage higher fuel costs and keep investing.

New Developments

To meet increased premium travel demand, Qantas has unveiled a multi-million-dollar investment in a new First Lounge at Singapore airport along with announcing expansion of its existing Business Lounge at Singapore Changi Airport.

Coming to the Qantas’ share buy-back plan for up to $332 million as announced in August this year, the company has completed nearly 53 percent of buy-back as of 23 October 2018. This takes the total number of shares on issue after cancellation to 1,653,113,636.

Annual General Meeting of Qantas Airways Limited is slated to take place tomorrow, 26 October 2018, in Brisbane.

Despite announcing significant growth in first quarter of FY19, Qantas share price plunged 4.004% to trade at $5.395 on 25 October 2018 (1:19 PM AEST).


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