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UPDATE 2-Qantas gets lift as turnaround strategy kicks in
December 8, 2014 / 2:22 AM / 3 years ago

UPDATE 2-Qantas gets lift as turnaround strategy kicks in

* Forecasts underlying H1 profit between $249-290 mln

* Sees more stable operating environment

* Expects more gains from transformation programme in H2 (Updates with comment from press conference)

By Jane Wardell

SYDNEY, Dec 8 (Reuters) - Qantas Airways Ltd said Monday it expects to post its best first-half result since 2010 as a A$2 billion cost-cutting programme bears fruit and lower oil prices trim fuel costs, sending its shares to a three-and-a-half year high.

Shares in the so-called ‘Flying Kangaroo’ surged more than 16 percent as the airline said it expected further gains from its turnaround strategy and lower fuel prices in the second half of the year.

Qantas said underlying first-half profit would be between A$300 million and A$350 million ($249-290 million), reflecting a faster-than-anticipated recovery following last year’s record A$2.8 billion net loss.

All the company’s operating segments, including its troubled international division, would be profitable, it said.

“We are seeing a more stable operating environment in most markets,” Chief Executive Alan Joyce told reporters. “This turnaround shows our strategy is working.”

Qantas has struggled in recent years thanks to high fuel costs, a strong Australian dollar, increasing international competition and a domestic price war with rival Virgin Australia Holdings.

The airline is one year into a three-and-a-half year turnaround strategy, which includes stripping costs, freezing capacity and slashing 5,000 jobs.

Joyce said reduced capacity levels and weaker competitive pressure were “allowing yield improvements”, despite the continuing patchiness of the Australian economy. The resources sector was cutting back on flights and the leisure market was “not firing on all cylinders”, he said.

Joyce said it was too early to discuss whether Qantas would bring forward its purchase and options rights on 50 Boeing Co 787-9s. The airline needs to make a decision on the first delivery slot by the end of next year.

Asset sales, including its terminal leases, remain on the cards, Joyce said.

Qantas earnings are usually weighted to the first half of the year, although a continuing fall in the oil price could provide further gains in the second half.

Joyce declined to give full-year profit forecasts, citing oil price volatility. The airline expects a A$30 million benefit from lower fuel prices in the first-half.

Chief Financial Officer Gareth Evans said savings from the transformation programme in the second half would be at least A$300 million, compared with an anticipated A$350 million in the first half.

Qantas shares were at A$2.44 in early afternoon trade, up 16.2 percent, compared with a 1.1 percent rise on the broader market. They have more than doubled this calendar year.

Joyce said it was premature to consider any changes to current fuel surcharges on international flights, noting they had not changed since March 2012 despite record oil prices.

$1 = 1.2039 Australian dollars Editing by Stephen Coates

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