Qantas planes grounded

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Qantas warned it would report a fall in first-half profit of up to 66%

The cost of industrial actions and rising fuel costs were singled out for blame

Financial Times  — 

Qantas, Australia’s flagship carrier, on Monday warned it would report a fall in first-half profit of up to 66 per cent as the cost of industrial action and rising fuel bills take their toll.

The airline forecast underlying profit before tax of A$140m-A$190m for the six months to the end of the year, compared with A$417m for the same period a year ago.

However, shares in Qantas jumped as much as 5.8 per cent after it said forward bookings were getting back to normal following concerns that rivals would succeed in luring customers away as a result of the turmoil caused by the dispute.

The impact of industrial action and the escalating fuel price cost the company over A$650m, with the bill for strike action by three unions and the subsequent grounding of the fleet totalling A$194m in the six months.

Alan Joyce, chief executive, defended his controversial decision to ground the fleet, which cost A$70m. “Had the union industrial campaigns continued the impact on the business would have grown to A$85m a month,” he said. “However, since the termination of industrial action by Fair Work Australia we have seen customers return to Qantas.”

The dispute centred on Qantas’ use of outsourcing to lower labour costs and reliance on cheaper employees from its low-cost subsidiary Jetstar. The unions and the airline entered independent binding arbitration run by the Fair Work Australia tribunal last week, but a resolution could take up to a couple of months.

Shares, which have fallen 28 per cent in the last six months, ended the day up 3.4 per cent at A$1.51 after the airline said that domestic reservations had recovered quickly although international bookings returned at a slower rate, because of the longer lead times on long haul travel.

Rival airlines including Virgin Australia have been hoping to take market share from Qantas, which dominates the Australian domestic market, and in particular, corporate travel.

Russell Shaw, an analyst at Macquarie, said the cost of the dispute had been A$65m-A$70m more than he expected but that he did not think the company had any option but to ground the fleet.

“Had they not proceeded with the action of grounding the fleet, and the dispute had gone on for six months, it would have been far more expensive,” Mr Shaw said. “The more important thing in the next six months is that forward booking has recovered and operating cash flows have improved.”

The stock was also buoyed by a report in the Australian Financial Revenue that said Qantas is in talks with Malaysian Airlines about a possible tie-up, which could allow it to expand in south-east Asia with less capital expenditure, the analyst said. Qantas has dismissed the report as “speculation”.

Qantas said it expected to increase capacity by between 4-6 per cent and yield by 3-5 per cent in the six months ending December 31. The airline expects fuel costs to rise by about A$450m – from $1.7bn to $2.2bn – in the period.