In early trade the Qantas Airways Limited (ASX: QAN) share price has fallen 1% to $5.74 following the release of the airline's FY 2017 results.
Here are key highlights from the release:
- Revenue and other income down 0.9% to $16,057 million.
- Unit Revenue (RASK) down 2%.
- Statutory profit after tax down 17.1% to $853 million.
- Underlying profit before tax down 8.6% to $1,401 million.
- Statutory earnings per share of 46 cents (Underlying 54.6 cents per share).
- Final unfranked dividend of 7 cents per share, bringing its full-year dividend to 14 cents.
- On-market share buyback of up to $373 million.
- Outlook: Group capacity expected to increase by around 3% in the first-half.
Overall I felt that this was a strong result from Qantas. Although profit is down significantly from FY 2016, the underlying profit before tax result did beat its full-year guidance of between $1.35 billion and $1.4 billion.
A key driver of its strong result was its Qantas Domestic segment. Despite revenue sliding 1.4%, underlying earnings before interest and tax (EBIT) increased 12% to $645 million.
Qantas International didn't fare quite as well. While revenue fell just 0.7%, underlying EBIT tumbled 36% to $327 million. However, it is worth noting that Qantas still enjoyed higher than average margins in the segment despite the competitive market.
The Jetstar business posted underlying EBIT of $417 million on revenue of $3.6 billion. This was a decline of 7.7% and 1% on FY 2016, respectively.
The company's lucrative Qantas Loyalty segment delivered another strong result. Thanks partly to an exceptionally strong second-half, the segment finished the year with a 6.6% lift in underlying EBIT to $369 million.
Finally, the Qantas Freight business posted a reasonably disappointing 27% decline in underlying EBIT to $47 million.
Should you invest?
The airline industry is a notoriously difficult one to invest in and tends to go through cycles.
Right now I think things are looking quite favourable for the industry. Oil prices are reasonably low, tourism is growing fast, and planes are becoming more economical.
This in my opinion could make it a good time to consider an investment in the industry.
If you were looking to gain exposure to the airline industry then Qantas would certainly be my first pick ahead of rivals Virgin Australia Holdings Ltd (ASX: VAH) and AIR N.Z. FPO NZX (ASX: AIZ).
With capacity growing in FY 2018, more cost-savings expected, and a share buyback, I believe it is a vastly superior option to it rivals.
