Mixed results for Flying Kangaroo

International division reduces losses, but domestic earnings fall

The “Flying Kangaroo”, Qantas Airways Limited (ASX: QAN) has today reported a net profit to $111 million for the six months to December 2012, close to three times more than the previous period’s $42 million.

Passenger and freight revenues were flat, but profit was enhanced by a one-off pre-tax gain of $140 million for the cancellation of an order for Boeing 787 Dreamliners, and a $30 million profit from the sale of its half share in road freight joint venture, StarTrack Express.

Qantas is set to receive $750 million this financial year from the cancellation of 35 Boeing 787s, and the full sale of StarTrack.

The International division reduced its losses from $262 million in the previous period to $91 million in the current period, as the company cuts flights to Europe and enters a proposed alliance with Emirates. CEO Allan Joyce expects the division to return to profit on the back of the alliance and a restructure of the business.

Mr Joyce may need to turn his attention to the Domestic division next, after it reported a 34% fall in underlying earnings before interest and tax (EBIT), compared to the previous year. Jetstar also saw its EBIT fall by 13% to $128 million. That suggests that either the domestic market as a whole has declined, or, Virgin Australia Holdings (ASX: VAH) may be eating into Qantas’ market share.

The company stated that it had maintained its leading market position at 65% of domestic market share, suggesting Virgin’s domestic earnings will be down as well.

Yet again, Qantas Frequent Flyer posted a strong result, with a 15% rise in EBIT to $137 million.

Foolish takeaway

While early results suggest the international division is turning around, falling domestic earnings may become the next issue management has to focus on. As we’ve repeatedly stated, airlines in general are tough businesses, and no matter what steps management take, the business could still report disappointing results. That’s one reason why we tend to avoid an investment in airlines.

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