MENU

Qantas sets sights lower for 2014

Qantas (ASX: QAN) is expecting some turbulence in its future flight plans. The company announced Friday that it expects its group yields to fall between 2% and 3% for the first half of fiscal 2014. “The domestic market is still absorbing capacity growth that has been double the long-run average,” Qantas Chairman Leigh Clifford told analysts at its annual meeting, “and this growth has come at the same time as weak underlying demand across the market, from the leisure to corporate segments.’’

Citing volatile economic conditions, the company remained mum on earnings guidance for this year, but the forecast announcement alone proved enough to push share prices down 3.4% on Friday, erasing Thursday’s 3.1% gains.

Fasten your seatbelt

Investors need to keep their eyes on two main indicators: overall flight use and competition. The first is a direct result of the global financial crisis, and comes from corporations cutting back on overall business travel. As communication technology improves, corporate travel (airlines’ biggest margin money maker) could be on an overall decline that may never pick up. Clifford himself noted that there is already a “lag effect” from a rise in business confidence translating to travel, but that lag effect could prove lasting.

But even if flight volumes fluctuate, air travel isn’t going anywhere. The second and more important area for investors to watch is competition. Qantas and Virgin Australia Holdings (ASX: VAH) continue to battle for high-end customers, but they’ve also taken their fight to the street with budget carriers Jetstar and Tigerair. Qantas was first to the game with Jetstar, but Virgin’s controlling stake purchase in Tigerair this year shows that the airline’s not turning a blind eye to this mass market niche yet.

Sydney Airport’s (ASX: SYN) September numbers provide further fodder that air travel is on the rise, with domestic flights up 2.3% and international flights up 4.1% year-to-date. With positive growth from Australia’s largest airport, Qantas may be pointing its finger a bit too pointedly at the macroeconomic environment.

Airports and airlines aren’t known for their economic resilience during tough times, but there are other companies out there that are more stable than ever. Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!