It certainly wasn't a great start to the day for the Qantas Airways Limited (ASX: QAN) share price on Thursday.
The airline's shares sank over 7% to $5.94 in early trade before recovering to be down a little under 2.5% at $6.25.
What happened?
This morning Qantas provided the market with an update on its performance during the first-quarter of FY 2018.
According to the update, the airline posted a 5.1% increase in quarterly revenue over the prior corresponding period to $4,190 million.
This was driven largely by improvements in domestic demand, proactive capacity management, and ultimately a 3.1% lift in unit revenue per available seat kilometre (RASK). RASK is a financial measure which combines the percentage of seats filled and average airfare prices.
Furthermore, conditions in the international market eased slightly despite a 3% increase in competitor capacity.
What's next?
As a result of this solid first-quarter, management expects first-half underlying profit before tax of between $900 million and $950 million.
This will be an increase of between 5.6% and 11.5% on its profit before tax of $852 million during the first-half of FY 2017.
However, a forecast 6% to 7% increase in international competitor capacity and a rise in the oil price is expected to weigh on the company's second-half result.
Based on a Brent forward market price of A$74 per barrel for the remainder of financial year 2018, management expects its full-year fuel cost to be approximately $3,210 million, compared to $3,040 million in FY 2017.
All in all, I believe this could result in flat to low single-digit earnings growth in FY 2018 depending on its performance in the second-quarter.
Should you invest?
While I still think that Qantas is a far better investment option to Virgin Australia Holdings Ltd (ASX: VAH) and AIR N.Z. FPO NZX (ASX: AIZ), I would class it as a hold now due to the rising oil price and its strong share price gain this year.
If oil prices start to slide lower once again then it could easily become a buy, but until that happens I would suggest investors hold off buying shares.
