In morning trade the Qantas Airways Limited (ASX: QAN) share price has pushed almost 1% higher after the airline released its full-year results.
Here is a summary of how Qantas performed in FY 2018 compared to a year earlier:
- Revenue increased 6.2% to $17,060 million.
- Underlying profit before tax rose 14.5% to $1,604 million.
- Statutory profit before tax up 18% to $1,400 million.
- Statutory earnings per share up 21% to 56 cents.
- Shareholder return of up to $500 million: 10 cents per share final dividend and $332 million on-market share buyback.
- Outlook: Total fuel bill expected to be $3,920 million, up by ~$690 million.
Qantas' record underlying profit was driven by strong performances from all sides of the airline's business and supported by healthy levels of demand across key markets.
The company's domestic flying operations delivered EBIT of $1.1 billion, which is a 25% increase on FY 2017. Management put this down to the combination of Qantas and Jetstar's network, schedule, and product strengths in key markets. This was supported by capacity discipline which drove higher seat factors and higher unit revenue.
Qantas Domestic achieved a 19% increase in earnings from a 6% increase in revenue thanks to margin improvements from efficiency gains and investing for a higher premium.
The Jetstar Domestic business performed equally well and delivered a record result. This and its strong International earnings led to the Jetstar Group as a whole reporting an underlying EBIT result of $461 million, up 10.6% on the prior year.
The Qantas International business increased its earnings by 7% to $399 million and managed to maintain its margin despite strong competition and higher fuel prices. The business benefited from the introduction of the 787, new routes such as Perth to London, and additional Trans Tasman flying for partner Emirates. These changes started delivering cost and revenue benefits late in FY 2018 and are expected to continue through FY 2019 onwards.
The Qantas Loyalty delivered another record result with a 1% rise in profits to $372 million. Growth would have been stronger had its margins not been impacted slightly due to a mix of market conditions and bonus points promotions used to support the launch of new financial products. The Qantas Frequent Flyer program grew by 4.2% in FY 2018 to reach a massive 12.3 million members.
Outlook.
Rising oil prices are starting to have a notable impact on Qantas' business. Next year management expects its total fuel bill to be $3,920 million, up by around $690 million or 21% on FY 2017.
This is expected to be offset partially by transformation benefits which are expected to be around $400 million.
Total capacity is expected to increase by ~0 to 1% in the first half of FY 2019, with Group International up by 1% and Group Domestic capacity flat.
Should you invest?
I think that this result demonstrates why Qantas is one of the best options in the travel sector and goes some way to justifying its impressive share price rise over the last 12 months.
With its shares still reasonably priced, I would choose it ahead of rivals Air New Zealand Limited (ASX: AIZ), Alliance Aviation Services Ltd (ASX: AQZ), and Virgin Australia Holdings Ltd (ASX: VAH).
