The Qantas Airways Limited (ASX: QAN) share price could be in for a bumpy ride on Thursday following the release of a full year result which appears to have fallen a touch short of expectations.
For the 12 months ended June 30, the airline posted record revenue of $17,966 million, up 4.9% on the same period last year.
However, underlying profit before tax came in at $1,302 million and statutory profit before tax came in at $1,270 million. This was a decline of 17% and 6%, respectively, compared to the prior corresponding period. And statutory profit after tax fell 6.5% year on year to $891 million. Which appears to have short of the consensus net profit after tax estimate of $954.8 million.
Qantas' profits were impacted by a $614 million increase in fuel costs from higher oil prices and a further $154 million of foreign exchange impacts on non-fuel net expenditure.
Qantas CEO Alan Joyce was rightfully pleased with the result given the mixed trading conditions.
He said: "This result shows the strength of our individual businesses but also the strength of our portfolio as a whole. Even with headwinds like fuel costs and foreign exchange, we remain one of the best performing airline groups in the world."
What were the drivers of its result?
The Group Domestic segment delivered an underlying EBIT of $1,030 million, down by 4% on FY 2018. Unit Revenue from Qantas and Jetstar's domestic operations grew by a combined 4% on flat capacity, as fares caught up to higher oil costs.
Qantas International delivered an underlying EBIT of $285 million, down by 28%. Whilst this was a soft result, management noted that there was a significant improvement in its second half performance as competitor capacity and overall fare levels adjusted to higher fuel prices. Unit Revenue grew by 6% compared with FY 2018 and its seat factor grew by 2 percentage points to 86 per cent.
The Qantas Loyalty business achieved record underlying EBIT of $374 million, up 8% year on year. This earnings growth was driven by the core Frequent Flyer Program as well as new insurance and financial products.
Shareholder returns.
The Qantas board announced a fully franked dividend of 13 cents per share to be paid on September 23 with a record date of September 3. It also revealed an off market buy-back of up to 79.7 million shares, which is worth approximately $400 million at yesterday's share price.
Impressively, this latest buyback will bring the total reduction in shares on issue by nearly one third since 2015.
Outlook.
Qantas advised that it expects its total FY 2020 fuel bill to increase to ~$3.95 billion (up ~$100 million) and is fully hedged.
Total capacity is expected to increase by ~1% in in the first half of FY 2020. Group Domestic capacity is expected to be flat to slightly down, whereas Group International is expected to increase by ~1.5%. Competitor capacity is expected to decline by ~1% in the first half of FY 2020.
