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Turbulent conditions ahead for Qantas

Qantas Airways Limited (ASX: QAN)’s chief executive Mr Alan Joyce shed some light on the company’s trading update for the first quarter of FY20 at its annual general meeting today (AGM).

What was said at the Qantas AGM?

In his address to shareholders, Qantas CEO Mr Alan Joyce stated that the company’s Quarter One trading update reflected softer general business and consumer confidence. Mr Joyce cited a weak Australian dollar, fuel price volatility and trade wars as factors impacting trading conditions.

Despite the challenging trading environment, Mr Joyce assured shareholders that the company’s strong fundamentals would carry it through tougher trading conditions, stating:

We have been able to grow share in the corporate and small business segments because our strategy is right. The resources market is rebounding and we’re well placed to benefit.

Given the slower revenue environment, Mr Joyce stated that the company would be focusing on cost reduction in order to deliver on transformation targets.

How did Qantas perform for the first quarter?

Qantas delivered revenue growth of 1.8% in the first quarter of FY20 to a record $4.56 billion, in comparison to $4.49 billion in the prior corresponding period. A strong international market also saw Group Unit Revenue improve, up 2.1% from the prior corresponding quarter.

Despite the growth in revenue, Total Group capacity was down 0.2% and domestic revenue fell by 0.9% due to mixed market conditions. Qantas cited flat corporate travel demand and slowing demand for small business travel.

In the quarterly update, Qantas indicated it expects ongoing trade wars, volatile foreign exchange and unrest in Hong Kong to negatively impact the company’s first half performance by $25 million. In addition, Qantas cited deteriorating global trade conditions to have an impact on freight demand that will impact full-year profit by $25–30 million.  

The Qantas Loyalty program continued strong revenue growth that was in line with expectations for the quarter. The company’s Frequent Flyer program is set to undergo improvements in order to increase member engagement given the weaker domestic market.

The Qantas share price is flat at the time of writing after dropping as much as 5.5% yesterday following quarterly results.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.