By Virginia Harrison, MarketWatch
SYDNEY (MarketWatch) -- Qantas Airways Ltd. posted a sharp rise in first-half profit on Thursday and said it expects a materially stronger fiscal-year result as global aviation markets improve.
The Australian airline’s net profit rose to 241 million Australian dollars ($241.8 million) in the six months to Dec. 31, from A$58 million in the year-ago period.
Underlying profit before tax increased to A$417 million, up from A$267 million last year. Analysts had been expecting an underlying profit of A$410 million, according to data compiled by Dow Jones Newswires.
“Domestic business travel continues to recover and Qantas’ yield premium has been restored to pre-financial crisis levels,” Qantas Chief Executive Officer Alan Joyce said.
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Sales increased 10% to A$7.59 billion, while average yields, excluding currency, rose 7%, reflecting a stronger performance in premium business.
Shares in Qantas /quotes/comstock/22x!e:qan (AU:QAN 2.33, -0.08, -3.32%) /quotes/comstock/11i!qubsf (QUBSF 2.36, -0.12, -4.84%) rose by 4.6% in Sydney trading on Thursday.
Costs rose 7% to A$7.2 billion, in line with capacity growth, with higher average fuel prices inflating fuel costs by 10% during the period.
The airline said that the engine problems that forced the temporary grounding of its A380 fleet in November cost the business A$55 million in the first-half of its financial year.
Qantas expects to book a further A$25 million charge in the second-half due to the A380 disruptions.
The firm remains in negotiations with A380 engine maker Rolls-Royce over an estimated A$100 million compensation for economic loss related to the disruption.
Royal Bank of Scotland analysts said in a note Thursday the result was reasonable given the incidents which characterized the first-half.
The broker said that the performance of the airline’s low-cost carrier Jetstar exceeded its expectations, and added it was “continually surprised at the resilience of the business.”
Jetstar delivered underlying pretax profit of A$143 million, up from A$120 million, and increased capacity by 19% on a year earlier.
Qantas also announced it plans to boost its fleet to capitalize on Asian and domestic markets, via new aircraft orders and leases as well as lease extensions.
Following its first-half performance, Qantas said that it expects underlying pretax profit for fiscal 2011 to be “materially stronger” than a year earlier, although several factors could influence the result.
“Changes in fuel prices, foreign exchange rates, general trading conditions and the impact of significant weather events could rapidly impact earnings,” it said.
Average bookings indicate yields in the second half will be higher than the first half, and Qantas expects capacity to increase by 11%, it said.
The airline estimated the Queensland floods and Cyclone Yasi are expected to impact full year underlying pretax profit by up to $70 million.
Underlying fuel costs for the second half are expected to increase to around A$2 billion due to higher jet fuel prices. That will be partially offset by fuel surcharges, fare increase and hedging.
Credit Suisse analysts said in a note Thursday that the outlook for the airline is positive despite rising oil prices and the ongoing impact of the A380 disruption.
“Overall a very solid result, which coupled with yield improvements and higher cost savings targeted in the second-half will help offset the increase in oil costs,” the broker said.
Virginia Harrison is a MarketWatch reporter based in Sydney.
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