Qantas, Air NZ flag brighter outlook after price war hits profits

Qantas Airways, which has benefited from a cost-cutting programme and weakness at rival Virgin Australia Holdings in the domestic market, turned in its third-best result for a first-half.
Qantas Airways, which has benefited from a cost-cutting programme and weakness at rival Virgin Australia Holdings in the domestic market, turned in its third-best result for a first-half.PHOTO: REUTERS

SYDNEY/WELLINGTON (REUTERS) - Qantas Airways and Air New Zealand reported first-half profit declines as an expansion in capacity by rivals hit international airfares, but both airlines said they expect the fierce competition to moderate.

Shares in the carriers climbed as Air New Zealand said it was already seeing a reduction in flights by Chinese competitors while Australia's flagship carrier forecast a much slower pace of growth in capacity in the second half.

Lower fuel prices had encouraged carriers like American Airlines Group and Qatar Airways to add flights to Australia and New Zealand, taking some of the shine off what has been a recent robust period or earnings for both firms.

"We're at the high water tide mark of new competitors coming into the market place and we're really encouraged by the fact that some of our competition's already adjusting capacity downwards," Air New Zealand chief executive Christopher Luxon said on a call with analysts.

He noted the first half had been "abnormal" as capacity on longhaul flights to the Pacific nation had risen 30 per cent.

Air New Zealand was hit harder during the period with profit before tax tumbling by a quarter to NZ$349 million and its revenue per available seat kilometre (RASK) dropping 14.3 per cent on long-haul international routes.

Qantas booked a 7.5 per cent slide in first-half underlying profit before tax, its most closely watched measure, to A$852 million, beating guidance slightly. Its RASK fell 8.9 per cent on international routes.

Despite the declines, the results measured up well historically with Air New Zealand - widely regarded as a well managed airline with a dominant position - reporting its second-best first-half performance.

Qantas, which has benefited from a cost-cutting programme and weakness at rival Virgin Australia Holdings in the domestic market, turned in its third-best result for a first-half. It also forecast the domestic market would improve in the second half.

Shares in Qantas surged as much as 6.5 per cent to their highest levels in nearly 10 months, while Air New Zealand's stock climbed 3.7 per cent to a one-month high.

Australia's biggest airline also said it would push back the delivery date for the first of 99 Airbus SE A320neo aircraft to be used by its low-cost Jetstar division until the financial year ended June 30, 2019.

It had expected previously to receive it by the end of this calendar year.

That follows a similar move by Virgin Australia, which postponed the delivery of new Boeing Co 737 MAX aircraft for at least a year after reporting a 48 per cent decline in underlying earnings last week.

Macquarie Equities analyst Sam Dobson said he believed the decision to defer was positive as it could lead to more cash to give back to shareholders.

"If you are seeing your competitor not necessarily bring in an aircraft that is a step change from current technology then there isn't really any need for you to do the same," he said.