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Lower fares hit Qantas first half profit

Australian carrier Qantas Airways posted Thursday a 7.5 percent hit to first half earnings, impacted by lower fares, greater competition and empty seats.

Underlying profit before tax fell to Aus$852 million (US$656 million) for the six months ending December 31, but just beat the airline’s own guidance.

This compares to Aus$921 million in the same period of 2015.

Revenue was also down to Aus$8.18 billion, 3.3 percent below the previous six months.

Qantas, which has turned itself around in recent years on the back of aggressive cost-cutting, said it was facing increased competition on international routes and a soft domestic market.

“The international market is tough because of capacity growth and lower fares,” said chief executive Alan Joyce.

“Qantas International is not immune from those pressures. But the work we’ve done on removing costs and making the business more efficient means Qantas International is outperforming its peers in the region.”

“Cheaper oil has led to strong capacity growth on international routes, pushing fares down and impacting all major airlines,” Joyce said.

“Our focus is to stay disciplined on capacity, keep downward pressure on costs, and introduce game-changing improvements like the Dreamliner and high-speed Wi-Fi.”

The airline is due to receive the first of eight Boeing Dreamliners next year and open the first direct flights between Australia and Britain.

“Our transformation programme has built a strong, sustainable business that generates returns throughout the economic cycle,” Joyce added.

Domestic and international performance both suffered with freight also down, although all parts of the group remained in profit.

Qantas announced an interim dividend of seven cents.

Shares had risen ahead of the announcement on expectations of a good financial result and jumped a further 5.21 percent to $3.74 by close Thursday on the better-than-expected figures.

CMC Markets chief strategist Michael McCarthy said the profit fall was forecast on the back of higher fuel, but the market response was surprising.

“Investors may like the narrative around the Dreamliners, as it is unlikely they were excited by capacity and traffic projections of plus one to two percent,” he told AFP.

In the year to June 30, Qantas posted a record net profit of Aus$1.42 billion and announced its first payout to shareholders in seven years.

That followed cuts of Aus$2 billion to costs and restructuring with thousands of jobs axed and dozens of aircraft sold or orders deferred.

Qantas offered no profit guidance on Thursday, saying the short-term outlook depended on oil prices and foreign exchange movements as well as global market conditions.

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