Qantas sees lower fuel costs, profit amid coronavirus

Australian airline Qantas expects the coronavirus outbreak to cut its fuel costs in the second half of the 2019-20 fiscal year to 30 June amid reduced flights to China and other Asian destinations, as well as domestic routes.

Qantas forecasts fuel costs before any capacity reductions associated with the coronavirus to be A$3.85bn ($2.56bn) in 2019-20 compared with a guidance provided in August of A$3.95bn.

Qantas' fuel costs were A$1.97bn in the first half of 2019-20 from A$1.96bn a year earlier.

The coronavirus will also affect Qantas' profits in the second half, with revenue losses from reduced flight volumes to cut profit before interest and tax by between A$100mn-150mn.

The coronavirus has meant the suspension of Qantas' Sydney-Shanghai service until the end of May and possibly longer. China represents about 2pc of the airline's total international network.

"We're seeing flow-on demand weakness on some other Asian routes, Hong Kong in particular, but also Singapore and to a lesser extent, Japan," said Qantas chief executive Alan Joyce.

Qantas in response is reducing capacity across Asia by 15pc, at least until the end of May.

Only 8pc of Qantas' domestic bookings are attached to an international trip and the percentage from Asia is smaller again, Joyce said. "That said, we have seen some weakness in domestic demand emerge in February," he said.

The airline's domestic capacity will reduce by just over 2pc in the second half, while services between Australia and New Zealand will be cut by 6pc.

"We can extend these cuts, cut deeper if we need to, or add capacity back in," Joyce said.

Qantas reported an underlying profit of A$771mn in the first half of 2019-20 from A$775mn in the same period a year earlier, with sales rising to A$8.3bn from A$8.03bn over the same period.

By Kevin Morrison