Qantas plots course to weather coronavirus storm
Qantas boss Alan Joyce says his airline can "weather the storm" of the coronavirus and maintain shareholder returns even as it prepares for the health crisis to deliver a $150 million hit to its bottom line.
The airline on Thursday said it would cut flights into Asia by 15 per cent until the end of May and possibly longer, while slashing domestic and trans-Tasman flights by 2 and 6 per cent respectively in response to tumbling demand.
Qantas CEO Alan Joyce said the airline would take a significant hit from coronavirus but could weather the storm. Credit:Renee Nowytarger
The cost of the crisis will be between $100 million and $150 million this half, Qantas said, even after capacity cuts and a lower fuel bill, making it almost twice as damaging as the 2003 SARS outbreak.
Mr Joyce said the airline was "managing all the levers we can" by pulling out aircraft capacity, with the potential to cut even deeper, while also asking staff to take unused annual leave.
Despite the coronavirus headwind and handing down a flat half-year profit on Thursday, Qantas increased its interim dividend by 1.5¢ to 13.5¢ a share and announced a $150 million off-market share buyback.
“We do believe we can pay the dividend and the buyback, take the hit from the coronavirus and still have our debt levels at the lower end of the [targeted ] range," Mr Joyce said.
"Qantas is well positioned to weather the storm".
Earnings fell in Qantas' domestic operations in the first half, down 2.7 per cent, but there were signs of recovery in the three months to December as demand picked up.
However, that recovery had been put on the back foot through January by the summer bushfires, ongoing strike action at Jetstar and now the coronavirus. Mr Joyce said that made it hard to know the actual level of underlying demand for the most profitable part of its business.
“We think a large element is coronavirus but we don’t know. All we can do is say what we see in the forward bookings," he said.
With its major competitor Virgin Australia in financial strife, Mr Joyce said it could respond to any prolonged domestic market weakness with deeper capacity cuts to protect profitability.
Sondal Bensan, an analyst at the Pendal Group, which is Qantas' largest shareholder, said the airline had been on a positive trajectory through the first half.
"And now in this half, the coronavirus has basically put all that revenue progression on hold,” Mr Bensan said.
“These events are always short term, and I think that’s why they have continued with shareholder payouts.”
Budget arm Jetstar saw a 13 per cent fall in earnings in the first half, as it faced weak demand from leisure travellers and a $12 million hit from strike action, while Qantas' Loyalty division was again a standout performer, with earnings rising 12 per cent.
The company reported a statutory half-year profit of $445 million for the six months through December, down 4 per cent from the same period last year. Underlying profit before tax was at $771 million, down 0.5 per cent from the prior-year period.
Qantas' shares closed 6 per cent higher at $6.67. The stock is still almost 7 per cent behind where it was on January 17, when it was hit by the slowdown in travel caused by the coronavirus.
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