Qantas Airways Ltd said it expects to report record annual profit on strengthening global demand as well as hikes in domestic fares and cuts to capacity, sending its shares up almost 7% to their loftiest since November.
The promising outlook indicates Qantas' international division is on the path to growth after years of sluggishness. Results for the so-called "Flying Kangaroo", which controls nearly two-thirds of Australia's domestic market, have been mainly propped up by its business at home.
"We're seeing solid results from each of our business units, which is a reflection of broadly positive trading conditions and the work we've done to strengthen the group," Chief Executive Officer Alan Joyce said in a statement on Wednesday (May 2).
Qantas projected pre-tax profit of between A$1.55 billion and A$1.60 billion ($1.16-$1.20 billion) for the year to end-June, versus A$1.4 billion a year ago. Pre-tax profit is the most closely watched measure of airline performance.
Following the airline's annual projections, analysts bumped up their forecasts to reflect the range given by Qantas, from an earlier average of A$1.55 billion, Thomson Reuters data shows.
"International has been doing it tough for a while but competitor capacity growth is abating," Sonadal Bensan, an analyst at Qantas' biggest shareholder, BT Investment Management, said in an email.
"This will result in international earnings rising from here. In light of cost headwinds, that will be a great outcome."
Carriers around the world have been experiencing weak sales for international flights because of competition and sluggish demand. Qantas saw its pre-tax profit from its international division dive 36% in the previous financial year, versus a 12% increase from its domestic unit.
In the third quarter ended March, Qantas' international revenue rose 5.2% in terms of distance travelled per passenger. Domestic revenue rose 8%, continuing to benefit from fewer flights and more expensive tickets.
The airline did not give dollar figures for each division in its quarterly result, although it said group revenue rose 7.5% to A$4.25 billion for the three months.
Strength in the business units will help offset an expected A$200 million increase in fuel costs for the year, the airline said. Its fuel costs fell about the same amount in fiscal 2017.
Qantas said it had ordered six Boeing Dreamliners for its international fleet, enabling it to retire its last six 747s, although this would not change its capital expenditure guidance.
Shares of the airline were up more than 6% by midsession, their biggest one-day gain in two years, while the broader market was up 0.5%.
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