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Share buyback as Qantas half-year profit triples
[SYDNEY] Australian carrier Qantas Tuesday said first-half net profit soared 234 per cent on the back of belt-tightening and lower oil prices, as it announced a A$500 million (S$507 million) stock buyback to share the spoils with investors.
The A$688 million result comes on the heels of a ruthless cost-cutting drive that has seen thousands of jobs axed and aircraft deliveries deferred in recent years to stem mounting losses.
Underlying profit before tax in the six months to Dec 31 - the airline's preferred measure of financial performance - was A$921 million, at the upper end of analyst expectations, while revenue rose five per cent.
The result was boosted by A$448 million in savings through the airline hedging on lower fuel prices.
"This record result reflects a stronger, leaner, more agile Qantas," said chief executive Alan Joyce, who declared his intention to stay with the airline indefinitely.
"Without a focus on revenue, costs and balance sheet strength, today's result would not have been possible.
"Both globally and domestically, the aviation industry is intensely competitive. That's why it's so important that we maintain our cost discipline, invest to grow revenue, and continue innovating with new ventures and technology."
Despite the buoyant numbers Qantas shares, which have rallied strongly over the past 12 months, were down 4.76 per cent at A$3.80 in afternoon trade.
"Its shares are falling after its decision to not pay a dividend," said Commsec analyst Steven Daghlian, although other market watchers suggested it could also be related to a rise in oil prices overnight.
The bottom line was boosted by strong performances across almost all of the airline's divisions, with both domestic and international operations in profit. Freight was the only significant business to go backwards, down 30 per cent to A$38 million.
Domestic earnings improved to A$387 million, up A$160 million from the previous corresponding period, while the once-struggling international arm was A$270 million in the black, helped by a lower Australian dollar fuel price and more capacity to Asia and the United States.
The company's low-fare Jetstar operation also did well, driven by a strong performance in the domestic Australian market.
Jetstar Japan, Jetstar Asia in Singapore, and Jetstar Pacific in Vietnam were collectively profitable in the first half, compared to the previous year, although Indonesian volcano eruptions had a A$23 million adverse impact.
The turnaround further vindicates Joyce's strategy two years ago of adopting a more conservative financial framework with an ongoing plan to slash A$2 billion in costs by the end of 2016/17. Savings of A$1.35 billion have been realised so far.
"Every segment of the group has contributed strongly to today's results, with each reporting a rate of return above our cost of capital," Mr Joyce said.
"Qantas domestic, Jetstar and Qantas loyalty all achieved record results for the half, a combined earnings between Qantas domestic and Jetstar domestic rose more than 90 per cent to a record US$556 million as we continue to evolve the dual brand strategy.
"Cash flows of US$770 million, this gives us a very solid platform to invest in the future."
With no interim dividend declared, the company instead announced an on-market share buyback, its second in the past year, which should push up the value of its stock remaining on the market.
"The strength of our performance and balance sheet means we can continue to reward our shareholders for their confidence in our business," Mr Joyce said.
"We're pleased to be able to build on last year's US$505 million capital return with the buyback we announce today."