Qantas to take $25m profit hit from Hong Kong protests

Protests in Hong Kong are set to negatively impact Qantas’ profit result for the first half of the 2020 financial year by $25 million, the company has revealed.

Qantas also noted there was “ongoing capacity reduction in place to minimise the second-half impact” from the protests in its trading update issued this morning.

The revelation comes as the extradition bill which sparked the months-long Hong Kong protests has officially been scrapped.

The protests caused complete chaos at Hong Kong International Airport – one of the busiest in the world – which at one point was forced to cancel all flights in and out of the territory.

In August, Qantas CEO Alan Joyce said flight bookings to Hong Kong were down 10 per cent, and as a result, the airline would cut capacity by up to seven per cent.

Qantas’ trading update also revealed that its total group revenue for the first quarter of FY20 was up 1.8 per cent to a record $4.56 billion, compared to the prior corresponding period, with group unit revenue growing 2.1 per cent.

The airline’s total group capacity was down 0.2 per cent in Q1, driven by a 0.6 per cent decrease for its group international division, while its domestic operations increased capacity by 0.5 per cent, largely de to growth in the resources market.

Qantas’ group domestic unit revenue fell 0.9 per cent due to mixed market conditions. Resources industry traffic continued to strengthen for the company, helping to offset weaker demand in other parts of the corporate sector such as financial services and telecommunications.

Overall, corporate travel demand was flat and small-business travel demand growth slowed in the first quarter, but Qantas’ market share in both these segments continued to increase. Premium leisure demand remained steady.

Demand in the leisure market weakened for the group. Jetstar’s unit revenue fell by 2.6 per cent and accounted for most of the RASK decline in Qantas’ group domestic division.

However, the company noted that Jetstar did benefit from higher load factors that supported ancillary revenue growth.

Qantas’s quarterly group international unit revenue increased by 4.4 per cent. This was led by a reduction in competitor capacity, as well as benefits of network and fleet changes in Qantas International, which had its own capacity decrease of 2.5 per cent and a unit revenue increase of over six per cent.

Jetstar’s international revenue also grew in the quarter, led by strong demand on leisure routes to Asia that offset weakness in markets impacted by the strength of the US dollar, according to Qantas.

The budget airline’s international division grew capacity with increased short-haul flying to Bali and the return of aircraft from heavy maintenance, compared with the corresponding period.

Further deterioration in global trade conditions has impacted freight demand, with Qantas expecting a profit impact of between $25 million and $30 million for the full year.

Qantas Loyalty continued to see strong revenue growth in line with expectations, with recent changes to the Frequent Flyer program delivering increased member engagement during the period. Qantas added that new growth-focused ventures will be announced shortly.

A resilient outlook

Looking ahead, Qantas said it expects group capacity to grow by between 0.5 to 1.0 per cent in the first half of FY20, with increases in both domestic and international flying.

It also remains on track to deliver “at least $400 million in transformation benefits” in FY20, with an increased focus on cost reduction initiatives in the second half, according to the trading update.

Joyce (pictured above) said the record revenue result for quarter one showed the national carrier was positioned well to respond to continued mixed market conditions.

“The group continues to perform well, with strength in key parts of our portfolio helping to offset softness in other areas,” he said.

“Qantas International has seen significant upside from competitor capacity contracting more than anticipated, which is expected to continue for at least the remainder of the first half.

“Domestically, published competitor capacity is set to increase despite the weakness in the market. The Qantas Group will maintain its strategic position in all parts of the market, and therefore, our total domestic capacity is expected to grow by up to one per cent in the second half.

“Given the slower revenue environment, we have a strong focus on cost reduction to make sure we keep delivering on our transformation targets. Part of this is about taking opportunities to reduce complexity and constantly improving how efficiently we manage our business.”