Australia's Qantas Airways posted a record annual profit, powered by its domestic business, but its shares fell on concerns about rising fuel prices despite the carrier saying it would be able to mitigate its impact.
Qantas forecast an A$690 million (Dh1.85 bilion) increase in its fuel bill for the current financial year but CEO Alan Joyce said the airline should be able to fully recover rising fuel costs in the domestic market and do so substantially in the international market.
Investors, however, were less sure. Shares fell as much as 7.7 per cent in early trading, although losses narrowed to 2.4 per cent by early afternoon after the management team reiterated the positive outlook on an analyst call.
Bank of America Merrill Lynch analysts, in a note, maintained their "buy" rating on the stock, telling clients the guidance supported their forecast of flat earnings in the current financial year versus a consensus estimate for a 6 per cent fall.
The airline's underlying pretax profit, its most closely watched measure, rose to A$1.60bn for the 12 months ended June 30 from A$1.40bn a year earlier. That was in line with analysts' expectations. Australia's flagship carrier also announced an A$332m stock buyback programme.
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Separately, rival Air New Zealand reported on Thursday its second-highest ever annual profit before tax but shares fell 3 per cent after it said earnings would fall by as much as 21 per cent in the current financial year due to higher fuel prices.
Qantas, which controls nearly two-thirds of Australia's domestic capacity, said domestic underlying earnings before interest and taxes for Qantas and its low-cost arm Jetstar rose 25 per cent for the year ended June 30 as they cut capacity and hiked fares.
Mr Joyce said forward booking revenue was running more than 6 per cent higher than at the same time last year. He said Qantas would also increase revenue in its frequent flyer business.
Qantas expects to keep domestic capacity flat in the first half ending December 31 and for international capacity to rise by 1 per cent. Mr Joyce said demand remained strong, but the airline was focused on filling more seats rather than adding more capacity.
Under his reign, Qantas has executed a successful turnaround that has cut costs and allowed it to return cash to shareholders, helping to push the airline's shares to record highs. Qantas shares had risen 25 per cent since the start of January before the results were announced.
The airline plans to launch the world's longest non-stop commercial flight, from Sydney to London, by 2022 after starting Perth-London flights in March.
Mr Joyce said the carrier was in talks with Airbus and Boeing about ordering jets suitable for the mission and would make a decision next year, assuming it could also gain approval from regulators and its pilot workforce.
