Changing oil price & competition would lower Qantas full-year profit to $1.57 billion, says Deutsche Bank

The slow increase in price of aviation fuel and pressure from competition on international flights made Deutsche Bank cut its profit forecast for Australian flag carrier Qantas. The bank forecast the airline’s full-year profit in 2017 would go down to $1.57 billion from $1.63 billion.

Forecast for 2018 was also adjusted downward to $1.4 billion from $1.9 billion, reports The Australian. Deutsche also cut the target share price by 85 cents to $4.30 but retained its “buy” recommendation.

Cameron McDonald, analyst of Deutsch Bank, explains that while ticket prices for Qantas’s international routes would remain steady, there would be pressure on yields from Jetstar and declines in costs of business class tickets. There would be some offset by cutting Qantas capacity in domestic market.

But it is not the case for the aviation company’s international operations, resulting in a lower revenue per available seat kilometre in fiscal 2015. “We have reduced our earnings to reflect these revenue assumptions as well as updating for the current oil forward revenue,” adds McDonald.

In the last three months, oil price increased to US$49.76 (A$65.19) a barrel from US$38.61 (A$50.58). It is higher than the fourth quarter 2016 financial year average price of US$47.15 (A$61.78) and US$35.33 (A$46.29) in the third quarter.

For fiscal 2016, Qantas had locked in a fuel bill of $3.4 billion in a worst-case scenario. The air carrier has begun hedging into 2017. If oil prices would continue to rise, McDonald says Qantas would expect to add $473 million to its fuel cost in 2018.

Meanwhile, Qantas got three awards at the yearly Skytrax World Airline Awards, reports The Australian. It got the Best Airline award in Australia-Pacific, Best Airline Staff award in Australia-Pacific and Best Premium Economy award for on-board catering. It placed ninth in the top 10 airlines list, while subsidiary budget carrier Jetstar won the Best Low Cost Carrier award in the Australia-Pacific.

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