Qantas appears to have fallen victim of its own attempts to manage
the market’s expectations - having released some positive operating
statistics in December along with guidance for a statutory profit
before tax of between $50 million and $150 million.
The first problem is that this was really broad guidance and the market always tends to focus on the top end of the range. The airline announced today that it had come in below the mid-point, with a statutory profit of $90 million.
Qantas has to release statutory profit because it complies with the accounting standards, but the company believes that the underlying profit - that accounts for fuel hedging in a different way and takes out a lot of the volatility associated with it - is a better measure of real performance.
This underlying profit before tax came in at a better sounding number of $267 million for the six months to December 2009.
But Qantas boss Alan Joyce further disappointed the market by projecting a full year profit of between $300 million and $400 million on an underlying basis.
At the lowest end of this guidance the company is suggesting it could make only $33 million in the current half and the best case scenario would be $133 million.
So how can a company whose prospects are improving see its earnings going backwards?
The answer is that the general economic recovery that will help Qantas's operating performance will also result in higher fuel charges.
Increased fuel charges in the half will slug Qantas with $200 million in costs. That coupled with $50 million in additional depreciation eats into earnings.
And it would seem the transformation program, Q Future, designed to target $500 million in the current financial year in "benefits" just isn't enough to offset the rising fuel price charges.
Shares fell the most in a year in reaction to the airline's first-half numbers, ending the day down 8.1 per cent to $2.73.eknight@smh.com.au
SMH
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- Fred
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- Date and time
- February 18, 2010, 12:45PM
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- John
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- February 18, 2010, 1:25PM
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