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Sydney, July 21, 2008 (ABN Newswire) - As expected, Qantas revealed its job and route cuts Friday and Virgin Blue hopped on the back of that news to delivery its second cut in services and costs.
Qantas shares closed steady on $3.30 after the well leaked cuts were revealed, while Virgin Blue shares rose a cent to 68c as speculative interest forced the shares higher in the wake of the move by Toll Holdings to get rid of most of its 62.7% stake in the airline by giving it to Toll shareholders.
Qantas now faces a difficult year: not so much operationally, but in handling the record profit announcement next month, then at least two profit reports that will show earnings probably halving, or more.
Qantas is expected to earn over $1 billion pre-tax in the year to June, but analysts are now saying the 2009 figure could be around, or even lower than the $588 mark, or down 42%.
The airline planned cuts, revealed on Friday, will help ease the burden, but like competitors around the world (American Airlines cut 1500 jobs, mostly maintenance workers, on Friday in the US) Qantas is being hurt by high oil and jet fuel prices.
If the 11% fall in oil prices is sustained for a few more weeks, or the oil price slides further, then that will drop jet fuel costs and the Qantas share price will react accordingly, and rise, as it is tumbled as jet fuel and oil prices have soared.
Qantas will sack 1500 people by the end of the year, shelve plans to hire another 1200 staff, ground up to 22 older planes and will close two foreign call centres.
Virgin Blue announced it would ground another two Boeing 737s, reduce flights, introduce new baggage fees and increase "flexible fares" to try and lift patronage on some routes.
Virgin Blue raised fares on some routes and grounded four aircraft last month.
After the latest cuts, Virgin's capacity on routes will fall by 9% this financial year, while Qantas will cut its capacity growth back to zero after earlier planning an 8% rise.
Qantas's chief executive, Geoff Dixon, said things can get worse ... "that is why we have to move very quickly. It's been made tougher for Qantas through some of the industrial situations. I'm loath to say that we have all of that behind us."
He said that as yet, the airline does not have any plans to change its strong order book for new aircraft because any reduction would remove chances of growth in the longer term.
Qantas is pursing a strategy of reducing frequency of services rather than cutting routes.
The Asian strategy of its budget offshoot Jetstar remained unchanged, but it will cut back in some areas.
Sydney Airport posted a 9.2% rise in first half earnings and says its airline clients face a challenging environment due to rising fuel costs.
The Macquarie Airports-owned company told the ASX Friday that earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $318.6 million, compared with $291.6 million in the same period of 2007, including certain non-recurring expenses.
Excluding those expenses, earnings for the half year ended June 30 were up 9.5% to $319.5 million, from $291.7 million, a performance that left the market underwhelmed when viewed against the gloomy outlook.
The shares fall 6.5% or 17c to $2.45, choking off a nice recovery in the securities last week.
News of big job and route cuts by Qantas and a second round of cost cutting by Virgin Blue further depressed the securities in afternoon trading Friday.
Sydney Airport chief executive Russell Balding said the interim result was solid, with revenue growth across all of its businesses. Total revenue rose 8.4% to $397.2 million.
Aeronautical revenue rose although the pace of growth slowed to 4.5% to $154.56 million as the number of flights into Australia eased.
Retail revenue increased 11.3% to $95.27 million, property was up 15.3% to $54.66, and commercial trading was up 10.8% to $55.30 million.
Mr Balding said passenger growth of 5.6% in the first half highlighted the resilience of traffic at the airport: but much of that was Australians leaving the country: they were up around 8% over the six months while inbound travel into the country was steady in the half, according to ABS figures.
Sydney Airport said the schedule changes announced to date by Qantas and Virgin Blue will impact about 2% of seats on an annualised basis, the majority being domestic seats.
It said that taking into account load factors and flight substitution, the impact on traffic is expected to be somewhat less than 2%. But that was before Friday's announcements from the two airlines, so the impact will now be much deeper than the airport had calculated.
Meanwhile, farm chemical group, Nufarm Ltd upgraded its earnings outlook for the 2008 year on Friday and said it was expecting an even better profit for the new year.
The company says it is now expecting net operating profit for the year ended July 31 to be between $155 million and $160 million.
"This is above earlier company guidance but broadly in line with market consensus," Nufarm said.
It had in March predicted an annual net operating profit of $150 million.
And Nufarm is also forecasting a net operating profit of between $220 million and $230 million for fiscal 2009.
Managing director Doug Rathbone said parts of Australia had not received ideal follow-up rains, after the planting of the winter crop.
And recent widespread flooding in the Midwest of the US had dampened demand for both glyphosate and phenoxy herbicides.
"Nevertheless, our businesses in these markets will see very strong earnings growth over the course of the year, complementing excellent outcomes in our other regional markets," he said.
Mr Rathbone said business conditions leading into the company's new financial year are expected to remain very positive, generating strong profit growth.
Nufarm will release its annual results on September 25.
And thinly-held fashion group, Country Road Ltd says expects to post a pre-tax fiscal 2008 profit that is materially higher than the previous year.
The retailer (which is controlled by South African interests, with Solomon Lew as a frustrated minority holder) said sales had jumped a strong 21.9% in fiscal 2008 to $289.7 million.
Total sales in the second half increased by 11.0% to $144.1 million.
"The company now anticipates that profit before tax for the six months and for the full year to June 30 will be materially higher than for the previous corresponding period last year," Country Road said.
Country Road in February forecast a "good improvement" in second half pre-tax profit.
In fiscal 2007, Country Road's annual profit surged $16.98 million in 2006/07, thanks mainly to a tax benefit of $7.8 million.
Retail sales last year jumped 14.2% to $215.3 million and concessional sales rose 141.2% to $72.4 million.
Wholesale sales declined to just $2 million (they were switched to concessional sales).
This could turn out to be the best sales result for any retailer this year, bar the larger JB Hi-Fi.
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