Qantas gains some profit altitude

Despite the airline returning to profitability after slipping into the red last year, Qantas chief executive Alan Joyce refrained from signalling that a recovery was a near certainty and said "we're obviously very cautious" because of the aviation industry's high volatility.

Mr Joyce warned that yields from its hardest hit international routes would continue to lag behind a recovery in the domestic market for the "short to medium term". He blamed this on the weak US and European economies and a 10 per cent rise in flights on routes into Australia over the past year.

Qantas is forecasting underlying pre-tax profits of $300 million to $400 million for this financial year, compared with $120 million in 2008-09. The guidance infers that Qantas will post a lower profit in the second half than the first, which fuelled an 8 per cent fall in the airline's share price to $2.73. It made Qantas the biggest loser among the top 200 companies yesterday.

"They are actually saying things are going to get worse," Deutsche Bank analyst Cameron McDonald said of the forecast. The market had been predicting pre-tax profit of $531 million for the full year.

UBS analyst Simon Mitchell said the guidance "looks overly cautious".

But Mr Joyce said he was surprised at the reaction because Qantas had returned to profit despite the market expecting it to lose money until just before December, while it had been "pretty optimistic about the future".

Qantas expects fuel costs to be about $200 million higher which includes $100 million in hedging losses in the second half than the first, while depreciation charges would be up about $40 million due to a write-down on the value of aircraft it grounded last year. But it is expected to slash costs by about $300 million in the half.

Mr Joyce said risks to its bottom line over the longer term included a "fuel price (that) is obviously stubbornly high" and volatile fluctuations in currencies.

The airline reported a 72 per cent fall in net profit to $58 million for the six months to December 31, the worst first-half result since it was floated in 1995.

The result included a $48 million write-down from a reduction in the value of several 747-400 aircraft it grounded last year. The second-hand aircraft market has deteriorated markedly over the past year after airlines grounded more than 700 aircraft worldwide.

Qantas said there was little risk of it having to ground more aircraft.

Explaining the decision not to pay an interim dividend, Qantas chief financial officer Colin Storrie said: "We are taking a cautious approach." He said the airline faced significant spending commitments over the next year.

Qantas offshoot Jetstar and its Frequent Flyer division were again the better performers. The Frequent Flyer division's pre-tax earnings of $157 million were bolstered by an accounting estimate change.