Qantas profits hit four-year low amid soaring jet fuel costs

Qantas has announced its lowest pre-tax profits in four years, reaching $2.06 billion, a figure significantly impacted by a $610 million surge in jet fuel costs. This increase in expenses is largely attributed to the geopolitical tensions and conflict involving Iran.

The airline's annual results, released on Thursday, also revealed plans to phase out its Airbus A380 models as part of its fleet modernization strategy. This comes after a period of strong performance, as Qantas had reported a record pre-tax profit of $1.46 billion for the six months ending in December, prior to the escalation of the conflict.

The year-end profit for June was only marginally higher than the previous half-year, showing a $600 million increase, but was still $330 million below the profit of the preceding year. The airline stated that the Middle East conflict directly cost it $420 million, although rising fuel costs were partially offset by an additional $190 million in earnings generated from customers who switched to Qantas following cancellations on other airlines.

International flights contributed $650 million in underlying earnings, a decrease from the previous year, primarily due to higher fuel expenses. Despite this, Qantas international revenue grew by 8%, largely driven by increased capacity. Jetstar International also expanded its capacity by 11%, resulting in a 14% increase in revenue.

Domestically, Qantas and Jetstar generated a combined $1.44 billion in underlying earnings. Qantas reported a 5% increase in unit revenue from March to June, as leisure travelers and Western Australian resource businesses continued to book flights, even as government and large corporate bookings declined. Jetstar's domestic capacity grew by 4%, but its revenue rose by 11%, as the airline attracted price-conscious customers, with half of Jetstar domestic customers paying under $150 per flight.

Looking ahead, Qantas announced it would introduce a carry-on luggage charge starting next year, limiting basic tickets to include only one "under seat bag." Chief executive Vanessa Hudson declined to predict the exact impact of this change on Jetstar's revenue or ticket sales, emphasizing that the airline is offering customers "choice."

Qantas' loyalty program continued its growth, increasing underlying earnings by 12% to $625 million, with a 6% rise in active members. Uber emerged as the fastest-growing source of points. The airline anticipates its points business will earn at least 5% more in the coming financial year and meet its target of $800 million in earnings by 2030, despite potential impacts from banking reforms on credit card rewards schemes.

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Unbundling and enabling those customers to have that choice, we think is incredibly important.