(MENAFN- Khaleej Times) Qantas Airways Ltd, Australia's largest carrier, climbed the most in nearly seven years as profit doubled on a tie-up with Emirates and the cancellation of unprofitable routes to Frankfurt and London.
The shares surged 14 per cent on volumes almost four times the three-month average to close at A$1.40. That's the biggest gain since November 22, 2006. Pre-tax profit excluding one-time items jumped to A$192 million ($172 million) in the year ended June 30, from A$95 million a year earlier, the Sydney-based company said on Thursday, exceeding the A$76 million average of seven analyst estimates compiled by Bloomberg.
Qantas has retired older planes, dropped loss-making routes such as Singapore to Frankfurt and London to Hong Kong, and allied with Dubai's Emirates to stem international losses that mounted to A$484 million in the last financial year. Chief executive officer Alan Joyce also added more domestic flights to defend the carrier's 65 per cent local market share.
"The ability to contain costs and take some bold steps in the international division is starting to show some positive signs," Peter Esho, chief market analyst at Invast Securities Co, said in a note to clients after the result was announced. "The diversified group has held up relatively well."
The stock, now at its highest closing level since July 12, is still down six per cent this year, compared with a 9.5 per cent gain for the S&P/ASX 200 index. No dividend was declared. The company has only proposed one such payment since Joyce took over Qantas's top job in November 2008, with a A$117 million payout announced in February 2009 on the same day as a A$514 million capital raising.
Net income was A$5 million, compared with a loss of A$245 million in the previous 12 months and the A$31 million average of six analyst estimates.
Joyce has promised to return Qantas's international unit to profit by the year ending June 2015 by using the Emirates alliance to drop unprofitable services and extend Qantas's network of destinations in Europe and the Middle East.
Excluding one-time items, losses before interest and tax at the international division narrowed to A$246 million from A$484 million a year earlier, the company said. Unit costs in the division fell by five per cent from a year earlier, helped by the closure of maintenance facilities and the route cancellations. That was a "massive achievement," Nathan Zaia, an analyst at Morningstar Inc. in Sydney, said in a note to clients. "The international turnaround strategy is paying off."
The reduced losses helped offset a 21 per cent drop in the earnings on Qantas's domestic routes, where Ebit excluding one- time items came to A$365 million. Second-ranked Virgin Australia Holdings Ltd. has bought bigger planes and added flights and business class seats to challenge Qantas's dominance.
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