Qantas Surges on Profit Outlook, Bookings Rebound

Qantas Airways Ltd. (QAN) rose the most in four weeks in Sydney trading after forecasting profit that beat analyst estimates and saying bookings rebounded from a shutdown that stranded 80,000 passengers.

Australia’s biggest airline gained 3.4 percent to A$1.505 at the close of Sydney trading, the biggest increase since Oct. 31. The stock has fallen 41 percent this year, compared with a 14 percent decline in the benchmark S&P/ASX 200 Index.

Bookings have recovered from strikes that forced the Sydney-based company to cancel flights and drove away lucrative business customers before last month’s grounding, Chief Executive Officer Alan Joyce said in a phone interview. Qantas predicted earnings before tax and items of as much as A$190 million ($187 million) for the six months ending Dec. 31, with the labor dispute costing A$194 million.

“The shares are reacting to knowing the full cost of the grounding,” said Nachiket Moghe, an analyst at Morningstar Inc. in Auckland with a “hold” rating on Qantas. “Things are now much clearer, and there is certainty.”

Joyce grounded most of his fleet on Oct. 29, ahead of a planned lockout of long-haul pilots, engineers and baggage handlers, who are campaigning for job-security measures in their contracts.

New Airline

Qantas’s dispute with workers has intensified since Joyce announced plans in August to start a new full-service carrier based in Southeast Asia. The new airline, which has yet to be named, is part of his strategy to turn around A$200 million of annual losses from international operations.

Plans for the new carrier may be shelved in favor of stronger cooperation with Malaysian Airline System Bhd. (MAS), the Australian Financial Review reported today, citing unidentified people familiar with Qantas’s plans.

The report is “speculation,” no decision has been made and Qantas remains in talks to start the business in Malaysia or Singapore, Luke Enright, a spokesman for the carrier, said by phone today.

The Oct. 29 grounding triggered intervention by the government, which sought an end to the dispute and resumption of negotiations. Fair Work Australia, the nation’s labor regulator, is now holding arbitration between Qantas and its three unions after those talks failed.

Qantas said strike action before the lockout cost A$68 million. There was also a A$70 million cost from the grounding that started Oct. 29, including lost revenue, refunds and accommodation for stranded passengers. The carrier lost bookings worth A$27 million from the union action and is now spending A$29 million to win back customers.

‘Normal Levels’

The cost of not forcing an end to the dispute with unions would have risen to A$85 million a month, Joyce said.

Bookings on domestic routes, where Qantas has about two- thirds of the market and almost 90 percent of lucrative corporate travel, had returned to “normal levels,” the company said.

“There was a question mark about whether the business market would come back, but this shows how resilient the Qantas brand is,” Joyce said in the interview. “We are seeing a very positive reaction from the CEOs of our major customers.”

The airline had a profit before tax and items of A$417 million in the six months ended Dec. 31.

Qantas will increase capacity by between 4 percent and 6 percent in the six months ending Dec. 31 from a year earlier. Yield, a measure of the price paid by travelers, will be between 3 percent and 5 percent higher, according to Qantas.

The airline expects fuel costs for the half to rise to about A$2.2 billion from A$1.7 billion a year earlier on higher prices and more passenger traffic.

To contact the reporter on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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