Qantas leaps to record H1 profit but fare moderation spooks investors

© Reuters. FILE PHOTO: A crew member walks from a Qantas plane at a domestic terminal at Sydney Airport in Sydney, Australia, November 16, 2020. REUTERS/Loren Elliott/File Photo GLOBAL BUSINESS WEEK AHEAD

By Byron Kaye and Savyata Mishra

SYDNEY (Reuters) - Australian flagship airline Qantas Airways Ltd swung to a record first-half profit as appetite for travel grew faster than it could sell seats, but warned sky-high fares would moderate as it and competitors added more flights, sending its shares down 6%.

The so-called "flying kangaroo" also said it was buying back A$500 million ($340.85 million) of shares as it declared a turnaround from the shock of initial COVID-19 lockdowns when it had cash to survive for just 11 weeks if it had not parked planes and stood down most of its staff without pay.

The update reflects the precipice that airlines around the world are facing: raging demand from a population shaking off years of pandemic restriction has jacked up fares and profits, just as increasing mortgage payments, grocery prices and fuel bills start to curb spending power.

It also gives a taste of the market that U.S. private equity firm Bain Capital must navigate if it proceeds with an initial public offering of domestic rival Virgin Australia this year. Regional rival Air New Zealand Ltd also reported a swing to profit in the first half ended Dec. 31 on Thursday, along with a muted outlook.

Qantas Chief Executive Alan Joyce said cost of living pressures would hit discretionary spending "at some point" but so far the airline expected robust demand into mid-2024 at least.

Revenue per available seat kilometre (RASK), which captures a combination of airfares and the percentage of seats filled, was 46% higher than in the first half of 2019 before the pandemic hit, the airline said in an analyst presentation.

"So far, we've seen no relenting of the strong demand", Joyce told reporters. "Fares will keep trending down as more airlines can unlock capacity, which relies on things like supply chain for aircraft, labour availability and training pipelines."

Qantas said it was facing delays of up to six months in new aircraft deliveries from Airbus SE (OTC:EADSY) alongside other airlines around the world. The Australian carrier said it would bolster its fleet by acquiring some older Airbus planes and exercising nine options for A220 purchases to help meet travel demand growth.

The airline gave no specific full-year profit guidance. Its underlying profit before tax of A$1.43 billion for the six months end-December, from a A$1.28 billion loss a year earlier, was within its own forecast range of A$1.35 billion to A$1.45 billion.

The plunge in Qantas shares compared to a slight decline in the broader market, as analysts welcomed an on-target profit but questioned the impact of moderating fares as the company sold more seats.

"Outlook for RASK is to reduce, however off what we estimate were elevated levels," said Citi analysts in a client note.

($1 = 1.4669 Australian dollars)