Qantas Airways Ltd. (QAN.AU) posted a 66% dive in first half
earnings Wednesday and refuted suggestions a planned A$500 million
capital raising will be used to boost a war chest to acquire other
struggling airlines.
Net profit for the Australian national carrier's six months to
Dec. 31 fell to A$210 million from A$617.6 million a year earlier,
marginally beating profit forecasts of around A$203.7 million
according to an average forecast from a survey of four analysts by
Dow Jones Newswires.
Australia's largest airline by revenue and passengers carried
controls roughly two thirds of the domestic aviation market, and
about 30% of international passenger movements in Australia,
through its mainline, discount Jetstar and regional airline
operations.
Despite continuing speculation that Qantas will seek a tie up
with an Asian airline following the collapse in December of merger
negotiations with British Airways plc (BAY.LN), Chief Executive
Alan Joyce told reporters on a conference call that the capital
raising, coupled with the airline's A$2.8 billion in cash, was "not
us bulking up for acquisitions."
"We're not actively involved in any merger negotiations, we are
focused in on our core business and we think in the current
environment that's important for us to do," said Joyce.
To boost its "financial flexibility", the airline said it will
raise A$500 million from an institutional placement and will also
allow other shareholders to subscribe for up to A$10,000 worth of
ordinary shares through a share purchase plan.
The capital will be used to support its A$35 billion dollar
fleet renewal program, reduce net debt, and support its investment
grade credit rating, Qantas said.
However market watchers were disappointed with the airline's
willingness to dilute existing shareholders value without a clear
need or plan for the equity issue.
I think it reflects a very slack attitude to capital," said one
analyst at an international investment bank.
"Sure it makes you more comfortable running your business but
it's not too good for shareholders and there's no real reason given
for what it's for," said the analyst who declined to be named.
Ratings agency Standard & Poor's said Wednesday its BBB+
credit rating on Qantas would not be immediately affected by the
capital raising, while its rating outlook remains negative,
"reflecting the tough trading conditions facing the airline
industry globally, the pressure on Qantas' cash flow, and the lack
of visibility over when trading conditions might improve."
The indicative price range of shares to be issued in the
placement, underwritten jointly by Macquarie Capital Advisors and
UBS, is A$1.80 to A$1.95 per share, market participants told Dow
Jones Newswires.
While the range represents a discount of between 15% and 21% to
Qantas' last traded price of A$2.29, the final price, which will
also be the maximum price paid under the SPP, will be determined by
a bookbuild due to close at 0600 GMT.
Not Immune From Challenges But Remains Flexible
Joyce said while Qantas isn't immune from the challenges posed
by current global economic conditions, it is differentiated from
many of the recently failed global airlines by its high degree of
structural flexibility.
"With two flying brands and a diversified portfolio of
businesses, the Group has the scale and scope to respond rapidly to
market developments and will be well-positioned to resume growth as
soon as conditions improve," he said in a statement.
Joyce said Qantas, which has already significantly reduced
planned capacity for the next 18 months, "will continue to monitor
all our routes and make further decisions as necessary to protect
our bottom line."
He told reporters that premium travel classes remain weak, but
there had been no further deterioration in forward bookings from
that detailed in November's profit warning.
In 2008 the airline undertook two rounds of capacity cuts and
sacked 1,500 workers as the global financial crisis hurt passenger
demand.
Group revenue rose 1.7% to A$7.92 billion from A$7.79 billion,
however passenger revenue from its flying businesses fell 0.7% to
A$6.4 billion.
The airline declared an interim dividend of 6 cents a share,
down from 18 cents, and reaffirmed its November guidance for fiscal
2009 net profit before tax of around A$500 million.
Mark Williams, a transport analyst at ABN AMRO in Sydney, said
"all up it was pretty much what we were expecting - a difficult
first half and they've reiterated their guidance for the full year,
but it's dependent on market conditions."
"Jetstar looked to have held up a little bit better, which fits
the view that international premium (classes) have struggled more
than the domestic leisure segment of the market," said
Williams.
Analysts forecast net profit this fiscal year will fall nearly
60% to A$403.9 million from a record A$969.0 million last fiscal
year, according to a survey of eight analysts by Thomson Reuters,
as slowing consumer demand, particularly for premium travel and on
international routes, begins to bite.
Qantas' revenue seat factor in the first half, a measure of how
many seats the airline filled across its fleet, fell by 2.4
percentage points to 79.7%, while the airline carried 19.6 million
passengers, around 144,000 less than a year ago.
On its Jetstar discount services passenger numbers rose 14%, in
line with capacity growth, from expansion of its international
routes and the reallocation of routes from capacity cuts of 2% on
its mainline brand.
The group's mainline Qantas business, including its
international, domestic and regional airlines, along with its
engineering and services businesses, was affected by a downturn in
premium and international travel, and the impact of a strike by its
aircraft engineers.
Profit before tax from Jetstar fell 48% to A$72 million and was
down 76% to A$199 million from the mainline brands.
Since October 2007 Qantas shares have fallen from a record high
of A$6.06 to as low as A$2.10, their lowest price in more than 10
years, and last traded at A$2.29.
The shares are expected to recommence trading Thursday, pending
completion of the placement.
-By Bill Lindsay, Dow Jones Newswires; 61-2-8235-2956;
bill.lindsay@dowjones.com
(David Rogers in Sydney contributed to this article)
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