The flood of cheap Chinese airfares that is undoing Cathay Pacific Airways Ltd (國泰航空) is proving a boon for Qantas Airways Ltd.
Hong Kong-based Cathay last month posted its first loss in eight years, overwhelmed by pricing competition from Chinese rivals, including China Eastern Airlines Corp (中國東方航空) and China Southern Airlines Co (中國南方航空).
For Qantas, it is doing the opposite — bringing a record number of Chinese visitors to Australia and generating new business for the flagship carrier, which ferries them on its local network.
Photo: Bloomberg
“The growth opportunity is the Chinese market,” Qantas chief executive officer Alan Joyce, 50, said in an interview at Bloomberg’s Sydney office on Tuesday.
“We see the Chinese visitors exploring the entire domestic network,” he said.
The cut-price Chinese fares that are threatening marquee Asia-Pacific carriers such as Cathay and Singapore Airlines Ltd are supercharging one of Australia’s fastest corporate turnarounds.
Joyce has led Qantas to record earnings and widened its profit margins by more than any of the world’s 20 largest airlines in the past two years, according to data compiled by Bloomberg.
DOMESTIC ATTRACTIONS
Chinese tourists in Australia typically take two or three domestic flights to popular destinations such as Uluru, the Great Barrier Reef or Tasmania, according to Qantas.
That is easy money for a national carrier that controls almost two-thirds of the local market and whose domestic network makes almost twice as much profit as its international flights.
Joyce is in the final months of a three-year, A$2 billion (US$1.5 billion) recovery plan that has seen him chop thousands of jobs, cut money-losing routes to Europe and simplify the fleet.
That helped propel Qantas’s total earnings before tax and one-time items to a record A$1.53 billion in the 12 months ended June last year.
The result was underpinned by Qantas’ lowest fuel bill in at least a decade.
The price of jet fuel, at about US$62 a barrel, is still less than half what it was five years back, according to data compiled by Bloomberg.
Not everyone is convinced the rebound is permanent.
MARKETS DUBIOUS
Financial markets are most skeptical about Qantas’ ability to keep its international business in profit as overseas rivals add capacity, said Sean Fenton, who oversees about A$1 billion of assets including Qantas shares at Tribeca Investment Partners in Sydney.
Neither do investors know how well Qantas could withstand an economic downturn, he said.
“Airlines are still cyclical,” Fenton said. “Does it swing to extreme losses or does it swing to smaller profits? That’s what investors need to see.”
Amid a glut of overseas capacity, operating profit at the carrier’s international division dropped 23 percent to A$208 million in the final six months of last year as ticket prices fell.
As for the airline’s domestic business, profit declined 4 percent to A$371 million as travel tied to the resources industry ebbed following the end of the nation’s mining-investment boom.
SHARES
Qantas shares have fallen about 2.5 percent in the past 12 months after more than tripling in the previous two years.
Cathay shares have fallen 14 percent in the past year, while the Bloomberg World Airlines Index rose 2.3 percent.
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