Qantas Airways Ltd shares yesterday dropped the most in almost five months on concern that rising fuel prices and costs would erode earnings, even after the Australian airline reported record annual profit.
The fuel bill — among the biggest expenses for any airline — would probably jump 21 percent this financial year, the carrier said.
Wages and aircraft leases would also become more onerous, it said, stoking concern a run of record earnings could falter.
Shares fell 2.8 percent in Sydney, after tumbling as much as 7.7 percent earlier. The biggest loss since March 2 trimmed the stock’s gains this year to 30 percent.
Brent crude, which has doubled to about US$75 a barrel from a January 2016 low, is casting a shadow over Qantas’ outlook, after chief executive officer Alan Joyce restored the carrier to profit with his cost-cutting turnaround plan.
He has rewarded investors with share buybacks and dividends over the past three years, and the stock is still the best performer this year among global airlines.
With profit at a record, the airline pledged to return as much as A$500 million ($365 million) to shareholders, including a higher-than-expected dividend and another stock buyback, it said in a statement.
Underlying pretax profit in the 12 months ended June rose 14 percent to a record A$1.6 billion, the top of Qantas’ own forecast.
However, investors were spooked by the fuel bill.
The airline said its total cost on kerosene is expected to increase by about A$690 million to A$3.92 billion in the year through June next year.
It is confident it can “substantially recover” that larger fuel bill, based partly on forward bookings, Qantas said.
Qantas should be able to “more than cover” higher fuel costs in the domestic market, where the airline dominates smaller rival Virgin Australia Holdings Ltd, Joyce told reporters.
He did not match that pledge for the more competitive international market, saying only that Qantas would “substantially recover” the higher cost of fuel on those routes.
He is also upgrading his fleet with more fuel-efficient aircraft and redirecting international capacity toward Asia to tap a travel and tourist boom.
The carrier has ordered six additional Boeing Co 787-9 aircraft, the first of which are to be delivered before the end of next year, taking its Dreamliner fleet to 14 by 2020.
“We don’t see anything that’s indicating to us that our strong cash flows won’t continue into the future,” Joyce said on Bloomberg Television, when asked whether Qantas might be better off stockpiling money for tougher times.
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