Fuel headwind buffets Qantas earnings

Qantas forecasts its fuel bill will go up by $1.3bn in the coming year. Picture / Mark Mitchell

Surging fuel costs have been blamed for a 37 per cent profit drop at Qantas and ticket prices will rise as the Australian airline lifts its fuel surcharge.

However, transtasman rival Air New Zealand said yesterday it had no immediate plans to follow suit.

Qantas is forecasting its fuel bill will rocket another A$1.1 billion ($1.3 billion) to A$3.9 billion in the coming year but executive general manager John Borghetti predicted next year's result would be in line with yesterday's result - meaning the airline needs to recover A$1 billion through cost savings and increased revenue.

"This fuel thing now is a fact of life and airlines just simply can't absorb it," Borghetti said. "As it is, the fuel surcharge will only recover a small portion of the additional fuel cost but we have no option."

The Tasman route was particularly tough. "Contrary to what many people may think, it is not a duopoly ... there's a number of carriers there, not only Qantas and Air NZ," he said.

Borghetti said the increased pressure of fuel costs made the progress of the code share agreement - involving co-operation on schedules and prices - with Air NZ more of an imperative.

"The alternative is that if the business environment becomes so difficult then carriers will have no choice but to reduce schedules and the airports in turn will suffer."

Forsyth Barr analyst Rob Mercer said it was inevitable that airlines would use the tough environment as leverage to argue for the code share.

"I think at the end of the day the decision's going to be looking longer term on competition issues and the public benefit rather than short-term financial issues," he said.

Chief executive officer Geoff Dixon said the group's airlines were carrying more people than ever with record levels of revenue but the company needed to make more fundamental structural changes.

These would include aggressive growth of Jetstar International and QantasLink, exiting businesses that could not achieve required returns and a significant net reduction in staff numbers.

More than 1000 management and support positions would be cut in the coming year after the reduction of 1245 jobs last year.

The fallout from last week's terror swoop in London was seen as wiping as much as A$50 million off revenue and tighter security measures would add extra costs of A$6 million a year.

Qantas shares closed up A16c at A$3.29 in Sydney yesterday.