Qantas profit better than expected, but fuel costs hurting

Qantas Airways has posted a stronger-than-expected annual result but the national carrier says the high price of fuel remains its greatest challenge this year and will impact profitability.

The airline faces an further increase in fuel costs of A$1.25 billion ($1.4 billion) in 2005/06.

"Qantas is performing strongly," chief executive Geoff Dixon said.

"However, the extraordinary cost of fuel will have a substantial ongoing impact on the company.

"While further reforms in the business are under way, and coupled with the high fuel price, we do not expect to achieve the same levels of profitability in the current financial year," he said.

Net profit for the 2004/05 year was A$763.6 million, up 17.8 per cent.

The result was better than the average analyst forecast for a profit of A$731.70 million.

Analysts' forecast had ranged between A$718 million and A$749 million.

Group revenue for the year ended June 30, 2005, was A$12.6 million, up 11.4 per cent.

Net passenger revenue, including fuel surcharge recoveries, increased by A$857 million or 9.5 per cent to A$9.8 billion.

Chairman Margaret Jackson said the record result showed Qantas had responded well to rising oil prices and heightened security fears in 2004/05.

The main drivers of the result included a strong performance by its low cost carrier Jetstar, improved yields and further costs savings of A$545 million from its three-year Sustainable Future Program.

But fuel expense accounted for 19 per cent of total operating cost in 2004/05, up from 15 per cent in the previous year.

And that proportion will rise to 30 per cent this year, Mr Dixon warned.

The average for most international airlines is 25 per cent.

However, Mr Dixon said the airline plans to expand its flying operations base in the next 12 months.

It is targeting new international markets, growth of existing profitable markets, higher freight revenues and expansion of the Jetstar brand.

But despite the success of Jetstar, which started up in May 2004, and Qantas' good performance in the domestic market there was no room for complacency, Mr Dixon said.

"Competition in the domestic market will increase, with the start-up of new carrier OzJet later in the year and Virgin Blue's stated intention of seeking a much larger share of business traffic," he said.

Ozjet, the one-class business airline established by Minardi Formula One racing team head Paul Stoddart, is due to begin operations later this year.

- AAP