Qantas warns on fuel price

SYDNEY - Qantas Airways, Australia's biggest airline, says higher fuel prices will have a "substantial" impact on the company and lead to lower earnings in 2006.

Qantas is cutting costs and increasing surcharges on fares to limit the impact on earnings of an A$1.25 billion ($1.37 billion) rise in fuel costs this year, chairwoman Margaret Jackson said in the airline's annual report, released yesterday.

"The extraordinary cost of fuel will have a substantial ongoing impact on the company," she said. "Qantas does not expect to achieve the same levels of profitability in the current financial year."

Qantas raised its fuel surcharge a fourth time last month, with each domestic fare paying an additional A$26 and international fares incurring an extra A$75 for tickets sold after September 2.

"Fuel surcharges will contribute to partially offset this increase," Jackson said. "However, we still face an A$650 million shortfall at current prices compared to last year."

Qantas has hedged against 60 per cent of its fuel costs for the 12 months ending June 30, 2006.

The company had fiscal 2005 net income that rose 18 per cent to A$763.6 million.

* Qantas paid chief executive Geoff Dixon 3 per cent more last year, taking his total compensation to A$3.7 million ($4 million).

Dixon, 65, received A$1.9 million in salary, with the rest made up of bonuses and other benefits, says the company's annual report.

Dixon has been on the airline's board since August 2000 and has led the company since March 2001.

Last month he reported a 5 per cent gain in second-half net income, reflecting cost cuts and hedging against fuel prices, which helped avoid losses incurred by rivals such as Thai Airways International.

Cathay Pacific Airways, Asia's second-most-profitable carrier, had a drop in first-half net income on fuel costs and Virgin Blue, Qantas' only domestic competitor, cut its forecast citing fuel costs and more rivalry.

- BLOOMBERG