Rising fuel to slice Qantas interim profit by around A$100m

SYDNEY - Qantas Airways Ltd is likely to report an interim net profit around A$100 million ($110.36 million) less than the same time last year, as fuel prices continue to hurt the bottom line.

The airline is expected to report a A$350 million interim net profit on Thursday, with the market forecasts for the six months to December 31, 2005, ranging from A$304.2 million to A$370 million.

Qantas last year surprised the market with a 28.1 per cent jump in half year net profit to A$458.4 million.

But Australia's largest airline has since warned that record high fuel prices will impact its profits this financial year and that it does not expect to achieve the same levels of profitability for the full year as for 2004/05, when it posted a record A$763.6 million net profit.

Credit Suisse analyst Adam Indikt said the airline would continue to be hurt by the rising cost of airline fuel.

"Despite improving yields and 100 per cent of fuel requirements hedged, we still expect a significant increase in fuel costs, and ongoing losses from Australian Airlines," Mr Indikt said in a note to clients.

The market has speculated in recent weeks that Qantas was considering dumping Australian Airlines as it prepares to begin flying its low-cost offshoot Jetstar on international routes in early 2007.

Australian Airline lost A$11.6 million in 2004/05, down from a A$1.1 million profit in the previous year.

Meanwhile, Qantas is expecting the results of a federal government review into access to the trans-Pacific route.

At stake is the federal government's decision to expose Qantas to more international competition from Singapore Airlines.

The route, which accounts for as much as 20 per cent of Qantas' profits, has been a target of Singapore Airlines for more than a decade.

But Qantas chief executive Geoff Dixon has argued that access would give the government-owned Singapore Airlines an unfair advantage over the privatised Australian carrier.

Federal cabinet is expected to complete its Open Skies aviation policy review by March, and Qantas is unlikely to report another bumper profit as a result, said one broker.

"I just don't see any reason for them to actually come out there and shoot the lights out," said the broker, who did not want to be named.

"Why would they with the aviation policy review on the horizon?.

"They came out with some fairly aggressive numbers last year, but it seems to suggest to me that they have come off quite significantly this year."

Whatever the decision, the industry deserves a resolution as quickly as possible, said Tourism and Transport Forum Australia (TTF) chief executive Chris Brown.

"This has been a long time coming for one of the most significant economic decisions in Australia," said Mr Brown.

"There will be losers and there will be winners, but surely we deserve and answer."

Qantas Group revenue is expected to be around A$7.13 billion for the half year, up from A$6.43 billion in the previous corresponding period.

- AAP