Qantas ekes out profit despite international loss

SYDNEY (AP) Qantas Airways reported a modest 5 million Australian dollar ($4.5 million) annual profit Thursday as cost cuts offset losses at its international arm.

The previous year, Australia's flagship airline posted a record AU$245 million loss due to rising fuel prices, strikes that grounded its fleet and weak demand on international routes. It was the first loss since the formerly Australian government-owned airline was privatized in 1995.

Qantas chief executive Alan Joyce said Thursday that cost-cutting, including the restructure of the airline's international network, had delivered AU$171 million in benefits to the company for the financial year ended June 30. The group's costs were down 5 percent.

"This was the best annual cost reduction we have ever seen at Qantas," Joyce said.

Underlying profit for the year, which excludes significant one-time gains or losses, was AU$192 million up from $95 million.

The airline's international division remained a weight on the company, posting a loss of AU$246 million.

Earnings from Qantas' domestic business totaled AU$365 million, down from AU$463 million in the previous year.

Qantas said yields a measure of average airfares per passenger declined during the year due to excess seats on its domestic routes, a mixed economic environment and increased competition.

Qantas declined to give profit guidance for the current year.

"In this volatile market, we are focused on the elements that we can control. We are strengthening our domestic business and holding our market share," Joyce said.

"The turnaround of Qantas International is on track as we grow its network and reduce its costs," he said.

Last September, Qantas forged a 10-year partnership deal with Dubai-based rival Emirates, ending a long-term relationship with British Airways, in a bid by the Australian airline to boost its struggling international division.

Under the alliance, Qantas has moved its base for European flights from Singapore to Dubai, coordinates with Emirates on ticket prices and scheduling and applies a benefit-sharing model.

Qantas is also building up its budget subsidiary Jetstar's presence in Asia.

Joyce said the airline would continue to face challenging conditions in 2014, due in part to the fall in the value of the Australian dollar.

The Australian dollar was worth less than 90 U.S. cents on Thursday. For most of the past two years, the Australian currency has been worth more than its American counterpart.

"In the short term, a lower dollar is a challenge, resulting in higher fuel costs when jet fuel is already a major headwind," Joyce said.

"At current market rates, we expect underlying fuel costs to be AU$160 million higher in the first half than in the prior period," he said.

But the fall in the currency would ultimately be good for the business because it encouraged tourists to visit Australia and reduced the cost advantage of Qantas competitors, Joyce said.