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Competition clips Qantas revenue outlook

AAP logoAAP 30/10/2016 Lilly Vitorovich

Qantas is facing a bumpy year as international airlines cut air fares to attract customers, just two months after the airline delivered a record annual underlying profit.

Australia's largest carrier has warned that its underlying profit before tax could be down as much as 13 per cent to between $800 million and $850 million for the six months to December 31, from a record $921 million over the same period last year.

The profit guidance follows a three per cent drop in revenue to $3.98 billion for the three months to September 30, from $4.11 billion a year earlier, hurt by stiff international competition and a subdued domestic market.

Chief executive Alan Joyce says the restructuring of the airline will help the group partially weather the challenging international revenue environment.

"Like most carriers globally, we are seeing international air fares below where they were 12 months ago, but the impact of that is tempered by the competitive advantages we've been working hard to fortify, including our strong domestic position and diversified Loyalty business," Mr Joyce said on Monday.

Just 10 days ago at the Qantas annual general meeting, Mr Joyce warned that the airline was not immune to headwinds impacting the industry, citing intense competition on international routes and lower airfares.

However Mr Joyce said on Monday that Qantas will also benefit from cost cuts, better fleet planning and a $200 million drop in its fuel bill to $1.5 billion in the first-half of 2016/17 compared to the previous year.

He said the group's domestic operations and Loyalty program continued to perform well with high operating margins in a stable market.

Qantas said its domestic business in July and August struggled with the "overhang of demand softness" around the federal election and the absence of any major events.

Conditions in September reverted to a more stable environment after excluding resources routes.

Passenger numbers were up 2.5 per cent to 13.2 million, boosted by a 2.2 per cent growth in capacity in the three months to September 30.

Of Qantas and Jetstar's domestic and international operations, only Jetstar domestic suffered a passenger fall.

Investment bank JPMorgan said the first-quarter results were "not as bad as could have been", noting that the company's surprise interim earnings guidance of $800-$850 million is ahead of its $797 million estimate.

The guidance range would still represent the third-best interim result in Qantas' 95-year history, according to the company.

"When read in conjunction with the outlook commentary, we believe investors should breath a sigh of relief," JP Morgan analysts Guy Bunce and Peiting Liang said in a research note.

At 1335 AEDT, Qantas shares were up 10.5 cents, or 3.6 per cent, to $3.04 after initially falling more than nine per cent to $2.67.

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