STOP PRESS: Qantas issue a statement on future earnings

Qantas issued a media statement this morning in response to speculation about their future earnings and the APA bid for Qantas.

Recognising that there has been substantial media commentary concerning the current outlook for Qantas, the statement also said that Qantas has also received questions from certain investors on this issue in view of the offer which has been made for Qantas by Airline Partners Australia and provides information in response to these matters.

The statement goes on to say that in terms of the Outlook for 2007 and the full year result as part of the release of its interim results on 8 February, Qantas provided outlook earnings guidance to the market and that it anticipated that the full year result for 2007 would be around 30% to 40% per cent higher than last year’s result.

Qantas also today confirmed that the full year result is likely to be towards the upper end of this range, with this expectation based on continuing strong demand and yields offsetting cost reduction targets which have not been fully realised in the Engineering and Airport Divisions.

In response to market speculation regarding outlook for 2008 the statement said that Qantas is aware that there is a broad range of analyst PBT estimates for the year ended 30 June 2008 ranging from approximately $975m to approximately $1.5bn with an average of approximately $1.23bn and in response to market speculation and queries received from investors, Qantas confirms its outlook expectations for 2008 are in line with average analyst consensus PBT estimates of approximately $1.23bn.

Qantas adds that it is yet to assess the impact of, or include any provision in its estimates at this time, in relation to the recently announced intention of Tiger Airways to commence services in Australia from late 2007, Virgin Blue’s deployment of additional capacity through new Embraer jet aircraft and plans underway for the Qantas Group to secure additional aircraft to meet the new competition and to sustain its market share position within Australia.

It does say though that these developments are likely to have a negative financial impact on Qantas in 2008, but until they know more about pricing, capacity and schedules, they are not in a position to quantify this impact.

The statement also says that it a has not taken into account contingent liabilities relating to Qantas’ involvement in alleged price fixing in the air cargo market and other contingent liabilities referred to in the interim results released on 8 February 2007 and that it does not believe it is possible to quantify any direct or indirect liabilities associated with these matters at this time, but it is possible that they may be significant.

With regard to fuel costs Qantas’ 2008 outlook is subject to fuel costs not increasing significantly, demand continuing to grow and the continued success of the Sustainable Future Program in achieving cost savings, adding, Qantas has now hedged fifty percent of anticipated crude oil requirements for the 2008 financial year at a worst case rate of $US69.64 a barrel for West Texas Intermediate crude (WTI), inclusive of option premium.

Qantas confirmed that it still has $13bn in projected capital expenditure over the next 5 years (from financial year 2008 to financial year 2012 inclusive) and that it does not make any forecast of any specific results.

They point out that investors should also note that there are many factors that may affect the future performance of Qantas which may be outside the control of Qantas and may not be capable of being foreseen or accurately predicted, accordingly, actual results particularly in relation to hedge accounting may vary.

Analysts say that the statement will do little to change the current views of hedge funds and institutional investors as on the one hand it confirms the very strong growth that the funds believe they should have a part of by a higher offer price but on the other hand it sends warning signals that the company has not yet assessed the serious threats its profitability and earnings over the next twelve to twenty four months.

It is anticipated that the markets will “speak” today and their response will be reflected in the Qantas share price and any further rejection of the offer by other funds in addition to the two funds that have already rejected it and other funds expected to be waiting for statements of this nature.

Report by The Mole