Qantas lifts profit, to raise A$800M


Qantas CEO Geoff Dixon called the airline's profit a "credible" performance

By Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- Australia's Qantas Airways has confirmed its status as one of the world's most profitable airlines, posting a full-year net profit of Aust. $428 million ($234 million) and unveiling a capital raising of A$800 million ($438 million).

But the airline's single biggest shareholder, British Airways, will not take part in the new share offer and will see its stake sink from 21.5 percent to between 17 and 18 percent.

Qantas also confirmed Wednesday that it was continuing to talk to Air New Zealand about a strategic alliance, with most observers suggesting Qantas wants a 25 percent stake.

Qantas chief executive Geoff Dixon told a press conference any deal with Air New Zealand would come under "huge scrutiny" from competition regulators in both countries, and would have to prove it was of net benefit to consumers.

Dixon said the "great majority" of the A$800 million it plans to raise through a non-renounceable entitlement offer would go towards new aircraft.

No early agreement


Air New Zealand says it does not expect any early agreement in its talks with Qantas about a strategic alliance

But he said part of the proceeds might be used to buy shares in Air New Zealand if any agreement was reached.

Air New Zealand said Tuesday it did not expect to conclude any "significant strategic agreements" in the next few weeks. (Full Story)

Trading in Qantas shares was suspended Tuesday morning and is expected to resume Friday morning after a book-building process on the new offer is completed. The shares last traded at A$4.69.

The $800 million offer, on about a one-for-eight basis, will be split A$600 million to institutional investors and A$200 million to retailer investors.

The Qantas profit result, on revenue of A$11.3 billion ($6.1 billion) was in line with expectations.

Dixon said there had been a "vast improvement" in the company's international operations in the January-June 2002 second half, despite difficult global conditions.

'Credible' performance


Qantas cemented its dominant position in Australian aviation after the collapse of rival Ansett earlier this year

"Given the circumstances of the industry in Australia over the past 12 months, all sectors of the business performed credibly," Dixon said.

He said Qantas made most of its profits on its international routes, and so it was susceptible to external impacts. He said the airline was closely watching developments in the Middle East, and also the U.S. market, where the economic situation was of concern.

But he stressed that Qantas had a "very strong" position on Pacific routes between Australia and North America.

Qantas moved to a dominant position in the Australian domestic market after its now-defunct rival, Ansett Airlines, was grounded in September last year and was then reduced to a skeleton operation until its final closure in March.

Ansett was a wholly owned subsidiary of Air New Zealand, which cut it adrift in September to concentrate on saving its own financially troubled operations.(Full Story)

Government rescue

Air New Zealand then had to be rescued by the New Zealand government via a $366 million NZ$885 million) recapitalization last October.


Qantas-owned Australian Airlines will start flying as a low-cost international carrier in late October

The New Zealand government now owns 83 percent of Air New Zealand, but there is a widespread view that this will change soon, with Qantas taking 25 percent or more.

Any decision on approving a stake was on hold before the July 27 New Zealand national elections, which saw the return of the Clark government.

Air New Zealand's two big shareholders before the October 2001 rescue, BIL and Singapore Airlines, have seen their stakes reduced from 30 percent and 25 percent to 5.4 percent and 4.5 percent respectively.

Air New Zealand is up 3.77 percent to A$0.55 on the Australian market, and 3.3 percent higher in New Zealand at NZ$0.63.

Since the demise of Ansett, Qantas has moved to control up to 80 percent of the Australian market, with Sir Richard Branson's Virgin Blue now the No. 2 carrier.

But Dixon stressed Wednesday that because of "cherry-picking" by Virgin, Qantas had a lot less than 80 percent of the most profitable routes in Australia. He noted that Qantas had 32 return flights a day on the main Sydney-Melbourne trunk route, while Virgin had 17 flights.

Dixon also confirmed that Qantas will launch its discount international operation, Australian Airlines, on October 27, with the first services going to the Japanese cities of Nagoya and Fukuoka.