Qantas posts record profit, but shares slide on fuel cost worries

By Jamie Freed

(Reuters) - Australia's Qantas Airways posted a record annual profit, powered by its domestic business, but its shares tumbled more than 7 percent on concerns about rising fuel prices despite the carrier saying it would be able to mitigate its impact.

Qantas forecast an A$690 million ($504.80 million) increase in its fuel bill for the current financial year but CEO Alan Joyce said the airline should be able to fully recover rising fuel costs in the domestic market and do so substantially in the international market.

Investors, however, were less sure. Shares fell as much as 7.7 percent in early trading for potentially their biggest one-day decline in more than two years.

"They hedged (oil) and they got the benefit out of it. Now all that is unwinding," Mathan Somasundaram, Blue Ocean Equities market portfolio strategist, said of Qantas.

The airline's underlying pretax profit, its most closely watched measure, rose to A$1.60 billion for the 12 months ended June 30 from A$1.40 billion a year earlier. That was in line with analysts' expectations. Qantas also announced an A$332 million stock buyback programme.

Australia's flagship carrier, which controls nearly two-thirds of domestic capacity, said domestic underlying earnings before interest and taxes for Qantas and its low-cost arm Jetstar rose 25 percent for the year ended June 30 as they cut capacity and hiked fares.

On a call with reporters, CEO Joyce said forward booking revenue was running more than 6 percent higher than at the same time last year. He said Qantas would also increase revenue in its frequent flyer business.

"The confidence in the business is very high," he said, ahead of a planned investor briefing at 0130 GMT.

Qantas expects to keep domestic capacity flat in the first half ending December 31 and for international capacity to rise by 1 percent. Joyce said demand remained strong, but the airline was focused on filling more seats rather than adding more capacity.

Under Joyce's reign, Qantas has executed a successful turnaround that has cut costs and allowed it to return cash to shareholders, helping to push the airline's shares to record highs. Qantas shares had risen 25 percent since the start of January before the results were announced.

The airline plans to launch the world's longest non-stop commercial flight, from Sydney to London, by 2022 after starting Perth-London flights in March.

Joyce said the carrier was in talks with Airbus SE and Boeing Co about ordering jets suitable for the mission and would make a decision next year, assuming it could also gain approval from regulators and its pilot workforce.

($1 = 1.3669 Australian dollars)

(Reporting by Jamie Freed in Singapore; Additional reporting by Aditya Soni, Rushil Dutta and Susan Mathew in Bengaluru; Editing by Muralikumar Anantharaman)