oil down, qan up, page-23

QAN – Take a ride

Qantas appears on track to deliver a record FY04 result on 19 August 2004. We forecast NPAT pre abnormals will jump 39.3% from $485.7m to $676.2m ($662.2m including Jetstar startup costs).

The key drivers of the record result are expected to be: (1) domestic airline EBIT doubling, (2) a 6% fall in cost/ASK, (3) a rebound in international demand and yields, (4) a higher A$ and (5) fuel hedging.

Qantas is likely to increase its fuel surcharge in our view, from $6 to $8 per domestic sector and from $15 to $20 per international sector. We estimate this could raise another $100m ($15m for VBA if it follows).

We currently, forecast $825m NPAT in FY05E, versus consensus of only $700-720m. If the FY04 result is as strong as we forecast, we expect the market will have to upgrade its FY05 estimates materially.

Qantas announced on 12 August, 2004 that its 49.9% owned Singapore based, low cost carrier (yet to be named but probably Jetstar Asia), will commence flights by December 2004 with 4-8 leased A320 aircraft.

We expect Qantas will provide a substantial amount of new information regarding Jetstar, Jetstar Asia, and its various other subsidiaries in next week’s result. Qantas remains our key pick going into reporting season.

We continue to believe that Qantas remains one of the most attractively priced, best managed and uniquely positioned airlines in the world.


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