Qantas has warned that a pick-up in business confidence has failed to translate into an increase in demand for flights, forcing it to predict that returns from fares will fall in the first half.
Shares in Qantas fell as much as 5 per cent immediately after the airline forecast today that group yields – or returns from fares – will drop by between 2 and 3 per cent in the first half of the new financial year. In afternoon trade the shares were down 1.7 per cent at $1.4525, after earlier in the day rising more than 3 per cent.
It includes in the forecast the performance of budget offshoot Jetstar.
The airline again declined to give earnings guidance for this year due to volatile conditions.
Qantas chief executive Alan Joyce blamed the expected fall in yields in the first half on ‘‘weak underlying demand’’ and intense competition on both domestic and international routes.
‘‘The domestic market is still absorbing capacity growth that has been double the long-run average,’’ he told the annual meeting in Brisbane today.
‘‘And this growth has come at the same time as weak underlying demand across the market, from the leisure to corporate segments.’’
Qantas remains locked in a battle with Virgin Australia for lucrative corporate travellers, while Jetstar and Tigerair Australia are upping their contest as the latter expands its network.
Virgin bought a controlling stake in Tigerair earlier this year.
Mr Joyce said he was hopeful that the recent lift in business confidence in the wake of the federal election would flow through to increased demand for travel but conceded that there would be a ‘‘lag effect’’.
Qantas chairman Leigh Clifford told shareholders that Australia’s economic position had been ‘‘relatively strong but there were elements of weakness’’.
He contrasted Australia to depressed conditions in Europe, mixed signals in the US and instability in the Middle East, which continued to result in higher oil prices.
‘‘We have not yet seen the rise in business confidence following the election translate into any discernible increase in demand for domestic or international travel,’’ he said.
‘‘At the leisure end of the market, consumer confidence remains low. The tough domestic market conditions that we faced in financial year 2013 are unlikely to ease in the short term, with growth coming into the market at the same time as weak underlying demand.’’
Shareholders were eager to hear when Qantas expected to resume dividend payments – something they have not received since 2009.
Mr Clifford said the board was committed to resuming dividend payments ‘‘when it was appropriate’’, adding that it would be dependent on a range of factors such as cash flow and funding commitments.
He emphasised that Qantas was in the midst of a $100 million share buyback, which was the ‘‘most efficient way of returning value to shareholders’’.
Despite the backdrop of tough trading conditions, the shareholder meeting was one of the tamest that Qantas has held in years, ending in just over an hour.
The Australian Shareholders Association voted its proxies against Qantas’ executive-pay card and the granting of up to 2.15 million performance rights to Mr Joyce.
It had concerns about Mr Joyce’s ‘‘large cash’’ bonus, and the fact that financial targets for executives were based on pre-tax profits rather than after-tax profits.
But the resolution on executive pay was passed with overwhelming support from shareholders after the major proxy advisors to institutional investors urged their clients to support it.