What profit? Investors dump Qantas as fuel bill, wages rise

Qantas Airways stock headed for its biggest tumble in more than two years on concern rising fuel prices and costs will erode earnings, even after the Australian airline reported record annual profit. The fuel bill -- among the biggest expenses for any airline -- will probably jump 21% this financial year, the carrier said Thursday. Wages and aircraft leases will also become more onerous, it said, stoking concern a run of record earnings may falter. The shares, which had surged 33% this year before Thursday’s results, fell 5.9% as of 12:18 p.m. in Sydney, set for the steepest decline since April 2016. “The market has looked at that cost inflation and sold the stock down,” said Daniel Mueller, a fund manager at Vertium Asset Management in Sydney. “The stock’s had a really strong run without any pullback since the beginning of the year. It’s a bit of a reality check.” Brent crude that has doubled to about $75 a barrel from a January 2016 low is casting a shadow over Qantas’s outlook, after CEO Alan Joyce restored the carrier to profit with his cost-cutting turnaround plan. He has rewarded investors with stock buybacks and dividends over the last three years, and the stock was the best performer in 2018 among global airlines before today’s results. Underlying pretax profit in the 12 months ended June rose 14% to a record A$1.6b, the top of Qantas’s own forecast. But, investors were spooked by the fuel bill. The airline said its total cost on kerosene is expected to increase by about A$690m to A$3.92b in the year through June 2019. Qantas said it’s confident it can “substantially recover” that larger fuel bill, based partly on forward bookings.<br/>