Qantas returns to profit on cost cuts, cheaper oil

Qantas Airways posted its strongest half-year earnings in four years, as Chief Executive Officer Alan Joyce's cost-cutting turnaround plan helps Australia's biggest carrier rebound from a record loss.

Earnings before tax and one-time items were A$367 million (HK$2.2 billion) in the six months ended December 31, Qantas said. The result vindicates Joyce's strategy to cut A$2 billion in costs and eliminate 5,000 jobs from the 95-year-old airline amid a price war with domestic rival Virgin Australia.

The so-called Flying Kangaroo's shares have more than doubled since October as investors bet that the cheapest fuel in at least four years and a truce with Virgin will buoy profits.

"We're starting to see some green shoots of a real turnaround in the airline industry," Ross MacMillan, an analyst at Morningstar in Sydney, said before the results. "The company's done a quite outstanding job of reducing costs and still has a great position in the domestic market."

The earnings beat the A$339 million average of four analyst estimates compiled by Bloomberg and compared to a A$252 million first-half loss a year earlier. Net income was A$203 million. In December, the airline predicted its profit before tax and one-time items would be between A$300 million and A$350 million.

Joyce said that demand in the second half of the year looked stable and the full-year fuel bill will be no more than A$4 billion. The result underlines the carrier's rapid recovery from the record A$2.84 billion annual net loss six months earlier and the cancellation of its investment-grade credit rating in January 2014.