Problem Child Qantas International Takes Off As Deloitte Forecasts Inbound Tourism Boom

Qantas tailsAfter years of staff layoffs, capacity cuts and financial losses, newly resurgent Qantas International, buoyed by strong inbound demand and lower fuel prices, has declared it will increase seats to key markets by 9% in the first six months of this year.

This news, reversing years of decline, may represent a turning point for Qantas International, in the past decade more of a passenger than contributor to the Qantas Group, which has relied heavily on its domestic division to generate profit and reduce its losses.

But earlier this week the tide turned with Qantas International reporting underlying earnings before interest and tax (EBIT) of $270 million, up from $59 million in the first half of last year.

These are the best numbers Qantas International has done since the pre-GFC glory days meaning that, for once, it contributed very strongly to the overall Qantas Group result, which was a whopping pre-tax profit of $921 million for the six months to Dec 31.

During that period, Qantas International increased operating margins by 7 percentage points for a 9.1% operating margin, while unit revenue grew 3% and unit costs fell by 2%.

Quite the turnaround, setting the foundation for growth.

Qantas CEO Alan Joyce said Qantas will boost capacity to cater for rising demand.

“As the lower dollar drives more inbound tourism, Qantas International is adding flights and seats on Asian and North American routes, including Tokyo, Singapore, Hong Kong and San Francisco,” he said.

China Driver as Traditional Markets Slow

Strangely, Mr Joyce didn’t mention the Chinese market, which Deloitte Access Economics says will need an extra 10 A380 services per week by 2018 to meet demand.

Deloitte is bullish about the future of Australian tourism, upgrading its inbound tourism forecasts, predicting “trips to grow by 5.4% and visitor nights by 5.3% per annum over the next three years”.

chinese-touristsIn its Tourism and Hotel Market Outlook, Deloitte says Australian tourism is growing at the fastest rate in decades.

“The macro drivers of international travel remain favourable for strong visitor growth to Australia,”said Lachlan Smirl, Deloitte Access Economics partner.

He says Asia will be responsible for 60% of this growth, with China alone responsible for 26%.

“The outlook suggests mixed fortunes for Australia’s legacy markets – New Zealand will contribute 10% of the additional nights, while mainland Europe will provide just 4%.”

“The forecast for China alone is for another 285,000 visitors per year by 2018 – equivalent to an extra 10 return A380 services every week.

“When each of those people spends an average $7,300 in our domestic economy, it really adds up.

“At current prices, we would need to ship 160 tonnes of iron ore to China to get the same trade gain as an extra Chinese tourist choosing to holiday in Australia.

“It’s a simplistic comparison, but you can see where the opportunity lies.”

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