Cheaper fuel bill propels Qantas stock up

Qantas now has capital to invest elsewhere. Photo / Marty Melville

Shares in Qantas surged to their highest level in more than six years after it said the global drop in oil prices would help cut its fuel bill by A$550 million ($593 million) this year.

The airline's stock jumped 7.2 per cent to close at A$3.56 yesterday, the highest level since September 2008, after Qantas said it would spend less on fuel this year amid a 36 per cent drop in jet fuel prices.

Cheaper fuel will leave more money to invest elsewhere in the business. With an average fleet age of 7.2 years, Qantas can afford to wait before buying new planes and instead may save finance costs by buying back plane leases, chief financial officer Tino La Spina told an investor conference yesterday.

"Getting the fleet within eight to 10 years is fine, it's still very competitive by global standards," he said. "We have cash on our balance sheet at the moment which we would consider excess to requirements."

Qantas' fuel bill could be as low as A$3.92 billion this year and A$3.87 billion in 2016, the company said. In a worst-case scenario, it would be as high as A$3.95 billion this year and next, the company said. Two out of three hurdles to buying new planes are nearly cleared, La Spina said.

The airline's balance sheet should be in optimal shape by June 30 and the international business is on the way to returning its cost of capital, he said.

Qantas has 20 options to buy Boeing 787 Dreamliner aircraft in the 2017-2020 fiscal years, as well as purchase rights for another 30 787 planes extending to 2025, according to a 2013 presentation.

In New Zealand, Qantas subsidiary Jetstar is making a profit, although the company did not provide details.

Last week Qantas alliance partner Emirates announced a US$1.24 billion annual profit, a 40 per cent gain on the previous 12 months.

The airline said it benefited from the drop in oil prices and is expanding its long-haul network.

- Bloomberg, staff reporter