Jetstar loses ground on Trans-Tasman routes

A Jet Star plane gets ready to depart from Queenstown airport. 4th June 2013. Photo / Chris Gorman

Jetstar, the discount unit of Australian airline Qantas Airways, lost ground on trans-Tasman routes last year, though still managed to send some $156.2 million back to its parent.

The airline's subsidiary Jetconnect, which manages the group's trans-Tasman passenger schedule, reported a 17 per cent drop in profit to $8.8 million in the 12 months ended June 30, on an 11 per cent drop in sales to $67 million, according to statements filed with the Companies Office.

During that period, rival Air New Zealand increased its passenger numbers on Tasman/Pacific routes 3.5 per cent to 3.18 million. In the five months to Nov. 30, Air NZ lifted passenger numbers on those routes 2.9 per cent to 1.36 million.

The local Jetstar unit had $147.9 million of cash at the end of its 2012 financial year, and returned capital of $98.2 million to Qantas on March 22 last year, on top of a $58 million dividend payment to its parent the same day.

Jetstar made inroads into Air New Zealand's grip on the domestic market, reporting market share of 22.4 per cent as at June 30 from 20.6 per cent a year earlier, when it published the group's annual result in August.

Sister New Zealand unit, Jetstar Airways, which employs and hires cabin and technical crew for budget brand Jetstar Airways Pty Ltd, made a profit of $2.4 million in the June year, from $1.9 million a year earlier, according to separate financial statements.

Operating income, which is derived from the wider Jetstar unit, climbed 26 per cent to $26.8 million, outpacing the 25 per cent increase in spending on manpower and staff of $23.4 million.

Since then, Qantas's credit rating was cut to a sub-investment grade BB+ after warning of a first half loss of up to A$300 million, blaming a deterioration in trading conditions and a weaker return on fares.

Shares in Qantas fell 0.9 per cent to A$1.09 in trading today, having plunged 27 per cent in 2013. The stock is rated an average 'hold' based on 12 analysts compiled by Reuters, with a median target price of A$1.16.

Jetconnect recognised the Inland Revenue Department's tax investigation into optional convertible notes case as a contingent liability, even though it used $10.3 million of tax losses against the tax department's shortfall penalties assessment. If it wins the dispute it will reinstate the tax losses.

New Zealand's tax department is seeking to deny interest deductions claimed on the notes which were used to fund Qantas's former interest in rival carrier Air New Zealand.

The IRD contends the hybrid securities, which let companies juggle equity and debt to provide a tax advantage, were structured purely to minimise tax. The tax department has previously won in the High Court and Court of Appeal in favour of its assessment of the notes against Western Australia's Alesco Corp, and the Supreme Court will hear the case next month.