Virgin Blue will launch its long-haul brand V Australia during the 2008 Beijing Olympic Games.
Qantas and Virgin Blue could expect a brighter future if oil prices stay where they are, while a weaker Australian dollar may cast some clouds over it, according to analysts.
A report by UBS Investment has projected net profit for Qantas would jump more than 40 per cent, from $414 million to $588 million, in the 2008-09 fiscal year, based on current spot prices and hedging profiles.
Under the same conditions, Virgin Blue is also expected significantly slash its loss from $34 million to $8 million.
“Over the past month, Singapore jet fuel is down 22 per cent and down 15 per cent in Australian dollar terms, with declines in the crude and refining margin both helping,” UBS analysts Simon Mitchell and Ramoun Lazar said in a note, The Australian reported.
“For FY09, Qantas and Virgin are 75-85 per cent hedged at effective WTI crude prices of USD 115 per barrel (the current spot) using mostly options, therefore offering material upside as fuel drops.”
While the Australian dollar has fallen around US10c over the last two months, the analysts said the airlines would be partly protected from the fall as they had about 60 per cent of their US dollar requirements covered in the US85-95c range.
The US dollar exchange rate was a critical factor for carriers’ performance, since the currency is used to buy fuel, aircraft and spare parts.
However, the analysts said both airlines still faced cost problems, with the spot fuel prices remaining around 40 per cent higher than the last financial year average.
The two companies are expected to announce their annual results next week.
Qantas has stated in its last guidance that the company’s pre-tax profit for the year would be 40 per cent above the 2006-07 result of $1 billion.
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