Qantas Share Price Drops 5.09% amid Engine Worries

The price of Qantas Airways Limited [ASX:QAN] has hit its lowest point for 2019 in what has been a turbulent day of trading for airlines. At time of writing, Qantas shares were down 5.43%, a 32-cent drop, to trade at $5.57 per share.

Air New Zealand Limited [ASX:AIZ] also took a hit to their share price, down 14.6%.

What caused Qantas share price to drop?

With no news out of the company, the drop in share price was likely sparked by Air New Zealand announcing downgraded earnings guidance.

AIZ announced this morning it had downgraded its earning for tax guidance to $340–400 million from the range of $425–525 million.

The downgrade, prompted by global Rolls-Royce engine issues, has continued to challenge the airline both commercially and operationally.

Air New Zealand Chief Executive Officer Christopher Luxon stated:

We are concerned with our latest outlook which reflects the softer revenue growth that we are seeing in the second half of the year. Therefore, we have commenced a review of our network, fleet and cost base to ensure the business is on a strong footing going forward.’

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The problems with Rolls-Royce’s Trent 1000 engine, which power the Boeing 787 Dreamliner, and the Trent 900 engine, which power the Airbus A380 have forced constant repairs and inspections worldwide.

Investors likely fear a similar fate for Qantas to that suffered by Air New Zealand in its next investor update.

As of November 2018, Qantas had 12 Airbus A380s in service and eight on order, as well as eight Boeing 787s in service with another six on order.

What 2019 looks like for Qantas?

Qantas will likely burden the Rolls-Royce engine issues better than Air New Zealand. Not all the 787 Dreamliners Qantas currently flies uses Trent 1000 engines. Instead, the Qantas Dreamliners flying between London and Perth use General Electric’s GEnx engines.

AIZ, despite the engine issues, posted decent customer growth in their update this morning. AIZ recorded 1.7 million customers carried in December 2018, up 4.5% in comparison to the 12-month previous corresponding period.

This is not the first time we have heard about issues affecting Rolls-Royce engines. Airlines have been battling problems with their Trent 1000 and Trent 900 engines for years.

Regardless of the disruption caused by ongoing global engine issues, Qantas posted strong Q1 FY19 revenue, up 6.3% to $4.41 billion versus prior corresponding period.

This growth was likely helped along by their operational excellence, minimising the downtime for planes due to engine issues.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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