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Takeover talk as Qantas profit doubles

Sydney - Qantas Airways announced a doubling of its full-year net profit Wednesday but warned of challenging times ahead as speculation mounts that the national carrier could become a takeover target.

The Aus$250m result for the year to June 30, from an airline planning an Asia-focused restructuring, compared with an Aus$112m profit in the previous corresponding period.

Its underlying profit before tax - the airline's preferred measure of financial performance - was Aus$552m, above the Aus$377m in 2009/10.

The company said it achieved the result despite an Aus$224m impact from natural disasters, including floods and cyclones in Queensland state, the Christchurch and Japanese earthquakes and Chile's volcanic ash cloud.

"This result reflects the strength of the Qantas Group's portfolio and is our best performance since the global financial crisis," said chief executive Alan Joyce.

"We achieved the result while overcoming significant external and operational factors, including a series of natural disasters, a 28% increase in average fuel prices and an underperforming international business."

While there were improved earnings for its domestic and freight business, and strong results from budget offshoot Jetstar, whose earnings before tax and interest rose 29%, international operations lost Aus$200m.

Joyce said this was "unacceptable".

"It is important to put the result in context. The Group’s planned capital expenditure over the next two years exceeds Aus$5bn," he said.

"Fuel prices are expected to remain high and there is considerable uncertainty in the global economy.

"Qantas International reported a loss of over Aus$200m in the year on invested capital of over $5bn, an unacceptable return. Continuing down this path would be unsustainable."

Earlier this month, the airline announced a five-year plan to turn the international arm around.

It will see 1 000 jobs slashed as part of a new emphasis on Asia, which has been met with a firestorm of criticism from unions, who have threatened strike action.

The revamp also involves Qantas spending US$9.5bn on new planes and teaming up with Japan Airlines and Mitsubishi to launch a new low-cost domestic airline, Jetstar Japan.

Additionally, it will also set up a joint-venture premium airline based in Asia.

"Our intention is that in five years' time Qantas Airlines - domestic and international combined - will exceed its cost of capital on a sustainable basis," said Joyce.

With its share price hitting record lows of Aus$1.42 this week, talk has been rife that the carrier could be a takeover target, with potential suitors attracted by Jetstar and Qantas' solidly performing frequent flyer programme.

But Joyce played this down.

"There's no formal or informal bid on the table and nobody has approached us. It is pure speculation," he said, on a day the stock climbed as high as Aus$1.60 before retreating to close at Aus$1.52.

The Australian newspaper reported "high-level" speculation about an Aus$3.5bn-plus bid for the national icon from a private equity fund.

But it said Treasurer Wayne Swan and Transport Minister Anthony Albanese were inclined to oppose any private equity bid on national interest concerns.

Joyce said there was a lot more value in Qantas than the share price indicated, adding that despite losses on its international routes it was a good business.

The company said it was not possible to provide profit guidance for the year ahead because of the volatility, uncertain economic conditions and the major changes taking place in the company.

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