Qantas Airways Ltd. dropped the most in almost five months on concern rising fuel prices and costs will erode earnings, even after the Australian airline reported record annual profit.

The fuel bill — among the biggest expenses for any airline — will probably jump 21 percent this financial year, the carrier said Thursday. Wages and aircraft leases will also become more onerous, it said, stoking concern a run of record earnings may falter.

The shares fell 2.8 percent in Sydney on Thursday, after tumbling as much as 7.7 percent earlier. The biggest loss since March 2 trimmed the stock’s gains this year to 30 percent.

“The market has looked at that cost inflation and sold the stock down,” said Daniel Mueller, a fund manager at Vertium Asset Management in Sydney. “The stock’s had a really strong run without any pullback since the beginning of the year. It’s a bit of a reality check.”

Brent crude that has doubled to about $75 a barrel from a January 2016 low is casting a shadow over Qantas’s outlook, after Chief Executive Officer Alan Joyce restored the carrier to profit with his cost-cutting turnaround plan. He has rewarded investors with share buybacks and dividends over the last three years. The stock is still the best performer in 2018 among global airlines.

With profit at a record, the airline pledged to return as much as A$500 million ($366 million) to shareholders, including a higher-than-expected dividend and another stock buyback, it said in a statement Thursday. About 27,000 employees were showered with bonuses worth A$67 million.

Underlying pretax profit in the 12 months ended June rose 14 percent to a record A$1.6 billion, the top of Qantas’s own forecast.

But, investors were spooked by the fuel bill. The airline said its total cost on kerosene is expected to increase by about A$690 million to A$3.92 billion in the year through June 2019. Qantas said it’s confident it can “substantially recover” that larger fuel bill, based partly on forward bookings.

Speaking to reporters Thursday, Joyce said Qantas should be able to “more than cover” higher fuel costs in the domestic market, where the airline dominates smaller rival Virgin Australia Holdings Ltd. He didn’t match that pledge for the more competitive international market, saying only that Qantas will “substantially recover” the higher cost of jet fuel on those routes.

He is also upgrading his fleet with more fuel-efficient aircraft and redirecting international capacity toward Asia to tap a travel and tourist boom. The carrier has ordered six additional Boeing Co. 787-9 aircraft, the first of which will be delivered before the end of next year, taking its Dreamliner fleet to 14 by 2020.

“We don’t see anything that’s indicating to us that our strong cash flows won’t continue into the future,” Joyce said on Bloomberg Television Thursday, when asked whether Qantas might be better off stockpiling money for tougher times.

©2018 Bloomberg L.P.

This article was written by Angus Whitley from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to

Photo Credit: A Qantas A330 tail. The airline group reported record profits. John / Flickr