Qantas slumps to record loss of US$2.65B

SYDNEY, Australia – Struggling Australian flag carrier Qantas on Thursday, August 28, posted a huge annual net loss of Aus$2.84 billion (US$2.65 billion), but chief executive Alan Joyce insisted clearer skies lie ahead.

The worse-then-expected result compared to a wafer-thin profit in the previous year, with one-off restructuring and redundancy costs hammering the bottom line.

But the biggest hit came from a Aus$2.6 billion non-cash writedown of the value of its aging international fleet, largely due to the historic cost of aircraft purchased at a much lower Australian dollar exchange rate.

Qantas’ underlying loss before tax in the 12 months to June 30 – its preferred measure of financial performance, which excludes one-off costs and writedowns – was Aus$646 million.

Analysts had been expecting a net loss of up to Aus$1.0 billion as the carrier also battles high fuel costs and fierce competition from subsidized rivals.

Qantas in February announced it was axing 5,000 jobs, deferring aircraft deliveries and freezing growth at Asian offshoot Jetstar, and Joyce said the worst was now over for the carrier.

“There is no doubt today’s numbers are confronting, but they represent the year that is past,” he said.

“We have now come through the worst. With our accelerated Qantas Transformation program we are already emerging as a leaner, more focused and more sustainable Qantas Group.

“There is a clear and significant easing of both international and domestic capacity growth, which will stabilize the revenue environment,” he added.

“We expect a rapid improvement in the group’s financial performance – and a return to underlying profit before tax in the first half of FY15, subject to factors outside our control.”

Qantas share prices jumped more than 5% to Aus$1.37 in early trade.

‘Standing still not an option’

The airline’s international arm continued to underperform, booking a loss of Aus$497 million compared to Aus$246 million in the 2013 financial year, with high fuel prices and foreign exchange movements blamed.

Domestic operations turned a Aus$30 million profit – but this was substantially lower than the previous year, while its discount carrier Jetstar was Aus$116 million in the red.

Qantas, whose main domestic rival Virgin Australia is majority-owned by state-backed Singapore Airlines, Air New Zealand and Etihad, has regularly complained that the 1992 Qantas Sales Act restricts its access to capital.

The act caps foreign ownership at 49% and in July the government agreed to relax the restrictions.

While the 49% cap remains, the change means a single foreign investor or foreign airline can boost their holding to a maximum 49% from 25% previously.

Joyce said that as a result Qantas had decided to create a new holding structure and corporate entity for its international division, effectively separating it from the domestic arm – allowing it to increase the potential for future investment.

“This will have no impact on the day-to-day operations, network or staffing at Qantas International,” he said, adding that despite the bleak numbers the airline’s transformation would soon start paying dividends.

“Our cash balance and liquidity position is strong, and the group’s overall financial performance is rapidly improving,” he said.

“We are removing costs to drive earnings growth. And the work we’ve done over recent years to renew our fleet and improve service has been recognized with a string of awards and record customer satisfaction.

“Standing still while the world changes around us is not an option,” he added.

“With our structural review complete, we can move forward with certainty.” – Rappler.com