Qantas shares closed up more than 7% today after the airline posted a record $2.8 billion statutory loss but a better than expected underlying pre-tax result.
Investors welcomed Qantas booking massive writedowns on its aircraft fleet in the financial year just closed, and its decision to set up a separate holding company for its struggling international arm, which paves the way for more foreign direct investment.
The surge in the share price surprised some observers but needs to be seen in the context of the airline saying it is poised for a spectacular turnaround in the near future. CEO Alan Joyce said the airline expected to return to underlying profitability in the first half of this financial year, barring external shocks.
Qantas’ underlying loss of $646 million was about $100 million better than analyst forecasts and was achieved on the back of a 3.5% or $566 million fall in revenue to $15.352 billion.
Shares closed at $1.38, up 6.95% for the session.
Profit from Qantas domestic has been shredded by the capacity war with Virgin, with EBIT coming in at $30 million compared to $365 million the year before.
Here are the key numbers:
- Underlying Loss Before Tax: $646 million
- Non-cash fleet writedown post-structural review: $2.6 billion
- Statutory Loss After Tax: $2.8 billion
- Underlying fuel costs: $4.5 billion, up $253 million
- Qantas Transformation benefits: $440 million
- Operating cash flow: $1.1 billion
- Liquidity: $3.6 billion
- No final dividend
Some of the major costs that from the $2 billion transformation program announced six months ago include $428 million for restructuring and redundancies, and non-cash costs linked to the early retirement of fleet at $394 million.
Half of the 5,000 redundancies announced earlier this year have been implemented and by the end of 2015, 4,000 jobs will have gone.
Qantas International reported an EBIT loss of $497 million. Some commentators speculated it was set to lose $800 million.
Jetstar booked an underlying EBIT loss of $116 million, driven partly by a $70 million loss from startup costs in Asia.
There was a real shock in the result for the domestic arm, which posted an underlying EBIT of $30 million, down from $365 million in FY13.
“There is no doubt today’s numbers are confronting, but they represent the year that is past,” Joyce 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 stabilise the revenue environment.
“We expect a rapid improvement in the Group’s financial performance – and a return to Underlying PBT profit in the first half of FY15, subject to factors outside our control.”
Qantas announced it had decided to keep its frequent flyer program, Qantas Loyalty, within the company. There had been speculation that it could be partially floated.
Qantas Loyalty recorded record full-year with underlying EBIT of $286 million, up 10%.
And Qantas International is being split off to form its own corporate entity, a move made easier by the recent legislation, the Qantas Sale Act.
“This will have no impact on the day-to-day operations, network or staffing,” Joyce says.
Already $400 million of costs have been removed from Qantas International over the past two years and there’s more to come.
Joyce says earnings recovery will continue to be driven by cost cutting and the easing back of capacity oversupply.
Here are the results by division: