Early in 2014, Qantas announced a severe cost cutting program and a corporate restructure to return the airline to profitability.
And then, this time last year, CEO Alan Joyce unveiled a record massive $2.8 billion loss.
Twelve months on, Joyce is about to announce a return to full year profit, one of the biggest turnarounds in Australian corporate history.
And the market knows it. The share price has outperformed the general market many times, tripling from $1.25 to $3.72 since October.
Falling global oil prices have amplified the effects of the cost-cutting program. This is no comfort to the thousands of people who lost their jobs. But it is a spectacular turnaround for the company which two years ago was facing huge structural pressures from its cost base, restrictions on foreign investors, and a fare war on its domestic Australian business waged by Virgin.
Analysts expect a profit number in the late $600 millions or early $700 million. Its underlying profit of $367 million for the six months to the end of December indicates the number could be higher.
Qantas reports it has has been running on target or ahead of its cost cutting program and squeezing out more profit from each seat on its aircraft. Investments in new international routes and lounges have been a signal of its growing confidence through the year.
The 2015 financial year was critical to the airline’s return to profit. Qantas had planned $1 billion in debt reduction for 2015, plus 4,000 of a planned 5,000 job cuts, and a big chunk of a planned $2 billion in cost cutting by 2017.
As the red ink disappears, Qantas has been handing out rewards. Last month it announced it was giving staff, who’ve been on an 18 month pay freeze, a 5% thank you bonus. About 28,000 Qantas employees got the benefit, costing an estimated $90 million.
CEO Alan Joyce described the bonus as recognition of the contribution made by all employees to strengthen the airline’s competitive position.
Aside from the headline figure on the return to full-year profit, the market will be watching closely to see if Qantas shareholders get their bonus after dry years without a dividend since the last payout in 2009.
Qantas told an investor presentation in May the board of directors was now well placed to consider paying dividends again.
“Extent and timing of shareholder returns dependent on prevailing operating conditions and outlook,” investors were told.
Others signs of investment, rather than pure cost cutting, include plans to start flying to San Francisco again.
According to its half year results, all parts of Qantas have returned to profitability, including Qantas International which is in the black for the first time since the GFC.
Qantas International reported underlying earnings before interest and tax of of $59 million, a turnaround of $321 million.
The international arm was the big part of the record $2.8 billion losses last year. Most of its was write downs on the business outside Australia. Without that, the underlying loss was $646 million.
And the domestic business has been benefiting from an end to the seat war with Virgin. Both have been getting better returns from each seat, as local air fares have moved higher with economy fares around 10% more expensive this year. There are fewer discounted fares around.
Another induction of the strength of the return to financial health is a ratings upgrade this month by Moody’s to Ba1.
Moody’s said this “reflects the considerable progress Qantas has made in improving its financial and operating profile”.
We’ll see the details this morning. And we’ll have LIVE coverage on Business Insider.
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