Qantas will announce its financial results on Thursday and the main questions is: how big will the losses be?
Not a lot has changed in the operating environment since the airline announced six months ago that it was facing the “toughest conditions” it has ever seen.
Qantas International was bleeding money, and so was Jetstar, while Qantas Domestic had made a smaller profit than expected due to intense competition at home.
Revenue was down 4% to $7.9 billion for a net loss of $235 million for the six months to December.
Chief executive officer Alan Joyce called the result unacceptable and promised action.
It’s now half a year on and Qantas is set to announce on Thursday morning its full year results for 2013-14.
Here’s what to look for:
Analysts expect Qantas to announce a pre-tax loss of about $750 million but restructuring costs and other impairment charges could push this higher.
Consumer and business confidence continues to pull down demand, according to the latest Qantas traffic numbers.
And the industry in general is not increasing passenger capacity which should ease losses to domestic competitors.
A lot depends on how far along Qantas is with its restructuring, which attracts one-off costs.
The latest results will be impacted significantly by how much of these costs are booked in the year just closed.
About 2,200 staff have already lost their jobs and another 2,800 are due to be abolished. This includes a 30% reduction in management and non‐operational roles.
Expect more of the same as the Qantas Transformation program works to achieve $2 billion in cost reductions by the 2017 financial year.
According to Chief financial officer Gareth Evans, half the savings will come from Qantas International.
The target is to reduce labour costs by between $500 million and $600 million.
The cost to do this will be about $500 million spread between the financial year just ended and the end of 2014-15.
Qantas is also restructuring and consolidating its aircraft fleet to have an average plane age of 8 years by the 2016 financial year. Included is a reduction in the number of fuel heavy 747s, freeing A330s for Qantas International and delaying delivery of some A380s.
The frequent flyer business
Management has been looking at a partial float of the $2.5 billion loyalty business as part of an overal strategic review but there are reports management has finally decided against it. This should be clearer when the full results are announced.
The loyalty program is one of the few areas where revenue is increasing at a rate with a good margin over inflation. Earnings were $146 million, up 7%, in the six months to December 2013.
Qantas international services
The Australian airline’s share of services out of Australia has been shrinking against a 46% increase in competitor capacity since 2009. There have been reports that Qantas has been looking at using Jetstar to takeover more international routes and keep the business-heavy destinations such as the US under the Qantas brand.
Planes flying into holiday hot spots such as Bali used to be all Qantas branded. Now they are Jetstar with its minimalist service. Of course, this the same Jetstar which used to be run by the now Qantas CEO Alan Joyce.
Qantas International lost $262 million in the six months to December. Half the total savings being sought, or about $1 billion, are coming from Qantas International.
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