Qantas CEO Alan Joyce Has A Big Structural Plan To Get The Flying Kangaroo Back Into The Black

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Qantas just announced a horror financial year net loss of $2.84 billion with no final dividend.

“There’s no doubt that today’s numbers are confronting,” Qantas CEO Alan Joyce said. “We have now come through the worst.”

Its road to profit isn’t going to be a smooth one but Joyce said he has a further $900 million plan to swing the company back into the black.

The company released the results from its structural review conducted last year which reveal its international business will be spun off into a separate entity, while its loyalty program will be retained.

“We have decided to create a new holding structure and corporate entity for Qantas International,” Joyce said.

“This will have no impact on the day-to-day operations, network or staffing.

“However, the structure increases the potential for future investment.”

Weighing down on the airline’s results was increased competition against its international business. Despite cutting $400 million worth of costs from international operations over the past two years the measures haven’t been enough.

“These achievements were offset over the same period by revenue decline, again due to competitor capacity growth running well ahead of demand, and fuel cost increases,” Joyce said.

Meanwhile the Qantas Loyalty business posted an underlying EBIT of $286 million – its fifth consecutive year of double-digit growth and a potential data win for the company’s future.

CMC Markets Chief Analyst Ric Spooner said the decision to retain the frequent flyer program was expected.

“It’s never good for companies to sell the silver – the frequent flyer program is obviously one of their best assets at the moment,” he said.

The $2 billion cost reduction program announced in February is underway with $440 million clocked in FY14. A further $900 million in transformation programs are currently being implemented with two thirds of that expected to be realised in FY15.

Here’s what the structure separation of Qantas brands will look like.

Across FY14 the company’s fuel costs were up 6% to $4.5 billion and aircraft operating costs rose 3% while 2500 redundancies over the year saw staff related costs fall 3%. By 2015 4000 redundancies of the 5000 flagged would’ve occurred.

As for trading today, Spooner said Qantas shares are sitting at a “pronounced technical resistance” roughly around the $1.30 a share mark.

“I would see a clear break above that, if we got it, quite a bullish development,” he said, adding “If we reject this now by falling away, that would be a negative development.”

“As an investor it’s an industry that is strategically very difficult,” Spooner said, adding he’ll be waiting to see if the market rejects it in trading today.

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