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Hope glimmers but Qantas loss beats worst predictions

August 29, 2014 Financial, Headline News No Comments Email Email

egtmedia59Qantas yesterday posted a statutory loss after tax of AUD 2.843 billion dollars and an underlying loss after tax of AUD 646 million for the year to 30 June 2014 – the worst financial result in Australian aviation history.

Analysts had been predicting that the results would be bad, but yesterday’s announcement exceeded their worst expectations. What’s more, they came a day after Air New Zealand declared another year of rosy profit, including statutory earnings before tax of NZD 357 million, up 40%.

Qantas group chief executive Alan Joyce said the worst was now over and that much of the Qantas loss comprised a writedown of AUD 2.6 billion in the value of the carrier’s international fleet. http://www.uhotelsresorts.com/

This, paradoxically, triggered a surge in the Qantas share price, as it was seen as a paper loss on value of assets rather than a cash loss to the company.

Qantas domestic was profitable – but much less so than last year. Qantas International losses doubled from the previous year. Jetstar recorded its first full-year loss.

Qantas intends to hive off the unprofitable Qantas International.

“Following the partial repeal of the Qantas Sale Act, the Group will establish a new holding structure and corporate entity for Qantas International,” it announced yesterday.

“This decision will create the long term option for Qantas International to attract external investment and participate in partnership opportunities in the international aviation market, with a view to achieving efficiencies and improved returns to shareholders.”

There are some encouraging signs. The domestic capacity war seems to be over. Projected staff layoffs remain at the figure Qantas announced earlier: 5000. They haven’t increased beyond that.

The Qantas Frequent Flyer program remains very profitable and Joyce has ruled out any suggestion of selling it off. Joyce predicts that Qantas will return to profitability in the next financial year, though it is not the first time he has said this.

The figures are:

• Underlying Loss Before Tax: AUD 646 million

• Non-cash fleet writedown post-structural review: AUD 2.6 billion

• Statutory Loss After Tax: AUD 2.8 billion

• Underlying fuel costs: AUD 4.5 billion, up AUD 253 million

• Qantas Transformation benefits: AUD 440 million

• Operating cash flow: AUD 1.1 billion

• Group comparable unit costs down 3 per cent

• Liquidity: AUD 3.6 billion

• Underlying Profit Before Tax expected in first half FY15

• No final dividend

Qantas said the AUD 2 billion accelerated Qantas Transformation program announced in February was “permanently reducing costs and laying the foundations for sustainable growth in earnings”.

Joyce added that the Qantas group’s average fleet age “remains at a 20-year low of 7.7 years, with 35 per cent of the fleet debt-free. Thirty-one new debt-free aircraft have been added since FY10, including seven in FY14.”

No new Jetstar ventures will be established while the group is focused on transformation. “Substantial value exists across the Jetstar Group airlines, to be realised over time.”

Joyce said the Group’s priority now was to push forward with the accelerated Qantas Transformation program after a positive start.

“After an extremely difficult period, we are focused on building momentum with our turnaround in FY15,” he said.

“Our cash balance and liquidity position is strong, and the Group’s overall financial performance is rapidly improving. 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 recognised with a string of awards and record customer satisfaction.”

Jetstar Hong Kong’s preparation for operational launch continues while seeking necessary regulatory approvals.

“There’s no doubt that today’s numbers are confronting,” Joyce admitted. “But they represent the year that is past, and we have now come through the worst. With our accelerated Qantas Transformation program, we are already emerging as a leaner, more focused, and sustainable Qantas Group.”

Written by : Peter Needham

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