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Qantas dives A$2.84 billion into the red
[SINGAPORE] More than a year after its much-vaunted alliance with Dubai-based Emirates, Australia's flag carrier Qantas plunged into the red with a net loss of A$2.84 billion (S$3.31 billion) for the year ended
June 30, versus a profit of A$1 million previously, weighed down by massive write-downs to its fleet and restructuring costs.
Underlying loss before tax worked out to A$646 million - vis-a-vis a profit of A$186 million in FY13 - as the bottom line suffered the impact of high fuel costs, lower yields due to excess capacity in the market as well as weak demand.
The losses shocked the market as analysts, expecting underlying losses before tax of some A$763 million according to a Bloomberg poll, were caught off-guard by the hefty write-downs.
Revenue slid 3.5 per cent year on year to A$15.35 billion partly due to stiff competition from foreign and domestic carriers pumping capacity into Australia, the carrier said.
However, the airline's chief Alan Joyce insisted clearer skies are ahead for the "Flying Kangaroo", which is now six months into its A$2 billion restructuring programme.
"We have now come through the worst. With our accelerated Qantas Transformation programme, we are already emerging as a leaner, more focused and more sustainable Qantas group," he said.
Qantas has laid off 2,500 employees to date - about half of the planned 5,000 redundancies. The group saw A$440 million in benefits from the transformation programme in FY14 and expects over A$600 million to be realised in FY15.
Meanwhile, with greater flexibility on foreign investment after tweaks to the Qantas Sale Act, the group is setting up a new holding entity for Qantas International. This is expected to make it easier to attract foreign investment.
However, as a result, the group had to write down its unit's fleet of aircraft in a non-cash charge totalling A$2.56 billion as the planes were bought when the Aussie dollar was significantly weaker than the greenback.
One bright spot, though, is that Qantas International's depreciation expenses will come down by A$200 million per year.
For the year under review, Qantas' domestic operations reported an underlying Ebit (earnings before interest and taxes) of A$30 million, plummeting from A$365 million in FY13 as it battles rival Virgin Australia for market share. Qantas International chalked up an underlying loss of A$497 million, more than doubling from a loss of A$246 million previously, hurt by high fuel costs and capacity injection by competitors in Asia and the Middle East.
Last year, Qantas struck a seemingly unlikely alliance with erstwhile rival Emirates and subsequently shut down its long-standing Singapore hub in favour of Dubai. The move was meant to streamline its operations and deliver significant savings for its bleeding international business.
Qantas' Jetstar group chalked up losses of A$116 million, versus a profit of A$138 million a year earlier as its profitable Jetstar Australia business was offset by losses in Asia.
Jetstar Asia, which reported losses of A$40 million, has suspended growth amid a "very challenging Singapore market" where capacity grew 23 per cent in FY14, the group said. But Qantas expects Jetstar Asia's performance to pick up as capacity growth in the market eases, which is already occurring.
At the same time, the group is shelving plans to establish any new Jetstar ventures while it focuses on its transformation efforts. Mr Joyce said the group will realise "the substantial value" that exists across the Jetstar airlines over time. Reports last month suggested that Indonesia's Lion Air is on the prowl to scoop up Qantas' 49 per cent stake in Jetstar Asia.
Aside from Jetstar Asia, Qantas has JVs in Japan and Vietnam as well.
It has also been trying, with little success, to set up a budget carrier in Hong Kong and continues to await the green light from regulators.
Meanwhile, Qantas' frequent flyer division - which it has decided not to sell - helped to bolster the bottom line by earning profits of A$286 million, up from A$260 million previously.
Qantas is extending its freeze on domestic capacity growth to the second quarter, which effectively means that it will add no domestic capacity in H1FY15.
CAPA - Centre for Aviation said of Qantas' overseas network ahead of the results release: "Reorientation of the network around strong regional hubs and premium partner airlines would provide Qantas with a firm footing to ensure profitability."
The group expects to swing into the black in H1FY15 with an underlying profit before tax.
Shares in Qantas surged nine Australian cents to close at A$1.385 on Thursday.