Qantas shares are up, despite announcing a massive loss after tax of $2.84 billion for the 2013-14 financial year – far worse than market expectations.
The market reacted positively to the announcement with Qantas shares up 4.6 per cent at 10.07 EST, up $0.06 to $1.355.
The loss comes after a the airline’s profit-draining capacity war with Virgin Airlines and poor performance from its international division.
The result, which compares to a $1 billion profit last year, included a non cash $2.6 billion writedown to the value of its ageing international fleet.
Excluding this and other one-off costs, Qantas made a pre-tax loss of $646 million, compared to a $186 million profit a year ago.
• Loss before tax: $646 million
• Loss after tax: $2.8 billion (following $2.6 billion international fleet writedown)
• No final dividend
• Alan Joyce: “no doubt today’s numbers are confronting.”
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Qantas CEO Alan Joyce said the result had been foreshadowed at the half-year announcement in February.
“There is no doubt today’s numbers are confronting, but they represent the year that is past,” Mr Joyce said in a statement to the ASX.
“We have now come through the worst. With our accelerated Qantas Transformation program we are already emerging as a learner, more focused and more sustainable Qantas Group.”
The nightmare profit fall was due to the airline’s growth outstripping demand in domestic and international markets and a $253 million increase in fuel costs to the prior year – a record total cost of $4.5 billion.
It also takes into account the airline’s $2 billion restructuring program which will see the loss of 5000 jobs over three years. Mr Joyce told a press conference that these job losses would “conclude the period of major job reductions”.
Despite the massive loss, Mr Joyce has predicted a “rapid improvement” and a return to an underlying profit in the first half of the the 2015 financial year.
No dividend will be issued to shareholders.
— Qantas Airways (@QantasAirways) August 27, 2014
Qantas International split
Following the partial repeal of the Qantas Sale Act, Qantas will create a new corporate body for Qantas International.
“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,” Mr Joyce said.
Qantas International, which reports separately to the profitable domestic arm, reported a EBIT loss of $497 million loss, compared to last year’s $246 million loss.
The Australian and International Pilots Association urged the Qantas management to invest in “the right aircraft” and said focussing on cuts alone would not work.
“For the [international] business to be successful Qantas needs to be offering the right aircraft. Today that means investing in new B-787s,” AIPA President Nathan Safe said.
Hit by tough international competition and rising fuel costs, Jetstar posted a loss of $116 million, down from a $138 profit in 2013.
While domestic business was profitable, and overall costs were reduced by two per cent, the airline was hit by a yield decline of $113 million across South East Asia and Australia, and fuel costs rising by $86 million.
Loyalty to stay
The airline has ruled out selling off its profitable frequent flyer business which reported an underlying profit of $286 million – up from $260 million the previous year. It is its fifth consecutive year of double digit growth.
“After careful consideration, our judgment was that Qantas Loyalty continued to offer major profitable growth opportunities, and there was insufficient justification for a partial sale,” Mr Joyce said.
Speculation around CEO Alan Joyce’s leadership has continued after calls for him to step down after the first half results.
He told a press conference this morning: “There are always people out after my head. That hasn’t changed for a long time.”
Independent Senator Nick Xenophon wrote in an opinion piece for Fairfax that five years after Mr Joyce took over Qantas, he and his management team had “given the national icon the kiss of death”.
Australian Shareholders’ Association chairman Ian Curry said the Qantas board either needed to say it was “time for change” now or “back him for the next two or three years”.
“I think Alan Joyce has probably got to be accountable for the next year or two, but he certainly shouldn’t be getting any rewards for what’s been happening,” Mr Curry said.
Australian Licensed Aircraft Engineers’ federal secretary Steven Purvinas told The New Daily that both Mr Joyce and Chairman Leigh Clifford should resign.
“What Qantas really needs to do is source some people to sit on the board who actually have some aviation experience,” Mr Purvinas said.
– with Jackson Stiles