Qantas has incurred its first company tax bill in nine years, but the sum owed is still only a tiny fraction of the headline company tax rate.
It will be the first time the airline has paid a cent of company tax since 2009, and marks the airline’s full recovery from the devastating losses in the early part of the decade.
Mass redundancies, cost cutting and a sudden drop in the price of oil allowed CEO Alan Joyce to steer the Flying Kangaroo from a $2.8 billion loss in 2014, to four consecutive years of profits.
In the 2017-18 financial year – the year just ended – Qantas made a stonking $1.6 billion in before-tax profits, the company revealed on Thursday.
So how much tax will Qantas pay on this $1.6 billion profit?
The airline has yet to lodge its tax return, but a spokesperson for Qantas told The New Daily the company estimates it owes the tax office around $4 million.
That is just 0.25 per cent of the $1.6 billion it raked in in profits.
Bearing in mind the company tax rate is currently 30 per cent, you would be forgiven for expecting Qantas to be paying closer to $500 million.
So how is the company only paying $4 million to the federal coffers?
Australian tax law allows companies to bring forward losses from previous years and deduct them from their current tax bill.
Qantas began the 2017-18 financial year with $900 million worth of losses brought forward from previous years. Over the course of the year it ate through these.
In its own words: “Continued profitability saw Qantas exhaust the last of its available carry-forward tax losses and incur company tax in the second half of FY18.”
So while 0.25 per cent is a minuscule tax rate, the fact it has run out of tax losses to carry forward means from now on we can expect Qantas to pay a much higher rate of tax – at least, as long as it remains profitable.
Record profit, and what’s behind it
For the financial year 2018, Qantas posted a profit before tax of $1.6 billion – a result CEO Alan Joyce described as the “best result in [Qantas’] 98-year history”.
“This is particular pleasing because the record performance was achieved in a year of rising fuel costs,” Mr Joyce said.
The standout performer was Qantas’ domestic business, which saw before-tax profit leap 19 per cent to $768 million. The profit margin for the domestic business was 12.9 per cent.
Jetstar, its low-cost airline, saw profit grow by 11 per cent to $461 million, with a profit margin of 12.2 per cent.
As usual, the international airline business did not perform as well. Despite taking in almost $1 billion more in revenue than the domestic business, it only managed to turn that into $399 million in before-tax profit, with a margin of just 5.8 per cent.
That reflected the fact that the international airline market is considerably more competitive than the domestic Australian market, where Qantas has only one major competitor, Virgin Australia.
Qantas’s loyalty program brought in $372 million, but with a hefty profit margin of 24.1 per cent. That demonstrates that, while the loyalty program may be the smallest earner in dollar terms, as far as bang for your buck goes, it is by far the best performer of Qantas’ various businesses (read more about the loyalty program here).
The biggest threat to Qantas’s future profitability is probably rising fuel prices. However, Mr Joyce was confident the company would be able to continue to overcome this problem by “fuel hedging” – a complex process that protects against price fluctuations by buying fuel on futures contracts.
“This record result comes despite higher oil prices,” Mr Joyce said on Thursday.
“We’re facing another increase to our fuel bill for FY19 and we’re confident that we will substantially recover this through a range of capacity, revenue and cost-efficiency measures, in addition to our hedging program.”