Qantas posts record $2.84bn loss

YES that’s billion. With a B. That means Qantas lost $7.7 million every day. But CEO Alan Joyce reckons it will all turn around soon.

10 May 2006 Qantas planes sitting on the tarmac at Sydney Airport. AFP PicGreg/Wood - industry aviation aircraft logo logos f...

IT’S the massive loss everyone was expecting. Qantas has just announced a full year after tax loss of $2.84 billion.

The loss is in the wake of the airline’s profit-draining battle with rival Virgin and another poor performance from its international division. The airline posted a bottom line net loss of $2.84 billion for the year to June 30, compared to a $1 million profit a year ago.

Excluding the writedown and other one-off costs, Qantas made an underlying pre-tax loss of $646 million, compared to a $186 million profit a year ago.

Qantas is attributing its massive loss to its $2 billion ‘Transformation’ program as well as a $2.6 billion writedown on the value of its fleet.

The Qantas ‘Transformation’ program made national headlines when chief executive Alan Joyce announced in February a restructure which included cutting 5000 jobs from its workforce.

Meanwhile, the airline has ruled out selling or floating its profitable frequent flyer business, Qantas Loyalty in order to fund its turnaround.

“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.

Qantas posted a record loss of $2.84 billion.

The airline’s international division remained the biggest drag on the company, suffering an underlying loss of $497 million for the year, more than double the $246 million loss it posted a year ago.

Qantas attributed the result to increased competition from other carriers and record fuel costs.

Its discount carrier, Jetstar, made a $116 million loss after losses from its Asian operations offset profits from its Australian division.

Qantas domestic saw its underlying earnings slump from $365 million to $30 million as a result of a bruising capacity war with rival Virgin.

The airline has been increasing capacity in an effort to maintain its 65 per cent market share against a challenge from Virgin.

Fuel costs across the company’s operations climbed by more than $250 million to $4.5 billion, and Qantas expects them to remain around the same level during the first half of 2014/15.

Qantas ruled out any new Jetstar ventures in Asia while it tries to get itself back to profitability, but Mr Joyce was confident of the future of its operations in Singapore and Japan.

Qantas CEO Alan Joyce described the result as “confronting”.

“In the world’s fastest growing aviation market, this is a major long-term opportunity that we continue to believe in,” he said. “No new Jetstar ventures will be established while the group is focused on transformation, but we know that substantial value exists across the Jetstar airlines and we will realise that value over time.” In some positive news, Qantas will not be making job cuts beyond the 5,000 already announced as part of its $2 billion three-year restructuring plan.

Mr Joyce said: “I foreshadowed today’s result at our half-year announcement in February, declaring it was unacceptable. There’s no doubt that today’s numbers are confronting. 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. Our work is on track and we will see accelerating benefits in the coming year.”

Ambitiously, Qantas expects to return to profit by the end of the year. The company said it plans to do this based on $300 million worth of savings from its ‘Transformation’ program to be realised in the six months to December 2014. It’s also expecting the market will stabilise as growth capacity slides.

The airline’s fleet was written down by $2.6 billion.

It’s also flagged that fuel costs should remain the same as financial year 2014 and expects there will be savings from the repeal of the carbon tax and reduced depreciation costs.

Tim Harcourt, J.W. Nevile Fellow in economics at the UNSW Business School, described the result as “pretty grim in some areas”, but said Qantas could potentially turn its fortunes around by working on its innovation, quality and service.

“There’s still a lot of brand equity in Qantas,” Mr Harcourt told news.com.au. “They can turn it around but they’ve been hitting the perfect storm of low-cost Asian carriers.

“Qantas has the unusual situation with the Sale Act where they have to be free market but are expected to face competition [from the likes of Etihad and Singapore Airlines], with essentially the governments of other countries who have virtually unlimited funds.”

Fuel costs climbed by more than $250 million to $4.5 billion.

Mr Harcourt said job cuts were not the only way to fix Qantas. “You should never declare war on your own workforce. I think generally Qantas employees want to look after their company, they love it. I would use the goodwill of the staff.”

At a press conference this morning Mr Joyce thanked the employees of Qantas. He said 2500 of the 5000 redundancies had already taken place, and predicted 4000 would be complete by the end of 2015.

“I want to thank the employees of Qantas,” he said. “The transformation of our business is a difficult process and they have responded with courage. We still have more to do, but we have gone through the worst and we have a clear view of a brighter future.”

Asked whether people would be calling for his head following the results, Mr Joyce said: “There are always people after my head, I don’t think that’s changed. From our perspective we are as a management team focused on turning this airline around, coping with the environmental challenges we have and getting the airline back into profitability.”

Originally published as Qantas posts record $2.84bn loss