Australian flag carrier Qantas on Thursday posted a record annual net loss of A$2.84 billion (S$3.3 billion), but chief executive Alan Joyce insisted clearer skies lie ahead after aggressively cutting costs.
The worse-than-expected result compared with a wafer-thin profit in the previous year, with one-off restructuring and redundancy payouts hammering the bottom line. But the biggest hit came from a A$2.6 billion non-cash writedown of the value of its ageing international fleet, largely due to the historic cost of aircraft purchased at a much lower Australian dollar exchange rate.
Qantas's underlying loss before tax in the 12 months to June 30 - its preferred measure of financial performance, which excludes one-off costs and writedowns - was A$646 million, slightly better than forecast. Analysts had been expecting a net loss of up to A$1.0 billion as the carrier also battles high fuel costs and fierce competition from subsidised rivals.
Qantas in February announced it was axing 5,000 jobs, deferring aircraft deliveries, freezing growth at Asian offshoot Jetstar and cutting routes in a bid to turn around its fortunes. Joyce said the worst was now over. "There is no doubt today's numbers are confronting, but they represent the year that is past," he said. "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. There is a clear and significant easing of both international and domestic capacity growth, which will stabilise the revenue environment," he added. "We expect a rapid improvement in the group's financial performance -- and a return to underlying profit before tax in the first half of FY15, subject to factors outside our control."
Qantas's share price closed 6.95 per cent higher at A$1.385, with analysts saying investors felt a bottom had been reached. "It's a horrible read, but some light is visible at the end of the tunnel," said IG Markets' Evan Lucas of the results. "With this mass clear of the decks, has Qantas finally reached the bottom? Possibly. However, further staff reductions could be a reality, and fuel and forex remain consistently volatile."
'STANDING STILL IS NOT AN OPTION'
The airline's international arm continued to underperform, booking a loss of A$497 million compared with A$246 million in the 2013 financial year, with high fuel prices and foreign exchange movements blamed. Domestic operations turned a A$30 million profit - but this was substantially lower than the previous year, while its discount carrier Jetstar was A$116 million in the red.
Qantas, whose main domestic rival Virgin Australia is majority-owned by state-backed Singapore Airlines, Air New Zealand and Etihad, has regularly complained that the 1992 Qantas Sales Act restricts its access to capital. The act caps foreign ownership at 49 per cent and in July the government agreed to relax the restrictions. While the 49 per cent cap remains, the change means a single foreign investor or foreign airline can boost their holding to a maximum 49 per cent from 25 per cent previously.
As a result Qantas said it would create a new unit for its international division, effectively separating it from the domestic arm - allowing it to increase the potential for future investment. "This will have no impact on the day-to-day operations, network or staffing at Qantas International," said Joyce.
The Transport Workers Union blamed a "lack of management" for the huge losses but Transport Minister Warren Truss said the projected return to profit in 2015 was encouraging. "While the numbers are dramatic, the reality is Qantas is a strong company and seems to be positioning itself for a better future," he said.
Joyce voiced similar sentiments despite the disappointing numbers. "Our cash balance and liquidity position is strong, and the group's overall financial performance is rapidly improving," he said. "We are removing costs to drive earnings growth. With our structural review complete, we can move forward with certainty."
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