Hard yards have been done ... Qantas CEO Alan Joyce. Photo: Lee Besford
Qantas is beginning to look like a coiled spring as chief executive Alan Joyce stays on track to get its international division back into profit and successfully defends its domestic market share.
The June year statutory profit of just $6 million looked miserable but it compared with a $245 million loss in the previous year, and the underlying profit before tax doubled, from $95 million to $192 million.
Joyce said conditions continued to be tough during the year. One of the reasons was that Qantas poured extra capacity into its domestic routes to defend its market share against Virgin Australia, and Qantas looks to have successfully defended its turf.
Earnings before interest and tax in Qantas' domestic division fell 21 per cent from $463 million to $365 million during the year and Jetstar's EBIT fell 32 per cent to $138 million. But the group ruled off the year still in command of 65 per cent of the Australian market.
It also retained an 84 per cent share of the high-margin corporate travel market, despite an aggressive pitch for corporate customers by Virgin – and Joyce halved Qantas International's EBIT loss to $246 million. He says the division is now cash flow positive and on track to post profits in the 2014-2015 financial year, as planned.
Qantas' shares were up more than 10 per cent late this morning after the result. The key to the reaction was that Qantas looks to be on the cusp of a substantial earnings bounce.
The capacity increases that occurred as Qantas and Virgin battled for market share have slowed, with Qantas's position in the market still intact.
Joyce has the international division's recovery on track and is making the business significantly more productive. Unit cost improved by 5 per cent during the year and, in the June year, the group harvested $171 million in restructuring gains and $257 million in sustainable cost cuts.
The Jetstar result included $50 million of start-up losses on its joint ventures in Japan and Hong Kong which should tail off as the ventures establish themselves.
The new alliance with Emirates is boosting volumes. Joyce says codeshare bookings by Qantas customers on Emirates’ network are running about twice as high as they were on Qantas’s old alliance codeshare routes into Europe with airlines incouding British Airways, Air France and Iberia.
Bookings from Emirates flyers into Qantas's domestic network are about three times higher than bookings from previous alliance partners.
Qantas as whole is also over a hump in its fleet renewal program. Joyce says the average age of the fleet is 7.9 years – the lowest since the group was privatised two decades ago – and capital expenditure will be $500 million lower this financial year.
Joyce says conditions remain tough. He is not giving guidance. But the market response shows that investors reckon the hard yards have been won, and the profits that will flow from Joyce's remake of the group are now not just in the mail, but to all intents and purposes, in the bag.