Qantas might finally be seeing a break in the clouds. Photo: Michele Mossop
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It's been a long time since Qantas shareholders have had anything to cheer about and on the surface of it, Thursday's $2.8 billion full-year net loss is just another body blow to investor confidence.
However, there are rays of hope breaking through the cloud line, with shares soaring on Thursday morning.
So why did that happen?
The big number looks big but there is accounting involved. Most importantly, as part of a broader review of its business, Qantas wrote down the value of its international fleet by $2.6 billion.
What that means is, the statutory loss of $2.8 billion does not represent a cash loss to the company, rather it is a paper loss in the value of its assets. It is a bit like when the value of your house goes up, or down, your wages and your bills do not move.
So in terms of the money in the door and out the door, Qantas was still in the red. The underlying loss of $646 million again looks like a big number, and it is, but crucially it was better than some had expected.
For the first time in a long time, chief executive Alan Joyce said investors could expect an underlying profit in the first half of this financial year. That declaration came with a pretty hefty caveat of "no material worsening in competitive environment, including global economic conditions, market capacity growth, fuel prices and FX rates".
So which parts of Qantas make the money and which parts are the drag?
The different divisions of Qantas enjoyed different fortunes with international struggling the most and margins tight or non-existent. Among the Qantas red-tail brands, its international business was the only division to make a loss. In fact it more than doubled from the previous year. Qantas domestic recorded a profit, but it was 96 per cent lower than the previous year.
Jetstar, worryingly, recorded its first full-year loss, signalling the toll which its price and capacity war has taken. However, that appears to be over.
Qantas loyalty was one of the few arms of the business that improved. After exploring the possibly of selling off the Frequent Flyer program, Mr Joyce flatly said the idea was off the table.
By holding onto the program, rather than quickly selling it for cash, investors may be taking this as a sign that Qantas management is confident about turning its fortunes around.
Another big development for Qantas this year was its decision to call off the war with Virgin Australia over supplying flights. As the graph below shows, demand growth for flights has shrunk dramatically and Qantas is no longer willing to fly planes without sufficient passengers. This is partly because of the decline in the mining sector and also due to soft consumer confidence.
Mr Joyce said Qantas expects to see "rapid improvement" as capacity growth begins to slow in both its domestic and international businesses.
The better-than-expected underlying loss was largely a result of sped up cost-cutting measures, as part of an attempt to reach a $2 billion target by the 2017 financial year.
Qantas realised $204 million in saves in the last financial year and is targeting a further $300 million this year.
So far this fiscal year, Qantas has pushed through 330 redundancies as it works towards its target of 5000 by the close of 2017. By the end of the current financial year, Qantas aims to have made another 1470 people redundant with a further 1000 in the following two years.