Qantas posts A$2.8b loss after hefty writedowns

Last updated 11:13 28/08/2014

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Qantas has reported a lower than expected full-year underlying loss before tax of A$646 million (NZ$720m), but booked a statutory loss of A$2.8 billion as a result of hefty restructuring charges and writedowns to its fleet.

The airline has decided to hold on to its frequent flyer programme, as expected, but will form a new holding company that will allow its international business to participate in future consolidation opportunities.

"There is no doubt today's numbers are confronting, but they represent the year that was past," Qantas chief executive Alan Joyce said.

"We have now come through the worst. There is a clear and significant easing of both international and domestic capacity growth."

Analysts had expected the airline to report an underlying pre-tax loss of around A$750m but had not expected the airline would take such heavy write-downs on its fleet.

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Joyce said Qantas was expected to return to an underlying profit before tax in the first half of the financial year, subject to factors outside its control. The airline expects international capacity growth of 2.4 per cent in the first half and domestic growth of 1 per cent.

Qantas's cost savings, the lack of a carbon tax, steady fuel prices and reduced depreciation charges will help contribute to a better result in the first half. Unit costs fell by 3 per cent last year, including 4 per cent in the second half.

As part of its structural review, Qantas has ruled out establishing any new Jetstar ventures while the company is focused on its transformation. However, the stalled Jetstar Hong Kong venture is still expected to proceed as planned, provided it can obtain regulatory approvals.

Qantas has taken a A$2.6b writedown to its international fleet, due to the historic cost of aircraft it had purchased at an average exchange rate from Australian dollars to US dollars of 68 US cents. Following the writedown, the carrying value of the fleet will be more reflective of the current market value, and depreciation charges will be reduced by A$200m a year, the company said.

Divisionally, Qantas Domestic reported underlying earnings before interest and tax of A$30m, down from A$365m a year earlier, as a result of the damaging capacity war with Virgin Australia Holdings.

Qantas International reported an EBIT loss of A$497m, compared with a loss of A$246m in the prior year. The Jetstar Group reported an EBIT loss of A$116m, down from a profit of A$138m a year earlier, but the Australian domestic portion of the business remain profitable.

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The airline's highest earner, as expected, was its loyalty division which reported EBIT of A$286m, up from A$260m the prior year.

Qantas also announced some changes to its fleet. It has moved back the 50 options and purchase rights for its 787-9s to 2017 from 2016 in line with its transformation plan. It has also announced plans to sell two 737-800s this financial year and not to renew the leases on two of its Qantas Domestic A330s. It has also sold five A320s on order for Jetstar and plans to sell two QantasLink Q300s during the current financial year.

- Sydney Morning Herald

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