Aus­tralian car­rier Qan­tas roars back into black in ag­gres­sive turn­around


Aus­tralian car­rier Qan­tas on Thurs­day roared back into the black in a stun­ning turn­around of for­tunes driven by ag­gres­sive cost­cut­ting, while plac­ing an or­der for eight Boe­ing Dream­lin­ers.

The air­line posted an AU$557 mil­lion (US$409 mil­lion) an­nual net profit in the year to June 30, a sharp re­cov­ery in the space of 12 months from a net loss of AU$2.84 bil­lion in the pre­vi­ous cor­re­spond­ing pe­riod.

Un­der­ly­ing profit be­fore tax — Qan­tas’ pre­ferred mea­sure of fi­nan­cial per­for­mance, which ex­cludes one-off costs and write­downs — was AU$975 mil­lion, com­pared to an AU$646 mil­lion loss in 2014.

Qan­tas said its cost-cut­ting pro­gram had helped save AU$894 mil­lion over the year and al­lowed it to pay down debt, while lower fuel prices also helped bol­ster the bot­tom line with ev­ery seg­ment mak­ing healthy prof­its.

No div­i­dend was de­clared but the air­line an­nounced a one-off 23 cents per share cap­i­tal re­turn to share­hold­ers, amount­ing to AU$505 mil­lion.

Chief ex­ec­u­tive Alan Joyce hailed it as “one of the big­gest turn­arounds in Aus­tralian cor­po­rate history.”

“This trans­for­ma­tion has been all about get­ting our foun­da­tions right. Be­ing smarter with our costs; faster with our de­ci­sions; more pro­duc­tive with our as­sets. And on these stronger foun­da­tions, we can build a much stronger Qan­tas,” he said.

“The logic from the be­gin­ning was to front-end the tough de­ci­sions so the group could re­shape its oper­a­tions as rapidly as pos­si­ble for long-term, sus­tain­able growth in earn­ings and share­holder value.”

The re­ver­sal in for­tunes ap­peared to vin­di­cate his strat­egy to slash AU$2.0 bil­lion in costs, cut routes, freeze growth at Asian off­shoot Jet­star, and axe 5,000 jobs to help counter a price war with do­mes­tic ri­val Vir­gin Aus­tralia.

The com­pany’s shares, which have ral­lied strongly over the past 12 months, ini­tially jumped higher but were down 2.0 per­cent at AU$3.68 in af­ter­noon trade in a soft mar­ket.

Joyce added that the pur­chase of the eight new planes high­lighted the scale of the air­line’s turn­around and sig­naled a new phase of growth.

“We are half­way through the big­gest and fastest trans­for­ma­tion in our history,” he said.

“With­out that trans­for­ma­tion, we would not be re­port­ing this strong profit, recom­menc­ing share­holder re­turns, or an­nounc­ing our ul­tra-ef­fi­cient Dream­liner fleet.

“We have re­shaped our busi­ness for a strong, sus­tain­able fu­ture — and be­cause we moved quickly and made tough de­ci­sions early, we have strong foun­da­tions to build on.”

Right Air­craft for Qan­tas

Qan­tas’ un­der-pres­sure in­ter­na­tional arm re­ported un­der­ly­ing profit of AU$267 mil­lion, a sig­nif­i­cant turn­around from the AU$497 mil­lion loss in the pre­vi­ous fi­nan­cial year and its first profit since the global fi­nan­cial cri­sis.

The air­line at­trib­uted it to im­proved rev­enues and bet­ter use of air­craft, adding ca­pac­ity to Los An­ge­les, Dal­las, Van­cou­ver, San Fran­cisco, San­ti­ago, Tokyo and Sin­ga­pore.

Its do­mes­tic arm also per­formed well with profit of AU$480 mil­lion com­pared to AU$30 mil­lion pre­vi­ously.

While all of its Jet­star-branded air­lines in Asia im­proved their per­for­mance, Qan­tas wrote off its stake in Jet­star Hong Kong, at a cost of AU$21 mil­lion, af­ter Hong Kong reg­u­la­tor’s re­jected an ap­pli­ca­tion for an op­er­at­ing li­cense in June.

“Qan­tas will make no fur­ther in­vest­ments in Jet­star Hong Kong,” the car­rier said Thurs­day.

To build on its trans­for­ma­tion, the com­pany will buy eight new Dream­lin­ers to grad­u­ally re­place five older Boe­ing 747s on in­ter­na­tional routes with de­liv­ery from cal­en­dar year 2017.

“We have looked closely at ev­ery as­pect of the Dream­liner and it’s the right air­craft for Qan­tas’ fu­ture,” said Joyce.

“Be­cause the 787 is smaller than the jum­bos it will grad­u­ally re­place, it gives us the flex­i­bil­ity of hav­ing more air­craft with­out sig­nif­i­cantly chang­ing our over­all ca­pac­ity.”

De­spite the buoy­ant re­sult, Stan­dard and Poor’s said its BB+ “junk” sta­tus, which in­creases the cost of fi­nanc­ing for Qan­tas and re­stricts ac­cess for in­vestors that do not put money in lower rated com­pa­nies, would not change.

“Over the medium-to-long term, pos­i­tive rat­ing ac­tion would re­quire ev­i­dence of a more ro­bust and ver­sa­tile op­er­at­ing plat­form,” it said, while ap­plaud­ing the steps taken so far.


Two Qan­tas planes taxi on the run­way at Syd­ney Air­port in Syd­ney, Thurs­day, Aug. 20.

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