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.