REPORTING SEASON: Qantas Airways Ltd (QAN)

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Figure 1: Qantas Airways Ltd 12 month chart


Qantas (QAN) profit held back by hefty write-downs

·         Qantas Airways (QAN) reported a smaller than expected underlying loss of $646.0m for the FY14 and slightly better than forecast sales. Bigger than anticipated write-downs and impairments of $2.6bn on its international fleet however led QAN to a $2.84bn net loss after tax ($2.05bn worse than expected)

·         QAN blamed the weakness in underlying earnings on market capacity outstripping demand (9.5% capacity growth by international competitors), a record high $4.5bn fuel cost for the year ($253m higher than FY13) and soft demand due to weaker consumer confidence. In order of earnings contributed to the Qantas Group – QAN Loyalty added $286m, Domestic $30m, Freight $24m while the international group was the main drag with a $497m loss. Jetstar reported an underlying loss of $116m and was held back by challenging conditions in South East Asia due to capacity oversupply. QAN has a significant $3bn of cash on its books

·         Cost management has been a priority and QAN is 6 months into its Qantas Transformation program. Group unit costs have been cut 3% in FY14. Qantas International has cut $400m in costs over the past 2 yrs and is expected to continue reducing costs. As was announced earlier this year, QAN has deferred or sold 50 aircraft on order. 2,500 job redundancies have taken place since Feb & another 1,500 are expected in FY15. A wage freeze was announced in Dec 2013. QAN’s net debt position was improved by ~$100m, with more improvements to come. QAN has decided not to sell its QAN Loyalty program, which is its biggest contributor to profit & has 10m members

·         No dividend will be paid. April 2009 was the last time QAN paid investors a dividend. Alan Joyce became the airline’s CEO in Nov 2008 in the midst of the GFC. Looking ahead, QAN said the worst is out of the way and is expecting to deliver an underlying profit in 1H15. QAN shares surged following the result with what seems like partly genuine interest from the investment community combined with short sellers covering their positions. Since hitting its $6.06 per share high in Oct 2007 however, QAN shares have shed 76%. FY14 represents the peak in costs associated with the QAN restructure according to the airline


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Steven Daghlian, Market Analyst,