Qantas confident of second half profit after posting A$2.84bn loss

Qantas signed a partnership agreement with Emirates Airline in 2012. Barbara Walton / EPA

Qantas yesterday insisted that the worst of its financial woes are behind it and that it will post an underlying profit for the second half of the year, despite unveiling an A$2.84 billion (Dh9.76bn) annual loss.

The Australian airline, which signed a partnership with Dubai's Emirates Airline in 2012, said that the loss for the year ending June 2014 was largely attributable to a A$2.56bn writedown of the value of its Boeing 747 fleet.

However, Qantas’s losses before tax and one-time writedown items stood at A$646m, lower than analyst expectations.

“There’s no doubt that today’s numbers are confronting,” said the airline’s chief executive Alan Joyce. “But they represent the year that is past, and we have now come through the worst.”

The market responded favourably to the company’s results. Qantas shares rose by 7 per cent yesterday, the stock’s largest one- day gain of the year, closing at A$1.385, its highest close in more than two months.

Australia's national carrier has struggled in recent years in the face of increasing pressure on its long-haul business, together with cut-throat price competition in its domestic market with Virgin Australia, part-owned by Etihad Airways.

Mr Joyce said there were grounds for optimism in the year to come thanks to a “clear and significant easing of both international and domestic capacity growth, which will stabilise the operating environment”.

A A$2bn cost-cutting and restructuring initiative launched by the airline in February had already started to bear fruit, said Mr Joyce. He added that the airline would return to pre-tax profit in the six months to the end of December, “subject to factors outside our control”.

The cost-cutting measures already outlined include the laying off of 5,000 staff, scrapping a number of international routes and deferring new aircraft orders.

Such changes were positive but overdue, according to Will Horton, senior analyst at Sydney-based Capa – Centre for Aviation.

“The restructurings over the last few years have addressed long-standing problems that were not touched when international and domestic competition was significantly lower,” he noted.

As part of such restructuring efforts, the airline announced yesterday it was carving out its international division into a separate entity, with a view to attracting foreign investment.

The move comes after the Australian government relaxed laws restricting outside ownership in the airline to 25 per cent, with foreign investors now able to own up to 49 per cent.

“Given the amount of competition and the position that Qantas finds itself I find it difficult to imagine that whatever plan Mr. Joyce now puts forward to investors in terms of turning the airline around is likely to succeed without having an external partner alongside,” said Howard Wheeldon, an independent airline analyst.

That has fuelled speculation that Emirates could emerge as such a candidate. However, analysts have downplayed the likelihood of that happening.

“Qantas’s entire international division, which is unprofitable, is one-fifth the size of Emirates, which is profitable. Getting into the financial affairs of others, with uncertain upside, risks being a distraction from Emirates’ own organic growth,” said Mr Horton.

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