Once again all Australian aviation media attention is focussed on Qantas Limited (ASX: QAN). The tragic loss of two Malaysian Airlines flights took the attention off Qantas and its woes at a time when the Australian carrier started making some of the biggest moves in its long and proud history.
Between last December and February, the Qantas chief executive was everywhere, complaining about unfair competition, unfair rules and warming up the public and shareholders to the massive loss that was about to confront them.
$2.8 Billion Loss
Few realised just how large the bottom line loss would be. A record $2.8 billion loss for the 12 months to June 30 was the worst ever for Qantas and has attracted an unparalleled amount of media speculation and no doubt discussion around the water cooler.
A Grim Picture
The headline $2.8 billion loss included a $2.6 billion writedown of the group's aircraft, mainly those servicing international routes. The writedown (purely on paper may I add, this money wasn't really 'lost') was because the group bought aircraft when the Australian dollar was at 68 cents versus 93 cents currently.
Qantas' local operations were actually just profitable at an underlying level (i.e. before any interest, taxes, depreciation and amortisation), while the international division widened its loss to $497 million from only $246 million the year before.
Setup for the Future
Despite what the numbers above might indicate, Qantas actually performed better than many analysts expected, although Warren Buffett would likely just say a loss is a loss. The underlying loss of $646 million was around $100 million better than expected, and Alan Joyce's cost cutting plan is progressing at a speed that not many predicted, no doubt helped by the lack of media attention.
Qantas has already slashed 2,500 jobs and lowered costs by $204 million in the last 12 months. Group costs are down 3% and should fall by a further 6% at least in the next year.
The writedown of aircraft value will add around $200 million per year in underlying earnings as a result of lower depreciation charges, while all cost savings will improve its cost of doing business.
Qantas Frequent Flyer continues to be a star, recording $268 million in earnings before interest and tax, and Qantas is hoping to return to profitability in the next six months.
The next financial year will be critically important for Qantas and it will take a brave shareholder to buy more stock at the current price.
