Qantas share price on watch following FY 2020 earnings release

The Qantas Airways Limited (ASX: QAN) share price will be on close watch when trade opens this morning, follow the release of its full year 2020 financial year results

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The Qantas Airways Limited (ASX: QAN) share price will be on close watch when trade opens this morning, follow the release of its full year 2020 financial year results.

A very challenging second half for our national carrier

The Qantas Group reported an underlying profit before tax of $124 million for the 12 months ended 30 June 2020. This was a massive 91% fall on the prior year.

The first half year saw strong growth for Qantas, with a $771 million underlying profit before tax. However, the airline then spiralled into a $4 billion revenue drop in the second half as the coronavirus pandemic wreaked havoc on the travel industry. This pulled down its full year underlying profit before tax into negative territory.

Qantas Group's revenue fell sharply by 82% between April and June. However, the airline managed to reduce cash costs by 75% during this time, which significantly softened the blow. This saw Qantas's underlying profit before tax in 2H FY2020 fall to only $1.2 billion.

The group reported a full year loss before tax of $2.7 billion. This loss was mainly due to a $1.4 billion non-cash write down of assets.

Available liquidity amounted to $4.5 billion at 30 June 2020. This includes $1 billion of undrawn facilities

Qantas Group CEO Alan Joyce said COVID-19 was reshaping the competitive landscape and that presented a mix of challenges and opportunities.

"Most airlines will come through this crisis a lot leaner, which means we have to reinvent how we run parts of our business to succeed in a changed market," he said.

Domestic division shows resilience

Qantas Domestic recorded full year earnings before interest and taxes (EBIT) of $173 million. Jetstar performed relatively strongly, achieving EBIT of $112 million. A strong performance by the domestic division during the six months to December 2019 was more than able to offset a 50% decline in revenue in the second half as lockdown restrictions kicked in.

Qantas International recorded a modest $56 million profit for FY 2020.  This profit was mainly due to a record performance by Qantas Freight as well as a massive increase in e-commerce activity.

Market Outlook for FY 2021

Qantas remains confident it is well-positioned to take advantage of the eventual return of domestic services as the pandemic eases. However, it acknowledges that a high degree of uncertainty remains in the short-term regarding demand.

Qantas has scheduled 20 per cent of pre-pandemic group domestic capacity for the month of August. The carrier noted that its international network was unlikely to recommence before July 2021. However, the Trans-Tasman route could possibly start earlier.

"COVID will continue to have a huge impact on our business and we're expecting a significant underlying loss in FY21," Mr Joyce said.

"Looking further ahead, we're in a good position to ride out this storm and make the most of the recovery. Our market position is set to strengthen as the only Australian airline with a full service and low fares domestic offering as well as long haul international services."

The Qantas share price was trading at $3.76 at yesterday's close.

Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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