Qantas (ASX:QAN) share price on watch following $2.35 billion pre-tax loss

Qantas struggled against COVID-19 restrictions throughout financial year 2021.

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The Qantas Airways Limited (ASX: QAN) share price is in focus this morning after the company released its earnings for the 2021 financial year (FY21).

The Qantas share price finished yesterday’s session trading at $4.87 after climbing 5.41% for the day.

Qantas share price in focus on massive loss

Investors will be keeping an eye on the Qantas share price when trading resumes on Thursday after the airline released the following key performance results for FY21:

Qantas’ underlying loss before tax, which didn’t include one-off costs such as redundancies and aircraft write-downs, was $1.83 billion.

Additionally, its statutory loss after tax came to $1.72 billion.

Combined, Qantas and Jetstar’s underlying EBITDA from domestic travel was $304 million. Excluding non-cash depreciation and amortisation, the two airlines’ earnings before interest and tax (EBIT) came to a loss of $669 million.  

Qantas’ international segment, including freight, posted an underlying EBITDA loss of $157 million. When removing non-cash depreciation and amortisation from the equation, its international leg’s EBIT reached a $1 billion loss.

However, due to the trans-Tasman bubble, Qantas’ international capacity reached around 40% of its pre-COVID-19 levels in the fourth quarter. That was before Greater Sydney entered lockdown.

Qantas received $3.76 billion of revenue from passengers over FY21. It also brought in $1.31 billion from freight services.

Jetstar saw $1.14 billion of revenue and ended the period with an EBIT loss of $129 million.

Qantas Loyalty generated $1 billion of income for the airline. Its underlying EBIT was $272 million.

The airline’s net capital expenditure for FY21 was $693 million, which mostly went towards maintaining its fleet.

Qantas ended the period with $2.2 billion of cash and cash equivalents and $5.9 billion of debt.

What happened in FY21 for Qantas?

Here’s some of what impacted the Qantas share price in FY21:

The capacity of Qantas’ domestic flights fell to as low as 19% in July 2020 and peaked at 92% in May 2021.

In May, demand for corporate travel had increased to 75% of what it was before COVID-19.

Qantas states it saw bookings increasing whenever Australia’s domestic borders reopened.

It also introduced 46 news routes throughout the pandemic.

95% of the group’s domestic flights ended up cash positive and Qantas Freight offset some of its international segment’s losses. Qantas said Australians’ love of online shopping bolstered its bottom line in FY21.

The company’s restructuring program, a part of its recovery program, is ahead of target. It delivered $650 million of cost benefits in its first year.

Qantas has also operated nearly 400 repatriation flights since the start of the pandemic, as well as maintaining links to the Pacific and Timor-Leste on behalf of the Australian Government. These flights are continuing into FY22.

It also put out an expression of interest to sell up to 14 hectares of land in Mascot.

Finally, Qantas Frequent Flyers have helped negate some of the airline’s losses. The loyalty program saw nearly 200,000 new members in FY21. Members also redeemed large numbers of points while grounded. Qantas saw a record number of points go towards Qantas Wine and the Qantas Store. And when borders were open, Frequent Flyers’ demand increased exponentially. Between January and lockdowns in June, redemption levels on domestic flights were 30% above pre-COVID levels.

To help its customers through the pandemic, Qantas extended its Frequent Flyers status expiration dates, offered unlimited date changes on all Qantas domestic and international fares through to at least February 2022, and supported the national COVID-19 vaccine rollout.  

Qantas employee struggles

Over FY21, Qantas employees faced a tough slog of stand-downs.

Qantas states that a total of 9,400 staff members have now left the airline. That’s 900 more than Qantas previously estimated.

Around 6,000 of its employees who normally work on the airlines’ international legs have been stood down, while another 2,500 have been stood down due to domestic restrictions.

The Federal Government has provided all Qantas Australian-based employees who have been stood down with income support.

Of the company’s restructuring program cost-saving initiatives, $297 million came from “people restructuring costs”.

What did management say?

Qantas CEO, Alan Joyce, commented on the results:

This loss shows the impact that a full year of closed international borders and more than 330 days of domestic travel restrictions had on the national carrier. The trading conditions have frankly been diabolical.

It comes on top of the significant loss we reported last year and the travel restrictions we’ve seen in the past few months. By the end of this calendar year, it’s likely COVID will cost us more than $20 billion in revenue…

Despite the uncertainty that’s still in front of us, we’re in a far better position to manage it than this time last year. We’re able to move quickly when borders open and close. We’re a leaner and more efficient organisation. And our requirement for all employees to be vaccinated will create a safer environment for our people and customers.

What’s next for Qantas?

Qantas today released a detailed plan of its pathway back to international travel.

The airline expects Australia to reach key vaccination targets by the end of 2021, resulting in increased domestic demand.

It expects international travel to begin again in December 2021, with destinations having achieved high vaccination rates to be its initial focus. These include North America, the United Kingdom, Singapore, and Japan. Qantas is organising for the return of five A380s to meet the demand to Los Angeles and London from mid-2022.

Flights to New Zealand will be on sale from mid-December. Flights to Hong Kong are expected to restart in February, with the rest of the Qantas and Jetstar international network expected to open from April 2022.

The airline believes it is in a better spot to deal with FY22 than it was at the start of FY21.

Qantas’ COVID recovery plan aims to deliver permanent annual savings of at least $1 billion from FY23.

After delivering $650 million in benefits in FY21, the airline hopes to deliver another $200 million of cost benefits by the end of FY22.

Australia’s current COVID-19 outbreaks are expected to have a $1.4 billion impact on Qantas’ underlying EBITDA for the first half of FY22.

That estimate assumes borders in Victoria and New South Wales will re-open in early December.

Qantas expects its net debt to be in its target range by the end of FY22. Its capacity is expected to increase from 38% of pre-COVID-19 levels in the first quarter of FY22 to 53% in the second, and rise to around 110% in the second half of FY22.

Qantas’ international flights are expected to be at 15% of pre-COVID levels in the first half of FY22. They are expected to be between 30% and 40% by the third quarter, and 50% to 70% in the fourth.  

Qantas share price snapshot

The Qantas share price has slipped 0.8% year to date. However, it is 28% higher than it was this time last year.

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