QANTAS announced an Underlying PBT loss of A$252 million ($225.1 million USD) and a Statutory Loss After Tax of A$235 million ($209.9 million USD) for the six months ending on December 31, 2013.
The underlying result is in line with guidance and reflects fundamental changes in the Australian aviation market, with a significant deterioration in earnings during the half.
Chief Executive Officer Alan Joyce said the result was unacceptable and comprehensive action would be taken in response.
“We are facing some of the toughest conditions QANTAS has ever seen,” Mr Joyce said.
“Australia has been hit by a giant wave of international airline capacity, with a 46 per cent increase in competitor capacity since 2009 – more than double the global increase of 21 per cent over the same period.
“The Australian domestic market has been distorted by current Australian aviation policy, which allows Virgin Australia to be majority-owned by three foreign government-backed airlines and yet retain access to Australian bilateral flying rights.
“Late last year, these three foreign-airline shareholders invested more than $300 million in Virgin Australia at a time when, as Virgin Australia reported to the ASX on February 6, it was losing money. That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses.
“QANTAS has been undertaking its biggest ever transformation over the past four years, cutting comparable unit costs by 19 per cent over four years, but this is not enough for the circumstances we face now.
“With structural economic changes being exacerbated by the uneven playing field in domestic aviation, we must now take actions that are unprecedented in scope and depth.
“We will accelerate our QANTAS Transformation program to achieve $2 billion in cost reductions by FY17. Hard decisions will be necessary to overcome the challenges we face and build a stronger business.”
Summary of Results
QANTAS Domestic reported Underlying EBIT1 of A$57 million, down from A$218 million in 1H13.
Competitor capacity growth in the domestic market continued to outpace QANTAS Group capacity growth, as it has since FY12. At the same time, demand was lower than market growth, putting pressure on yields and passenger loads.
Overall, the total domestic profit pool has shrunk from more than $700 million in FY12 to less than $100 million in 1H14. During this period the Virgin Australia Group added 4.5 billion Available Seat Kilometers (ASKs), compared to 4.3 billion ASKs added by the QANTAS Group.
A softening resources market, corporate account pricing pressure, and fuel and foreign exchange impacts also affected the QANTAS Domestic result.
Despite the challenging market conditions, QANTAS Domestic continues to deliver outstanding service, earning record customer advocacy. It was the most punctual major domestic airline in 12 out of 12 months during 2013, while its ongoing fleet renewal program helped reduce unit costs and improve the customer experience.
QANTAS Domestic remains the airline of choice for business travellers, holding more than 80 per cent of the corporate market by revenue in the half.
Qantas International reported an Underlying EBIT loss of A$262 million, compared with a loss of A$91 million in 1H13.
The trend of intense competitor capacity growth in the Australian international market continued in the half. Total international market capacity growth for FY14 is expected to be 9 per cent, well above the global average, resulting in particularly strong yield pressure for QANTAS’ Asian and European markets.
QANTAS International made continued progress in reducing comparable unit costs (by 4 per cent in the half) and maintained record customer advocacy.
However, the lower Australian dollar has meant higher fuel costs, with a significant impact on the long-haul sectors flown by QANTAS International.
The Jetstar Group reported an Underlying EBIT loss of A$16 million, down from an Underlying EBIT profit of A$128 million in 1H13.
Competitive pressure on yields (especially in South East Asia), a A$29 million share of associate losses, and fuel price and foreign exchange impacts were the main factors behind the result. Jetstar’s domestic operations in Australia remained profitable.
The fundamentals of Jetstar’s low-cost carrier model remain strong, with a 2 per cent improvement in unit costs1 and increased ancillary revenue1 during the half, and customer advocacy is at record levels. The introduction of the Boeing 787-8 into Jetstar’s long-haul network is delivering cost and customer service benefits.
QANTAS Loyalty reported Underlying EBIT of A$146 million, a record result , up from Underlying EBIT of A$137 million in 1H13. The business continues to perform very strongly, with billings up 9 per cent in the half, three million awards redeemed and record customer advocacy. There are currently 9.8 million QANTAS Frequent Flyer members , with a target of 10 million for the full year.
QANTAS Loyalty’s growth initiatives are exceeding expectations, with a positive customer response to both the new QANTAS Cash member card and the AQUIRE small-to-medium enterprise loyalty platform.
QANTAS Freight reported Underlying EBIT of A$11 million, down from A$22 million in 1H13, in the context of reduced capacity, consolidation and a weak global cargo market.
Financial Position and Capital Expenditure
QANTAS has strong liquidity of A$3 billion, comprising A$2.4 billion in cash and A$630 million in undrawn debt facilities, as at December 31, 2013. There are no major unsecured debt maturities until April 2015.
Approximately 30 per cent of the QANTAS Group’s passenger fleet is debt-free. The Group has added 31 new unencumbered aircraft since FY10, including seven added in the first half of FY14. Twenty mid-life aircraft become debt-free in FY14. The Group’s average passenger fleet age is 7.6 years, the youngest in two decades.
Capital expenditure in FY14 is weighted to the first half, with $900 million invested in the six months to December 31, 2013 and a further A$300 million planned for the second half.
Following the review launched in December, planned capital investment has been aligned with financial performance, with a total reduction of A$1 billion over FY15 and FY16. Capital expenditure in FY15 and FY16 will be A$800 million in each year, including movements in operating lease liabilities1, while the Group maintains flexibility to make further changes if needed.
The Group’s 2H14 operating environment remains very challenging and volatile. Soft underlying domestic demand is continuing in the seasonally weaker half, with domestic and international yields and loads expected to remain depressed.
The Group’s current operating expectations are as follows:
• Group capacity to increase by 3-3.5 per cent in 2H14 compared to 2H13.
• Group domestic capacity to increase by 3-4 per cent in 2H14 compared to 2H13, while maintaining flexibility.
• Underlying fuel costs expected to be approximately A$4.6 billion in FY14.
No Group profit guidance can be provided at this time due to major transformation being undertaken by Qantas, the high degree of volatility and uncertainty in the competitive environment, global economic conditions, fuel prices and foreign exchange rates.
Copyright Photo: Michael B. Ing/AirlinersGallery.com. Airbus A380-842 VH-OQK (msn 063) with “The Modern Family Flyer” sub-titles arrives in Los Angeles.
In January 2014 QANTAS issued this announcement:
QANTAS has announced a partnership with Twentieth Century Fox Television and Twentieth Century Fox Consumer Products to bring the top rated American comedy series “Modern Family” to film in Australia.
QANTAS will fly the cast and crew from Los Angeles in February as the Pritchett-Dunphy-Tucker clan takes a vacation down under for an episode to be broadcast later this season. Filming in Australia is expected to take two weeks.
Lauded for revitalizing the television sitcom, “Modern Family” is one of the largest critical and commercial hits of the past decade. The recipient of four consecutive Emmy Awards for Outstanding Comedy Series and a Golden Globe Award for Best Comedy Television Series, “Modern Family” is both Network Ten and the ABC Television Network’s top-rated comedy series.
The partnership between QANTAS and Twentieth Century Fox Television’s “Modern Family” and Twentieth Century Fox Consumer Products follows the airline’s support in 2013 for a visit by The Ellen DeGeneres Show, which provided a 22 per cent increase in inbound flights to New South Wales alone, as well as overall boost in destination awareness for Australia.
The entire “Modern Family” cast, including, Ed O’Neill (Jay), Julie Bowen (Claire), Ty Burrell (Phil), Sofía Vergara (Gloria), Jesse Tyler Ferguson (Mitchell), Eric Stonestreet (Cameron), Sarah Hyland (Haley), Nolan Gould (Luke), Ariel Winter (Alex), Rico Rodriguez (Manny) and Aubrey Anderson-Emmons (Lily) will join co-creator and executive producer Steven Levitan for the visit to Australia.
“Modern Family” producers will travel to Australia in advance of the shoot in January to scout and identify preferred filming locations and potential storylines.
The series is produced by Twentieth Century Fox Television in association with Picador Productions and Steven Levitan Prods. Steven Levitan and Christopher Lloyd are the creators/executive producers. Danny Zuker, Dan O’Shannon, Bill Wrubel, Paul Corrigan, Brad Walsh, Abraham Higginbotham, Jeffrey Richman and Jeff Morton also serve as executive producers.