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Qantas announces $2.84 billion loss

Highlights of Qantas announcement

  • Underlying Loss Before Tax: $646 million
  • Non-cash fleet writedown post-structural review: $2.6 billion
  • Statutory Loss After Tax: $2.8 billion
  • Underlying fuel costs: $4.5 billion, up $253 million
  • Qantas Transformation benefits: $440 million
  • Operating cash flow: $1.1 billion
  • Group comparable unit costs down 3 per cent
  • Liquidity: $3.6 billion
  • Underlying Profit Before Tax expected in first half FY15
  • No final dividend

Qantas has announced a staggering full-year loss of $2.84 billion on Thursday morning, a much worse outcome than the nearly $1 billion loss most analysts were expecting.

This has also made it the worst result in the history of the Flying Kangaroo.

The airline has reported an Underlying Loss Before Tax of a massive $646 million and says the result is driven by the cumulative impact of two years of industry capacity growth ahead of demand, a $566 million decline in FY14 revenue, and by record Australian dollar fuel costs of $4.5 billion - up $253 million from FY13.

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In a statement, Qantas says it is driving an earnings recovery in response and de-leveraging the Group’s balance sheet "to shape a profitable future and build long-term shareholder value".

The national carreier is already cutting 5,000 jobs over the next three years to try to rein in costs.

Alan Joyce's statement

Qantas Chief Executive Alan Joyce has issued a statement outlining the reasons behind the airline's shocking loss, saying the worst days are over for the carrier.

"We still have more to do but we have come through the worst," Mr Joyce has said, emphasising that the airline is focussed on creating better customer experiences. "While we are aggressively cutting our costs we are creating even better experiences for our customers, because our customers are at the heart of everything we do at Qantas."

Opinion: Qantas must change or crash

Below are the highlights.

  • Both our Qantas Domestic and Jetstar Domestic businesses were profitable over the year - in all likelihood, the only profitable airlines in the domestic market - in a year of unprecedented competitive pressure. Group Domestic earnings were just below $50 million.

  • Revenue declined relative to the prior year, due to a second consecutive year of market capacity growth well ahead of demand.

  • Both airlines delivered unit cost improvements, offsetting some of the revenue decline and higher fuel costs.
    "While we are aggressively cutting our costs we are creating even better experiences for our customers, because our customers are at the heart of everything we do at Qantas."
  • Qantas International is transforming at speed, with $400 million of costs removed over the past two years. However, these achievements were offset over the same period by revenue decline, again due to competitor capacity growth running well ahead of demand, and fuel cost increases.

  • The Jetstar Group delivered a two per cent unit cost improvement and business fundamentals remained strong.However, due to competitive intensity and capacity oversupply in Australia and South East Asia, yields were adversely affected.

  • Qantas Loyalty recorded its fifth straight year of double-digit earnings growth - another record result in a great business.

  • The Group finished the year with a strong cash position of $3 billion, a decrease in debt, and total liquidity of $3.6 billion.
    "We still have more to do but we have come through the worst. We anticipate a rapid improvement in the group’s financial performance."

  • With two recent landmark bond issuances totalling $700 million, the Group’s debt maturity profile has been significantly extended, with no major unsecured re-financing required before April 2016.

  • The Group also reported an operating cash flow of $1.1 billion, leading to a neutral free cash flow result, despite the significant costs associated with Qantas Transformation over the period.

Joyce's turbulent reign

Mr Joyce has been battling to rectify bad management decisions made over the past 15 years.

While some unions are calling for Mr Joyce's head, analysts have been almost unanimous in their support for the transformation program, which involves 250 projects that will deliver cost savings of $2 billion.

Alan Joyce.

Observers say Qantas' financial challenges cannot be compared with Ansett Airlines, which collapsed in 2001.

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They point out the national airline has more than $2.5 billion in cash and has been paying down debt.

Qantas is about to roll out a new business class seat with a lie-flat bed for domestic and regional Asian flights on its A330s.