Qantas has suffered a massive $2.8 billion loss in the wake of the airline's profit-draining battle with rival Virgin and another poor performance from its international division.
The airline posted a net loss of $2.84 billion for the year to June 30, compared to a $1 million profit a year ago.
The result, announced this morning by under-pressure Qantas chief executive Alan Joyce, included a $2.6 billion write-down to the value of its international fleet, including its ageing Boeing 747s.
Despite the heavy loss, the airline said it would not sell its frequent flyer program and there would be no fresh staff cuts above the 5000 announced earlier this year.
Qantas said record Australian dollar fuel costs — a major factor in the profit result — caused its fuel bill to rise $253 million to $4.5 billion.
According to the company, a major part of the write-down relates to the decision to separate Qantas' domestic and international arms, with the international fleet now valued on a stand-alone basis.
Qantas International and Qantas Domestic businesses have been reported as separate segments since 2002.
However Mr Joyce said the company had decided to formally introduce a new holding structure and corporate entity for Qantas International in response to the Federal Government’s Qantas Sale Act.
“This will have no impact on the day-to-day operations, network or staffing at Qantas International. However, this structure increases the potential for future investment,” Mr Joyce said.
“It will create the long-term option for Qantas International to participate in partnership opportunities in the international aviation market, with a view to achieving further efficiencies and improved returns to shareholders.”
Mr Joyce said the rise in the Australian dollar as its international fleet aged had contributed to the $2.6 billion write-down.
“The international fleet was purchased when the value of the Australian dollar averaged 68 cents against the US dollar, and in the case of the B747s, 57 cents. Today the Australian dollar is trading at 93 cents,” said Mr Joyce.
“The value of these aircraft on our books has therefore been written down by $2.6 billion to their current market value.”
The company said that the underlying PBT result was driven by the cumulative impact of two years of industry capacity growth ahead of demand, leading to a $566 million decline in the past financial year’s revenue.
Qantas said it was driving “an earnings recovery and deleveraging the Group’s balance sheet to shape a profitable future and build long-term shareholder value.”
However, it said it expected an underlying profit in first half of 2015.
The $2 billion accelerated Qantas Transformation program announced in February is permanently reducing costs and laying the foundations for sustainable growth in earnings the airline said in a statement.
Transformation benefits are already flowing through with $440 million in FY14.
A further $900 million of accelerated transformation projects are in the implementation phase the airline said, with more than $600 million of benefits from these projects to be realised in FY15.
Unit costs were reduced by 3 per cent over the year, accelerating from a 2 per cent reduction in the first half to a 4 per cent reduction in the second half the airline said.
Qantas chief executive Alan Joyce said the underlying result had been foreshadowed at the Group’s half-year announcement in February.
“There is no doubt today’s numbers are confronting, but they represent the year that is past,” Mr Joyce said.
“We have now come through the worst. With our accelerated Qantas Transformation program we are already emerging as a leaner, more focused and more sustainable Qantas Group.
“There is a clear and significant easing of both international and domestic capacity growth, which will stabilise the revenue environment.
“We expect a rapid improvement in the Group’s financial performance – and a return to Underlying PBT profit in the first half of FY15, subject to factors outside our control.”
Significant one-off costs associated with Qantas Transformation are recognised in the statutory result, including restructuring and redundancies ($428 million) and primarily non-cash costs relating to early aircraft retirements ($394 million).
Of the 5000 redundancies announced in February, 2,500 have been implemented as at 28 August.