Qantas Warns of Loss

The Qantas Group has said it expects to report an underlying profit before tax (PBT) in the range of $50-$100 million for the financial year ending 30 June 2012.

Qantas International is expected to report an earnings before interest and tax (EBIT) loss of over $450 million in 2011/12 compared with $216 million in 2010/11.

In the domestic market, both Qantas and Jetstar will deliver improved results compared to the previous year and combined the two flying brands will deliver an EBIT of over $600 million. This strong result is despite industrial action, record fuel costs and aggressive competitor capacity increases.

As a result of the weakening revenue environment, group yield (excluding foreign exchange) for the second half of 2011/12 is expected to increase by 0.5% to 1.0% which is down on the previous estimate of 1.5% to 2.5%. Also included in the 2011/12 forecast is the impact of declining bond yields since mid-March 2012, which has had an adverse non-cash effect of approximately $50 million on certain provisions. Group underlying fuel costs are expected to reach $4.4 billion, an increase of approximately $700 million on the prior year.

Qantas Group CEO Alan Joyce said this tough and worsening environment reinforced the importance of the Qantas International five-year transformation plan announced in August 2011.

“While there are one-off costs associated with the transformation program – in the range of $370-$380 million for the full year 2011/12 more than half of which are non-cash items – these costs will be outweighed by the long-term benefits of increased efficiency and competitiveness,” said Mr. Joyce. “We continue to practice disciplined financial management. We have announced capital expenditure reductions totalling $900 million for 2012/13, bringing the total for the year down to $1.9 billion. Capital expenditure in 2013/14 will be at this level or lower. We remain focused on returning Qantas International to profitability in 2014 and for Qantas International and Domestic combined to exceed their cost of capital on a sustainable basis within five years of August 2011.”

Mr Joyce said that with a cash balance of more than $3 billion, an undrawn standby facility of $300 million, 16 new unencumbered A320/B737 aircraft added to the balance sheet in the past two years and the flexibility to reinstate or further reduce capital investment as appropriate, the Qantas Group remains in a strong funding position.

“The Group has funding in place for the majority of its 2012/13 aircraft deliveries and intends to fund the remainder of its future capital commitments from operating cashflow, cash reserves and available debt,” he said.

The International Air Transport Association has downgraded its forecast for airline profits in 2012 to $3 billion, a margin of just 0.5%, and has said that a further economic downturn could see a net loss for the sector.

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