After the first three months of COVID-19's deep impact period which saw Qantas ground most of its flights and mothball its flagship Airbus A380s for years to come, the airline has taken a massive bottom-line hit to report a $2.7 billion loss – although just over half of that comes from a writing down the value of those A380s and other aircraft.
This overshadows a modest pre-tax profit of $124 million across the July 2019 - June 2020 financial year, which was bolstered by a solid 1H20 pre-tax profit of $771 million before the second half of the financial year saw a near-total collapse in travel demand, resulting in a $4 billion drop in revenue due to the pandemic and associated border restrictions.
"We were on track for another profit above $1 billion when this crisis struck," said Qantas Group CEO Alan Joyce in presenting the results this morning.
"COVID punched a $4 billion hole in our revenue... to put it simply, we’re an airline that can’t really fly to many places – at least for now."
Joyce described $1.4 billion fleet write-down as "a paper change to the value of our aircraft... including our A380 fleet, which reflects that these aircraft will be on the ground for years."
Another $600 million was chalked up "in redundancies and other items, as part of restructuring our business."
That restructuring is the first wave of a three-year recovery plan, announced in June 2020, which targets a $15 billion saving "over three years from reduced activity" and an additional $1 billion per year "in ongoing cost savings from FY23 through efficiency gains across the Group."
As expected, the largely non-flying airline leant heavily on its frequent flyer arm: Qantas Loyalty notched up $341 million in pre-tax earnings to make the largest single positive contribution to the FY20 books.
Qantas' outlook for the next 12 months
The 2020 financial year has "been shaped by extraordinary events that have made for the worst trading conditions in our 100 year history," Joyce added, and sets up an even more challenging 12 months to come.
Qantas predicts international flights are "unlikely to restart before July 2021," although trans-Tasman flights between Australia and New Zealand could be "possibly earlier."
On the domestic front, border restrictions continue to stifle demand, with only 20% of pre-COVID domestic capacity scheduled for August when the airline was shooting for 45% based on borders opening up.
"Just as we thought domestic flying was in recovery mode, we’ve been hit by another set of border closures," Joyce notes. "It shows how important it is to have a national framework for domestic borders, so that there is clarity and consistency."
However, Qantas and its low-cost arm Jetstar expect to see a domestic win due to the woes of Virgin Australia, which under new owners Bain Capital will downsize its domestic operations and close the budget Tigerair arm, with combined market share expected to grow "from around 60 per cent to up to 70 per cent as the market recovers."
And with Virgin scuppering its Boeing 777 fleet, "we’ll be the only Australian airline that can fly long haul," Joyce added.
Joyce also reiterated his support for the non-stop Project Sunrise flights from Sydney and Melbourne to New York, London and Paris, saying that once the balance sheet is back in shape, the airline will "pick up where we left off with Project Sunrise."