Qantas CEO Alan Joyce says he will unveil restructuring plans for the longer term future of Qantas’s international operations on August 24 after revealing today that the airline’s international division will make a $200 million loss for the current financial year.
“In FY11, Qantas International is forecast to generate a loss before interest and tax of approximately $200 million, on invested capital of over $5 billion, with a weaker result expected next year,” Joyce said in a statement issued this morning.
“Qantas International is the Group’s weakest business – it has achieved required returns only three times in the past 15 years. Clearly the situation is not sustainable. However, we are developing a long term strategy aimed at restoring competitiveness and profitability.”
In a lunchtime speech to the National Press Club in Canberra, Joyce flagged an increasing reliance on alliance relationships, new operations in Asia, and cuts to “non-performing and unsustainable parts of the international business” as key planks in the new strategy for Qantas International.
“We will make the tough decisions,” Joyce warned.
Without elaborating, Joyce said Qantas would “be establishing a platform for future success” in Asia, perhaps eluding to rumoured plans of setting up a new long haul full service airline in Singapore.
As for alliance relationships, including Qantas’s oneworld membership, “We will be taking these relationships to the next level, including the joint venture level”, Joyce said, highlighting Qantas’s alliance partnership with British Airways as a model for future alliance arrangements.
Echoing Rod Eddington’s famous observation of Ansett more than a decade ago, Joyce said that “Qantas International is a great airline, but currently it is a poor business.”
He said the Qantas International of the future would, “instead of being restricted to an Australian-based international airline, … will be participating in major regional opportunities, and in the world beyond.”
Said Joyce, “We will be taking Qantas know-how on the global road, leveraging our excellence in brand management, aviation safety, finance, marketing, product and service, and our culture of innovation, to find new sources of revenue and profit.”
In the nearer term, Qantas says for the current financial year about to end on June 30 that it will record an underlying profit before tax in the range of $500-550 million, up more than a third on the 2009-10 financial year’s result.
That result will come despite significant natural disasters impacting the bottom line, and after a $93 million settlement with Rolls-Royce over the QF32 engine explosion incident last November, which was finalised today.
Joyce said the impact from the Chile volcano disruptions through to June 20 was estimated at $21 million, with the Japanese earthquake and tsunami having a $72 million impact, a $95 million impact from the Queensland floods and cyclones, and an $11 million impact from the Christchurch earthquake.
Joyce said the repairs to the A380 involved in the QF32 incident, VH-OQA Nancy-Bird Walton, would cost around $135 million and be covered by insurance, with the aircraft not expected to return to service until February 2012.
In comparison to Qantas International, “Our Qantas Domestic airline is performing very strongly, with a profit which covers its cost of capital,” Joyce said, while “Jetstar is making a strong profit. It is a high growth business. And it has massive potential across all of its markets.”