When Qantas chief executive Alan Joyce steps to the podium to deliver what many tip to be a huge full year loss, the focus won’t be so much on the the number itself.
Rather, attention will instead be on any new initiatives to support Australia’s largest airline group’s return to profitability, as well as a progress update on the transformation plan announced in February when Qantas said it would cut 5,000 jobs and reduce costs by $2 billion between now and 2017.
“The market is likely to focus on speed of cost savings and evidence these cost savings are being retained rather than passed-through to lower fares,” CBA Institutional Equities analysts Matt Crowe and Vana Makaric said in a research noted dated July 25.
“We will be looking for an update on possible transactions relating to QFF [Qantas Frequent Flyer], Jetstar or airport terminals, as well as the possible split of domestic and international businesses.
“Silence on these issues is likely to disappoint.”
Qantas was expected to report a statutory net loss of $828 million for the 12 months to June 30 2014, according to a median of five analysts’ estimates compiled by Australian Aviation, compared with net profit after tax of $5 million in the 2012-13 financial year.
In terms of underlying profit before tax, which the airline regards as the best indication of its financial performance, analysts tipped a loss of $770 million for 2013/14, compared with underlying profit before tax of $192 million in the prior year.
Speculation in recent months has focused on the sale or partial float of the frequent flyer business and/or low-cost subsidiary Jetstar, as well as further cuts to Qantas’s international route network.
Qantas chief financial officer Gareth Evans told an aviation conference earlier this month some $1 billion of the $2 billion planned cost reductions over the next three years would come from the the airline’s international operations.
Separately, media reports in the lead up to Thursday’s announcement suggested Qantas management had decided not to conduct a partial sale of the airline’s frequent flyer program.
The company said on August 21 it did not comment on speculation about the float or sale of Qantas Loyalty.
“A decision on Qantas Loyalty has not been made,” Qantas said in a statement to the Australian Securities Exchange.
Forecasts suggest the sale of Qantas Loyalty, the business unit which includes Qantas Frequent Flyer and which is one of the best-performing at the airline, could fetch up to $2.5 billion.
However, analysts were lukewarm on the idea.
“We continue to advocate the retention of the Loyalty business given its importance to the overall QAN customer proposition,” CIMB analysts Mark Williams and Alexander Lu said in a research note dated August 5.
“However, a partial sale or demerger announcement would likely be a positive short-term share price catalyst.”
The market was also looking for any update on Qantas’s discussions with Sydney Airport over the lease of its domestic terminal, which expires in 2019.
Sydney Airport chief executive Kerrie Mather said last week there was little to report on the progress of talks between the airport and the airline.
“We are in ongoing discussions with Qantas around that, but there’s really no material update,” Mather said during Sydney Airport’s results presentation on August 21.
In terms of market conditions, both Qantas and rival Virgin Australia appeared to be pulling back on capacity growth at the start of 2014/15 – Qantas has flagged zero capacity growth in the local market during the three months to September, while Virgin has swapped some A330 services from Brisbane to Perth with smaller 737 aircraft.
“We note the carriers are indicating a pull back of capacity,” Deutsche Bank analyst Cameron McDonald and Entcho Raykovski said in a research note dated August 1.
“However, we remain cautious given that it will still take time for yield pressures to ease as we continue to believe there is excess capacity in the market.”
Virgin Australia releases its 2013/14 results on Friday. The airline is also expected to be in the red.
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