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A Qantas plane - Source: ONE News -
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Qantas Airways Ltd is taking a razor to its cost base as it continues to battle the economic downturn that caused its annual profit to plunge 88%.
Despite revealing a $AU117 million net profit for the 12 months to June, a fall from $AU969 million in the prior year, shares in Qantas surged 3.46% to close at $AU2.69 on Wednesday.
"When most airlines are reporting losses, Qantas is reporting a profit," CEO Alan Joyce said.
Joyce also announced plans to cut costs by $AU1.5 billion over the next three years, starting with a target of $AU500 million this financial year.
"There has never been a more volatile and challenging time for the world's aviation industry," he said.
Key components of the cost cutting plan include reconfiguring aircraft, including the superjumbo A380, technology advancements and fuel conservation.
Qantas is not planning further staff cuts , but much depends on the external environment.
"There is a huge amount of uncertainty out there in both the positive and potentially in the negative direction...and consequently Qantas has to be adaptable," Joyce said.
Qantas has culled 1,840 full-time equivalent management and operational staff positions over the past 12 months, which it said were not needed due to capacity cuts.
Joyce said Qantas would not pay out a final dividend and would not yet provide any profit guidance for 2009/10.
"Yields have stabilised to where they were in the second half of last financial year," he said.
"Demand is ahead of the capacity reduction that's taken place, but in terms of outlook, that's as far as we're going to go.
"There continues to be a lot of uncertainty."
Competitive activity was still "intense" and there was still a lot of capacity being added to the market, he said.
A year of two halves
Joyce said 2008/09 was a year of contrasting halves, with the first half characterised by a generally favourable operating environment and strong demand.
In the second half, the environment deteriorated as competitors continued to lift capacity, while demand softened quickly as the global slowdown hit, he said.
This was compounded by swine flu, industrial action, and costs associated with introducing the A380.
The flag carrier's full year pre-tax profit came in at the top end of the company's guidance range at $AU181 million, a slump of 87% on the previous year.
It posted a pre-tax loss of $AU107 million in the second half, after reporting a pre-tax profit of $AU288 million in the first half to December 31.
Qantas's budget offshoot, Jetstar, and loyalty programme helped keep the airline out of the red in 2008/09.
The Qantas-branded carrier posted a full year pre-tax loss of $AU77 million, while budget conscious travellers helped Jetstar post a pre-tax profit of $AU126 million.
The frequent flyer business posted a full year pre-tax profit of $AU310 million.
Joyce said Qantas would not sell its frequent flyer programme, given the strategic value of the business to the group.
Qantas has over 65% of Australia's domestic air-travel market, compared with about 30% for Virgin Blue Holdings Ltd.
IG Markets analyst Cameron Peacock said the most challenging times may be behind Qantas.
"While on the face of it an 88% decline in profits sounds terrible, Qantas is profitable, which is more than a lot of airlines can say," Peacock said.
"With a view that the industry's most challenging times are behind it, Qantas is well leveraged to a rebound in economic activity."
Shaw Stockbroking senior dealer Jamie Spiteri said there was almost a sense of relief that there were no big shocks in the Qantas result.
"While the headline numbers don't look too good, in comparison to what some of the more negative expectations were out there it's not as bad."
