While the pollies whine:
Markets gain, from Mac Bank:
- Qantas reported its FY14 result today, delivering an underlying loss of -$646m vs. consensus of -$780m (MRE -$753m) and a statutory loss of -$2.8bn, driven by a writedown of the international fleet of $2.5bn. This is likely to be overlooked, in our view. The key elements to come out today are: 1) No sale of frequent flyer business; 2) A split of the business into discrete international and domestic vehicles, à la Virgin (VAH, Neutral, TP $0.40); and 3) outlook for 1H15 is for a return to underlying profit.
Impact
- Underlying loss lower than expected: We were expecting an underlying loss of -$753m and Qanats has delivered a loss of -$646m. There were two main reasons for this, on the costs side: lower depreciation expense as a result of the write-down of assets (QAN $1,422m vs. MRE $1,594) and staff costs lower than we had forecast (QAN $3,717m vs. MRE $4,087m); and on the revenue side, we expected marginally higher revenue (QAN $15,532m vs. MRE $15,509m)
- While the statutory loss was well above our expectations, driven by the impairment charge of $2.56bn in the international business. We had estimated an asset writedown of ~$100m based on the early retirement of fleet as part of the transformation program, so this number comes as a bit of a surprise. Management stated that this was due largely to widebody aircraft that were purchased when the AUD:USD was 0.68. The benefit here is that ongoing Depreciation expense will reduce by ~$200m.
- No sale of Frequent Flyer: Qantas confirmed that after careful consideration, it would not be selling its frequent flyer business as it continues to offer profitable growth opportunities.
- International and Domestic to be split: Following the partial repeal of the Qantas Sale Act, and as widely anticipated, Qantas has announced that it will establish a new holding structure and corporate entity for Qantas International.
- Cost-outs on track: Management provided further clarity on the current savings realised and the status as well as the detail of programs in work. While this was more of an update to what was provided at our conference in May, it should demonstrate to the market that Qantas is on track with its cost reduction plans.
- Outlook is positive: Qantas guided to a return to underlying profit in 1H15, due to a stabilisation in market capacity growth, a further $300m benefits from the transformation program to be realised in the half, as well as lower depreciation charges associated with the write-down of the fleet.
