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Qantas FY 10 hit a rough patch late

No wonder the Qantas board didn’t recommend a second half dividend before releasing today’s full year to June 30 financial results.

Using the underlying profitability definitions now in their second year of use by the Qantas Group, it only made an underlying PBT of $17 million in the six months to the end of June from its flying operations, out of a total underlying PBT of $377 million for the 12 months, which includes a $46 million hit from the net effects of the six days volcanic ash shutdown of European air space in April.

Under questioning Qantas CEO Alan Joyce acknowledged ‘softness’ in the leisure market in the last quarter of the financial year, which it might be noted coincides with the drastic profit downgrade his former colleague, John Borghetti, declared soon after moving into the CEO’s big chair at Virgin Blue, which reports its results on August 26.

Pulling the figures apart, as has been done in the preceding post, Qantas domestic and international made a combined underlying PBT of $67 million for the full year, but only $7 million of that in the second half, while Jetstar’s figures were UPBT of $131 million for the full year but only UPBT of $10 million in the last half.

These figures are even more sobering in the light of otherwise good news from Joyce that the Qantas domestic operation achieved yields as good as those of financial year 2008, restoring it to its place as the most profitable main line domestic airline in the country in terms of the margins it is commanding in a business market showing strong signs of recovery to pre GFC levels.

Joyce said group yields remained, despite the positive growth of this financial year, some 11% lower than FY 08, which was not only before the GFC, but was the all time record year for the group with earnings of $1.408 billion in profit before tax statutory earnings, back in the days before the underlying earnings metric was embraced by the management team that took over from Geoff Dixon as CEO and Peter Gregg as CFO.

The overwhelming contribution, of $328 million UPBT, to the underlying profitability of Qantas came not from flying, but selling frequent flyer points to third parties looking for halo marketing inducements, and redemptions by flyers who part paid for their rewards in cash.

Here is a reminder, courtesy of the ASX filings this morning, of the statutory earnings which the exchange insists on, in its old fashioned, stick in the mud way.

statSo, Qantas made $178 million PBT in FY10, or $3 million less than it did in FY09, and much, much less than the $1.408 billion in made in FY08, before fuel and then the GFC bit the airline sector so ferociously.

The board decided wisely in relation to no dividends this year for Qantas shareholders. The group finished the year with $3.7 billion in cash, and some bright shafts of sunlight shining on the prospects of continued recovery, but they only looked brighter because of the dark clouds of uncertainty that they fell between.

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  • 1
    Posted August 12, 2010 at 3:18 pm | Permalink

    So, I guess when we get to say “Told you so” to those who swallowed the Qantas “positive spin” media releases after VB released their profit downgrade? :)

    Between things going a bit quiet over the last 4-6 months and Tiger nipping around the bottom end, things will get very tough for Jetstar. Imagine how it’ll be if (sorry, when) AirAsia starts getting stuck into the domestic/Tasman flights…

  • 2
    spacedog
    Posted August 13, 2010 at 4:42 pm | Permalink

    Some creative – though perfectly legal – accounting has been a feature of Qantas’ financial results over the years, but the bringing forward of revenue and deferral of expenses usually comes back to bite a few years down the track. I can see further cost reduction pressures for both Qantas and Jetstar with a particular focus on employment costs. I suspect that the morale of Jetstar’s air and ground crews will soon dive even further, and may flow on to Qantas as well.

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