Qantas Airways (QAN)

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20 August 2020

Results 

Full Year 2020

Full Year 2019

Change

Revenue ($m)

14,257

17,966

-21%

Fuel Expense ($m)

2,895

3,846

-25%

Underlying Profit before Tax ($m)

124

1,326

-91%

Vuma Consensus ($m)

47

 

 

Significant Items ($m)

(2,832)

(134)

-

Statutory (Loss)/Profit after Tax ($m)

(1,964)

840

-

Final Dividend ($)

-

0.13

-

Qantas Airways (QAN) swings to loss on border closures and one-offs    

What happened?

  • Qantas (QAN) – Australia’s largest airline – has posted a massive $1.9bn FY20 loss for the 12 months to 30 June 2020. The underlying result was ahead of the market’s low expectations, slumping 91% to $124m. QAN previously guided to either breaking even or at best recording a small underlying profit before tax.
  • As expected, no dividend was declared by the airline. QAN last paid a dividend in September 2019. 

Why did it happen?

  • While the first half of the year was encouraging, the coronavirus pandemic brought travel to a standstill. Revenue slumped by 92% between April and June. QAN estimated a $4bn impact on revenue due to COVID-19 and border closures over the second half. 
  • The $1.9bn loss was largely a result of $2.8bn in significant items. This included asset impairments (a $1.4bn reduction in the value of its A380 fleet) and $642m linked to redundancies and restructuring during the pandemic.
  • Interestingly due to travel restrictions, it was Qantas’ Loyalty business that was by far the largest contributor to underlying profits ($341m) rather than its airline businesses. Over the year, QAN announced Afterpay and BP fuel partnerships. Across its other divisions, Qantas Domestic generated $173m in profits while Qantas International just $56m. Jetstar posted an underlying loss of $26m. 
  • Underlying EBIT for the Qantas Domestic business slumped by 78% over the year due largely to Government directed state border closures which obviously weighed heavily on travel from April and is likely to continue to do so. 
  • Qantas International was hit extremely hard by the pandemic, with underlying EBIT slumping by 83%. While the performance of its Freight business was encouraging, with revenue up 8% over the year, it accounted for less than 10% of the Group’s total revenue.
  • While the airline has no control over travel restrictions, it has taken significant action to reduce costs. It stood down around 20,000 employees and sadly expects 4,000 of at least 6,000 redundancies to be finalised by the end of September. The grounding of planes has also saved the company close to $1bn in fuel costs. 

Where to now?

  • Looking ahead, there was a lack of commentary relating to its FY21 outlook. The recovery journey for Qantas, other airlines and the broader travel industry continues to look uncertain. The future is closely tied to coronavirus outcomes and the reopening of domestic borders firstly and eventually the recommencement of international tourism, which will certainly be a more drawn out affair. Even with the eventual reopening of international borders, it is expected to take some years before capacity returns to pre-COVID levels. This is likely to result in a greater reliance on domestic travel for a time. 

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