The airline reported in a press release on the Qantas Group's full-year 2020 financial results (read below) that international flights are unlikely to resume before July 2021. For the financial year that ended in June, the airline announced an AUS$ 2.7 billion loss and a 91 percent decrease in profit for the 12 months ended 30 June 2020.
FINANCIAL Performance of QANTAS Company FY20- Handling EXCEPTIONAL CONDITIONS
For the 12 months ended 30 June 2020, the Qantas Group posted a $124 million Underlying Profit Before Tax, down 91 percent on the previous year, in what was the most difficult time in its long history.
This represents a strong first half of the year, followed by a near-total fall in travel demand and a $4 billion decline in sales in the second half due to the COVID-19 crisis and related border restrictions ($771 million Underlying Profit Before Tax).
Quick action to dramatically cut costs and bring most of the flying company into a sort of hibernation helped to mitigate the financial effect of this remarkable series of events. Group sales dropped 82 percent from April to the end of June, while cash expenses were reduced by 75 percent, helping to minimize the decline in Underlying Profit Before Tax in 2H20 to $1.2 billion.
The Company announced a $2.7 billion Loss Before Tax at the statutory level, mostly due to a $1.4 billion non-cash write-down of assets like the A380 fleet and $642 million in one-off redundancy and other expenditures as part of restructuring the recovery sector.
The Group remains well-positioned to take advantage of the eventual return of domestic and, eventually, foreign travel demand amid considerable uncertainty in most markets. In the meantime, Qantas Freight and Qantas Loyalty continue to produce considerable cash flow and are performing well in charter operations for the resource business.
Alan Joyce, CEO of the Qantas Company, claimed that the second half of FY20 was the toughest collection of conditions faced by the national carrier in its 100 years, but that it had the stamina to cope with them.
"There is a strong effect of COVID on all airlines. It is catastrophic, and for many, it will be a matter of survival. What makes Qantas different is that, with a solid balance sheet, we joined this crisis and acted rapidly to place ourselves in a good position to wait for the recovery.
In the past few months, we've had to make some really difficult choices to guarantee our future. At least 6,000 of our employees are going to leave the organization by no fault of their own, and for a long time, thousands more are going to stand down.
"It'll take time to heal and it'll be choppy. We have had setbacks already with the opening of borders and then closing again. But we do understand that travel is at the top of the wish lists of people and that demand will return as soon as restrictions grow. That means that we can get back more of our people to work.
COVID is changing the business environment and that provides us with a combination of obstacles and possibilities. Many airlines are going to be much slimmer during this crisis, which means we have to rethink how we run parts of our business in order to survive in a changed market.
The FY20 outcome showed how the COVID crisis had ruined what would have been a good financial success, Mr. Joyce said.
When this crisis hit, we were on course for another profit above $1 billion. The fact that we still delivered an underlying full-year profit illustrates how fast we changed as sales plummeted.
In the fourth quarter, the profit of Qantas Loyalty decreased by less than 10 percent and member satisfaction improved, which shows the intensity of that company. The change to people shopping online has been a big beneficiary of Qantas Freight and our charter flying for resource companies is solid.
COVID will continue to have a significant effect on our business, and in FY21 we expect a considerable underlying loss.
We are in a strong spot, looking further forward, to ride out this storm and make the most of the recovery. "As the only Australian airline with full service and low domestic fares, as well as long-haul international services, our market position is set to strengthen," added Mr Joyce.
In the first half, Group Domestic's very good results more than offset the 50 per cent decrease in revenue in the second half caused by COVID-related restrictions.
Qantas Domestic achieved an EBIT of $173 million while the domestic flight of Jetstar achieved an EBIT of $112 million, including the absorption of an industrial action effect of $33 million during the peak summer period.
In responding to cascading domestic border constraints, both Qantas and Jetstar demonstrated high levels of adaptability-cutting costs and optimizing restricted revenue opportunities. This included the introduction of new Qantas routes, such as Sydney to Ballina and Orange, and the redeployment of A320s to meet demand in Western Australia for the resource sector.
Some 150,000 fares were sold in a three-day Jetstar sale in June, hitting a record rate of 220 bookings per minute, highlighting the latent appetite for travel when borders re-open.
As the Group's primary domestic competitor dramatically reduces its fleet and closes its low-cost carrier, the Group expects its market share to increase naturally as the market recovers from about 60 percent to up to 70 percent.
INTERNATIONALGROUP
For the year, Qantas International made a profit of $56 million, powered primarily by a record output by Qantas Freight and a massive rise in e-commerce.
Daily scheduled international flights to cities including Hong Kong, London, Los Angles, Lima, Buenos Aires and Mumbai were effectively terminated by the Group in April, replaced by over 100 services run by Qantas on behalf of the Federal Government.
Foreign companies at Jetstar have moved into losses driven by border closures. Domestic flying in New Zealand was expected to return to near-full capacity by the end of August, but given changing restrictions, it remains versatile.
Jetstar Asia is reducing its fleet and employees by over 25 per cent in Singapore. Local lockdowns affected Jetstar Japan, but in July all domestic routes were restored and 75 per cent of pre-COVID capacity is expected to operate in August.
The Group revealed its intention to withdraw from Jetstar Pacific in Vietnam in June, of which it is a 30% shareholder.
The largest single positive contribution to the Group's FY20 earnings and just 9 percent lower than its performance last year, Qantas Loyalty generated an underlying EBIT of $341 million. Lower earnings from travel-related goods and a softening of consumer credit card spending were the key reasons for this fall.
Membership of the Overall Frequent Flyer increased by 4% and membership of the Qantas Business Rewards scheme (aimed at small businesses) increased by 20%.
Frequent Flyer member satisfaction set a quarterly high in Q4, amid limited opportunities to redeem points for flying. This is supported by engagement initiatives including the automatic 12-month extension of tier status; more opportunities to earn points on the ground, including with BP fuel (with more than 500,000 subscribers to this part of the program) and Afterpay (with 55,000 subscribers signing up to earn in the first four weeks); and a significant increase in domestic flight reward seats.
Loyalty's profits continued to be diversified through other emerging firms, including grocery, health insurance and auto insurance.
SUPPORT OF GOVERNMENT
The Group recognizes the substantial industry assistance given in response to COVID by the Federal Government, demonstrating the importance of aviation to the wider economy.
The Qantas Group received $267 million in JobKeeper compensation as one of the most highly affected firms, the bulk of which was paid directly to workers on stand-down and the remainder used to subsidize salaries of those still employed.
On behalf of the Federal Government, Qantas and Jetstar conducted a number of domestic, regional and international flights, as well as some freight services, in order to retain vital connections that had been rendered economically unviable by travel restrictions. Those flights were run on a fee-for-service basis, with the expense to the taxpayer being covered by fare revenue.
To 30 June 2020, the total gross benefit of SUPPORT OF GOVERNMENT was $515 million and the net benefit (after costs for flights operated) was $15 million.
The existence of the ongoing assistance from the industry means that the extent of help obtained in FY21 will depend on the amount of flying activity.
SUPPORTING our clients
During the year, a range of customer programs were implemented, including:
- The Fly Well program has been launched with a number of initiatives (including masks, hand sanitising stations, inflight service modifications) to ensure a safe travel environment and provide extra peace of mind.
- With new bookings, customers were given the option of transferring flights without any changes or cancellation fees.
- The versatility of travel credits and the availability of refunds has been greatly improved.
Sustaining our people
The Organization has put in place a number of support structures in recognition of the important effect of the COVID crisis on its members, including:
- Working with other businesses to associate people with secondary job opportunities to stand down.
- Offering a suite of mechanisms for assistance, including financial guidance and psychological support.
- To send updates and answer live questions, run weekly virtual town hall meetings.
- Providing voluntary redundancy (rather than mandatory) where possible and, in particular, providing substantial severance payouts for long-serving workers.
FINANCIAL System Facility
At 30 June 2020, the available liquidity of the Company was $4.5 billion, including $1 billion of undrawn facilities.
Via a completely underwritten institutional placement and retail Share Purchase Strategy, the Company successfully raised more than $1.4 billion.
Net debt was $4.7 billion as of 30 June 2020 and remains at the lower end of the goal range. Until June 2021, the Company has no big debt maturities and no debt financial covenants.
In the second half, net capital expenditure expected was decreased by $400 million, for a total of $1.6 billion for FY20. With the deferral of 787-9 and A321neo deliveries to satisfy the Group's requirements, major further reductions are expected in FY21.
The fuel consumption of the Company was completely hedged for the second half of the FY20 and 90% hedged for the first half of the FY21 with a large share of falling rates. The Group acknowledged $571 million of de-designated hedge losses in the FY20 statutory result, given the substantial decrease in flying activity from April 2020 and the expected decrease in fuel consumption in FY21.
Check ON PLAN FOR RECOVERY
The three-year recovery plan, announced in June 2020, is well underway to be implemented. A better forum for future profitability, long-term shareholder value and the preservation of as many jobs as possible would be provided by the initiative.
Many main components of the strategy are complete or in progress, including:
- With ongoing union consultation, nearly 4,000 out of at least 6,000 redundancies are projected to be finalized by the end of September 2020.
- Around 20,000 workers are regularly standing down, allowing the retention of key skills before work resumes.
- Early withdrawal of the Boeing 747 fleet and over 100 aircraft in storage now (in a state that significantly reduces the need for ongoing maintenance).
- In addition to the $1.75 billion of long-term debt financing received during the second half of FY20, it raised $1.4 billion in equity.
The plan targets $15 billion in benefits from reduced operation over three years, with $1 billion per year in continuing cost savings from FY23 through Group-wide productivity gains.
It is not anticipated that recent developments in Victoria and the reimposition of certain border controls in other parts of Australia would have a material effect on the execution of the three-year plan.
Given the uncertainty regarding border restrictions and travel demand, the Group's recovery plan allows for a high degree of flexibility, while also understanding the vital importance of air transport to the Australian economy. At this point, main assumptions and indicators include:
- Given current border restrictions, 20 percent of the domestic capacity of the pre-COVID Community is scheduled for August.
- Recent sales behavior, when restrictions are relaxed, indicates high levels of latent travel demand.
INTERNATIONALGROUP
- It is doubtful that the international network will restart before July 2021; for Trans Tasman, maybe sooner.
- The high cash flow contribution in FY21 is expected to continue.
- Domestic travel recovery is an opportunity to improve award seats and sustain member participation.
- The ability to win points on the ground is actively rising, but this is related to wider levels of consumer trust.
- Due to e-commerce growth, domestic demand is expected to remain high.
- It was anticipated that strong international freight demand would continue, but not at the peak levels seen in 4Q20.
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