Qantas result: flying into the red

Company reports first loss since listing 17 years ago

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 23, 2012 11:38 am AEST

Qantas Airways Limited (ASX: QAN) has today announced its first loss since listing on the Australian stock exchange in 1995. The company reported a net loss of $244m, mainly thanks to $376m in impairments, redundancies and restructuring in its International division. The 2011 industrial disputes with its pilots and engineers cost the company $194m, while the company's fuel bill increased by 18% to $4.3bn.

Revenues rose 6% to $15.7bn, but operating expenses (excluding fuel) rose 5% to $9.2bn. Net finance costs rose to $170m, as the company increased its net debt (on and off balance sheet) by 8% to $7.5bn.

Qantas has announced that it has cancelled orders for 35 Boeing 787s, which will result in a reduction in capital expenditure of US$8.5bn – at list prices (although airlines hardly ever pay list prices, as they receive discounts from the aircraft manufacturers).

Yet again Qantas Frequent Flyer was the best performing part of the business, contributing $231m to a total underlying earnings before interest and tax (EBIT) of $265m, before corporate costs.

Jetstar also performed well, contributing $203m in underlying EBIT.

Going forward the company's strategy is to turnaround its loss-making International business, expand Jetstar's growth throughout Asia and maintain its Australian domestic market share of 65%.

Virgin Australia Holdings (ASX: VAH) has been pushing hard to win corporate customers away from Qantas, and the two are regularly trading blows over high profile customer account wins. Just yesterday, the Australian Financial Review reported that Qantas had won back NBN Co and Accenture accounts, believed to be worth a combined $10m in revenue.

In a press conference today, CEO Alan Joyce also suggested that the company was looking at divesting a number of non-core assets including its 29% stake in underperforming Jetset Travelworld (ASX: JET).

The Foolish bottom line

Airlines are notoriously bad investments – in aggregate airlines globally lose billions most years. These moves by Qantas may be well intentioned, but the results are unlikely to be a spectacular turn-around in its fortunes.

Investors would be better off considering an investment in Sydney Airports Limited (ASX: SYD), or Australian Infrastructure Fund (ASX: AIX) which have many of the airlines' benefits, with far less risk.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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