There are some painful numbers in this morning’s hastily released Qantas half yearly results statement.
Profits are down as expected, to a PBT for the group of $288 million, but all of the critical costs in the six months are up by double-digit figures , and the first half fully franked dividend has been sliced to 6 cents per ordinary share, one third of the payout in the previous corresponding half.
Worse still, the results cover the period that ended just before the clear signs of a sharp world wide drop in air travel appeared after the New Year.
And this time the finance media can’t be briefed simultaneously with the release of the results by the Qantas CEO, because Alan Joyce remains overseas and will not be available until later this afternoon.
Qantas had scheduled the results release for 19 February, but had to choose a more immediate disclosure after the ASX queried it on a 6.5% drop in the share price on Monday.
This lead to a two-day trading halt pending the details of a $500 million equity raising offer separately announced today.
The previous profit guidance, of a full year PBT of around $500 million remains unchanged, compared to a record $1.4 billion result in the year ending last 30th of June.
That guidance as Joyce is likely to confirm later today is hostage to many variables in demand, currencies, fuel and new aircraft commitments, as well as competitive pressures from two new entrants on the Pacific routes, and the recession strategies of Singapore Airlines, Emirates and Etihad.
There is no rational basis for optimism about any of them.
The figures released this morning show that the Qantas group, excluding Jetstar, dropped its PBT by 76.2% to $199 million in the six months even after including an $86 million profit from the sale of its Qantas Holidays wholesaling division.
Jetstar fared comparatively better. Its PBT for the period was down by only 48.2% to $72 million.
There is a sharp back hander to the Dixon legacy too in the note about variable costs in aircraft operations.
It says these costs increased 13.7%, “reflecting increases across all categories, particularly in engineering heavy maintenance as the Group focused on reducing maintenance backlogs and improving on-time performance”.
Before his retirement as CEO Dixon conceded that the Qantas brand was harmed by maintenance issues. They were driven by the neglect or deferral of maintenance that become the subject of an unfavourable special audit of Qantas by CASA.
At least under Joyce the group seems to be acknowledging that aircraft must be maintained in a timely manner.
Less clear is the reasoning for the $500 million equity raising offer. Qantas still has a very strong balance sheet. There is an acknowledged merit in taking on more equity now in case this becomes far harder during the remaining years of the global financial crisis.
But is there something else Qantas could use $500 million for in the immediate future? Such as ‘tidying up’ the New Zealand market, where Air New Zealand seems at potential risk, or in some way reorganising the affairs of Jetstar Asia (Singapore) and Jetstar Pacific (Vietnam) to lessen the group’s exposure to a cross border low cost airline franchise that isn’t performing as well as originally hoped?
Answers to such questions are awaited.
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