Qantas Airways Ltd. has scrapped a $8.5-billion (U.S.) order for Boeing Co.'s state-of-the-art Dreamliner aircraft because of "lower growth requirements" and confirmed its first full-year net loss since it was privatized almost two decades ago.
The Australian flag carrier said on Thursday that it had cancelled "firm commitments" for 35 B787-9 aircraft and pushed back the potential delivery date for a further 50 planes by two years to 2016 as it focuses on reducing debt and strengthening its balance sheet against an "uncertain" outlook for the global economy.
"The B787 is an excellent aircraft and remains an important part of our future," said Alan Joyce, Qantas chief executive. "However, circumstances have changed significantly since our order several years ago. It is vital that we allocate capital carefully across the group."
Mr. Joyce said he could not offer any earnings guidance for the new financial year because of the "high degree of volatility and uncertainty in global economic conditions." But he said the airline was on course to return the international operations to profitability in three years and for its flying business to exceed its cost of capital over five years.
Qantas shares rose 2.6 per cent to $1.20 (Australian) in Sydney.
The fleet move came as Qantas reported a net loss of $244-million for the year to June, its first since the airline was fully privatized in 1995. The loss, which the carrier forecast in June, compares with a profit after tax of $250-million in the last financial year and reflects the costs of last year's industrial dispute, which culminated in the airline being grounded in October and in restructuring charges including redundancies.
Qantas recorded one-off charges totalling almost $400-million, in addition to $194-million in costs associated with the industrial dispute, while its fuel bill rose 18 per cent to a record $4.32-billion. Underlying profit before tax and exceptional charges fell to $95-million from $552-million in the prior year but was slightly ahead of analysts' expectations.
In common with other so-called "legacy airlines" such as Air France-KLM and International Airlines Group, the parent of British Airways PLC, Qantas has been hit by rising fuel costs, fierce competition on its international routes and weak demand in Europe because of the financial crisis. It recorded a loss of $450-million on an earnings-before-interest-and-tax basis on its overseas routes last year.
Mr. Joyce, who said this week that he would forgo his bonus and would not receive a pay raise this year, said the results marked an "inflection point" for the airline, which has been battered by competition from Chinese and Middle Eastern airlines that have lower cost bases.
"Due to the initiatives we announced last year we expect to see significant improvement going forward," he said.
As part of a radical transformation program, Qantas is separating its loss-making international business from its profitable domestic operations and cutting loss-making routes. It has also axed almost 3,000 staff, closed a maintenance base and reduced spending on new aircraft.
With the cancellation of its order for 35 B787s, Qantas will receive $433-million (U.S.) in refunds and compensation from Boeing because of long delays to the Dreamliner program.
Mr. Joyce declined to comment on talks with Dubai-based Emirates Airlines on a code-sharing agreement that analysts say would help reduce losses in the international business.
He said Qantas would boost capacity on its domestic routes by nine to 11 per cent this year in response to rising competition from Virgin Australia, to ensure Qantas maintained its "profit-maximizing 65 per cent" market share.
"As always we have flexibility to adjust capacity should conditions change," he said.