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By Jane Wardell
SYDNEY, Aug 28 (Reuters) - Qantas Airways Ltd reported its biggest ever financial loss on Thursday after writing a hefty A$2.6 billion ($2.4 billion) off the value of its fleet due to a company restructure.
Australia’s national flag carrier attempted to reassure investors after a turbulent few years, saying the worst was now behind it and that it expected a return to underlying profit growth in the first half of the current financial year.
The so-called ‘Flying Kangaroo’ has been bruised by high fuel costs, a strong Australian dollar, increasing international competition and a domestic price war with arch-rival Virgin Australia Holdings. It also says it is handicapped by government laws restricting its access to foreign funding.
“There is no doubt today’s numbers are confronting, but they represent the year that is past,” Chief Executive Alan Joyce said in a statement. “We have now come through the worst.”
Despite an investor push for major asset sales, Qantas said it had no plans to spin-off its profitable Frequent Flyer loyalty scheme, which analysts value at up to A$2.5 billion.
The sizeable writedown gave the carrier an unprecedented A$2.8 billion net loss for the year ended June 30, compared with a restated net profit of A$2 million a year earlier.
That overshadowed a better-than-expected underlying loss before tax of A$646 million, compared with a restated A$186 million profit a year earlier. Analysts had on average anticipated an underlying loss around A$750-770 million.
Chief Executive Joyce said there was a “clear and significant” easing of both international and domestic capacity growth, which would stabilise the revenue environment.
Qantas and Virgin Australia have waged war over the past year to boost or retain market share.
Analysts expect Virgin to post a A$250-270 million pre-tax loss when it reports earnings on Friday, with both airlines caught out by excess capacity in international markets and moves by international carriers to increase capacity into Australia.
In stark contrast, Air New Zealand Ltd, which owns around 26 percent of Virgin Australia, on Wednesday reported a 44 percent jump in annual net profit to NZ$262 million. The New Zealand flag carrier also said it planned to significantly grow capacity this year.
Qantas said a review of its Frequent Flyer loyalty program had concluded there was “insufficient justification” for a partial sale, with the division continuing to offer major growth opportunities for the company.
However, it said it had identified other potential asset sales, including airport terminals, property and land holdings. Any proceeds from such sales would be used to repay debt.
The fleet writedown was a result of the company’s move to establish a new holding structure that splits the group into four units: Qantas International, Qantas Domestic, Qantas Loyalty and Qantas Freight.
The $2.6 billion writedown was due to a restatement of the cost of aircraft purchased in the international division. (1 US dollar = 1.0714 Australian dollar) (Reporting By Jane Wardell; Editing by Diane Craft and Mark Bendeich)