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Australia's national flag carrier, Qantas, has shocked the local market by recording a loss of 2.8 billion Australian dollars (2.6 billion U.S. dollars), around three times worse than expected.
The loss, announced on Thursday morning, represents a significant downturn in the company's performance. Last year, the company posted 1 million AUD in profit last year.
Analysts had expected the airline to report an underlying pre- tax loss of about 750 million - making the airline's miss one of the worst this reporting season - but had not expected the airline would take such heavy writedowns on its fleet.
Excluding one-off costs and writedowns, Qantas posted an underlying loss before tax of 646 million Australian dollars, which was also more than 100 million Australian dollars worse than the 532 million dollars most analysts expected.
The underlying loss reflects the fact that the airline's poor performance was not solely due to writedowns, with its revenue falling 3 per cent to 15.35 billion Australian dollars last financial year and the airline continuing to bemoan rising fuel costs - up 253 million to 4.5 billion Australian dollars.
However, the big blow to the headline result was the 2.6 billion AUD non-cash writedown of the value of Qantas' international fleet, as the company moves to split that unit into a new corporate entity that will be held by the main group.
The airline has decided to hold on to its frequent flyer program, as expected, but will form a new holding company that will allow its international business to participate in future consolidation opportunities.
Qantas chief executive Alan Joyce admitted Thursday that the figures were "confronting", but he was putting on a brave face in telling the market and shareholders that the worst was over.
"There is no doubt today's numbers are confronting, but they represent the year that was past," Joyce said. "We have now come through the worst. There is a clear and significant easing of both international and domestic capacity growth."
Joyce said Qantas was expected to return to an underlying profit before tax in the first half of the financial year, subject to factors outside its control. The airline expects international capacity growth of 2.4 per cent in the first half and domestic growth of 1 per cent.
Qantas' cost savings, the lack of a carbon tax, steady fuel prices and reduced depreciation charges will help contribute to a better result in the first half, the airline said. Unit costs fell by 3 percent last year, including 4 percent in the second half.
As part of its structural review, Qantas has ruled out establishing any new Jetstar ventures while the company is focused on its transformation. However, the stalled Jetstar Hong Kong venture is still expected to proceed as planned, provided it can obtain regulatory approvals.
There had been speculation for nearly a decade that Qantas' fleet was overvalued. The airline said on Thursday the writedowns were triggered by the decision to split its international business from the rest of the operations, because the asset values were then no longer shielded by the surpluses in other divisions.
Divisionally, Qantas Domestic reported underlying earnings before interest and tax of 30 million Australian dollars, down from 365 million dollars a year earlier, as a result of the damaging capacity war with Virgin Australia Holdings.
Several analysts quoted in the media on Thursday described the result as unacceptable, and said significant changes needed to be made to the airline.
Neil Hansford from Strategic Aviation Solutions said there should be a wholesale spill of the board: "That is just shattering. I can't believe that you could actually accumulate greater than a billion, but two billion - it's about time the board did the honorable thing and walked," he said.
Peter Esho, the managing partner of wealth manager 100 Doors, told ABC News Online that he would be avoiding the company until there was a significant change in board and management.
"At the end of the day shareholder value is being destroyed and there needs to be accountability at the board and management level, " he said. "Guidance for the business to return to profit this year assumes so many variables, which will probably be excuses for another poor year."
