Qantas opens door to foreign investors

August 29, 2014 - 12:00:00 am
A Qantas Airline aeroplane takes off at Sydney Airport yesterday.

 

SYDNEY: Qantas Airways Ltd is looking past its record annual loss and predicting blue skies ahead, as a landmark change in Australian laws opens the door to foreign investment in the airline’s international arm — its biggest headache.

A funding injection into its international division would allow Qantas to better compete on price and service offerings with rivals whom it says are bolstered by unlimited funding from wealthy state backers.

It would also support Qantas’ plans to re-configure its aging fleet, invest resources in popular routes and further enlarge its global network, partly through its partnership with Emirates Airline.

Qantas said yesterday that it expected to return to profit sometime in the current financial year. The surprisingly positive outlook gave the airline’s shares their largest one-day percentage gain in a 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.

Qantas International has been the biggest drag on the airline’s earnings, with its loss for the year ended June 30 the largest among the carrier’s divisions and doubling from a year earlier.

Aviation experts also point the finger at Chief Executive Alan Joyce and his management team, criticising ill-fated moves such as the rollout of its low-cost Jetstar subsidiary in an already crowded Asian market. Joyce acknowledged that a record A$2.8bn ($2.6bn) annual net loss and an underlying loss before tax of A$646m were “unacceptable”, but vowed that “the worst is over”.

In the biggest restructure since Qantas was privatised two decades ago, the airline is hiving off its international arm from its domestic unit. The move will allow a foreign airline to take as much as a 49 percent stake — a major change from the previous 35 percent limit. “The changes to the Qantas Sale Act have removed a significant impediment for Qantas to be involved in long-term consolidation,” Chief Financial Officer Gareth Evans said here.

“By providing a separate subsidiary you give an option for a foreign investor to take equity directly in the international business,” he said. Still, analysts cautioned the airline against expecting a rush of foreign investors on its doorstep any time soon, with current alliance partner Emirates seen as the only likely candidate.

Joyce said that foreign investment was a long-term strategy, and the focus remained on a A$2 billion turnaround programme that includes stripping costs, freezing capacity and slashing 5,000 jobs.

Reuters

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