Qantas Airways Ltd is looking past a record annual loss and predicting blue skies ahead, as a landmark change in Australian laws opens the door to significant foreign investment in the airline's international arm - its biggest headache.
The prospect of new funding - long desired by the struggling national flag carrier - and a surprisingly positive outlook for the current year sent Qantas' shares rising to a three-month high on the Sydney exchange on Thursday.
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 has also long complained it is competing at a disadvantage due to Australian laws restricting the level of foreign investment in the carrier while its rivals are allowed unfettered funding.
Qantas revealed on Thursday that obstacle has been swept away.
The airline unveiled a new holding structure that will divide its domestic and international arms, a separation made possible following the passing of changes to the Qantas Sale Act earlier this week, the carrier said.
Foreign and individual investors can now take a stake of up to 49 percent in the international arm. That is a major change from the previous limits on ownership by individual investors of 25 percent and by foreign-owned airlines of 35 percent.
"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 told reporters in Sydney. "By providing a separate subsidiary you give an option for a foreign investor to take equity directly in the international business."
Chief Executive Alan Joyce stressed that greater foreign investment was a long-term strategy, and the focus remained on a A$2 billion turnaround program that includes stripping costs and slashing 5,000 jobs.
"We are focused now in the short to medium term on the transformation program," he said. "We are not actively out there looking for an airline investor."
The move to establish a new structure led a hefty A$2.6 billion ($2.4 billion) writedown in the value of its fleet and a resulting net loss of A$2.8 billion for the year ended June 30.
That overshadowed a smaller-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.
"There is no doubt today's numbers are confronting, but they represent the year that is past," Joyce said. "We have now come through the worst."
Qantas shares were up 8.7 percent in midmorning trade at A$1.41, a three-month high and the biggest intraday gain in a year. The stock clocked an all-time high of A$6.05 in 2007 before the global financial crisis hit.
Despite an investor push for major asset sales, Joyce said a review of its profitable Frequent Flyer loyalty scheme, which analysts value at up to A$2.5 billion, had concluded there was "insufficient justification" for a partial sale.
However, he said the airline had identified other potential asset sales, including airport terminals, property and land holdings. Any proceeds from such sales would be used to repay debt.
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 global markets and moves by international carriers to increase capacity into Australia.
Joyce said that Qantas would extend a freeze on increasing domestic capacity into the first half of the current year.
In stark contrast to the Australian carriers, 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.
(1 US dollar = 1.0714 Australian dollar)