How could a record $2.8 billion loss in Qantas this morning turn into a strong jump in its share price?
Easy. Qantas has written off $2.6 billion in the book value of its international fleet to make its international arm really, really cheap to buy, and the market loves nothing so much as the prospect of more stock to pump and trade.
And to be fair to Qantas, provided no external shocks occur, the opportunity to either (or both) recast the value proposition in a stock that doesn’t contain Qantas international as well as one that does is, if nothing else, a share trader's wet dream.
Qantas CFO Gareth Evans calls it "optionality", and Qantas, having shrunk the paper value of the A380s and remaining 747s by $2.6 billion, will have a glittering matrix of possibilities to discuss with the broking and investment communities.
However, a rational examination of the actual performance of the components of the Qantas businesses -- the ones that fly aircraft rather than create unbounded excitement in traders -- is less encouraging.
Qantas domestic, the once very profitable part of its business, made only $30 million for the year on an EBIT basis.
Jetstar, lumped together, lost $116 million on the same basis -- a huge deteriorating of $254 million since a year ago (although Jetstar domestic was declaring that it's still profitable).
The damage included $70 million blown on Jetstar Japan, which amounts to more than a total recapitalisation of that investment, and a $40 million loss at Jetstar Asia based in Singapore, plus other apparent atrocities in stillborn Jetstar Hong Kong, Jetstar Pacific (Vietnam) and Jetstar international.
Qantas international also flew backwards financially to the tune of $251 million in the year, to a total EBIT loss of $497 million.
The burning questions are numerous. The Emirates alliance was supposed to have stopped this sort of result, and Emirates itself has gushed with enthusiasm about all the revenue and passengers Qantas gave away to it in the deal.
Some deal. Both CEO Alan Joyce and chair Leigh Clifford have some very serious questions to answer about their previous upbeat, if not serial, guidance about Qantas being poised to turn the corner in its international operations. Guidance which was clearly codswallop.
The fortunes of two Qantases now loom: the Qantas we can buy shares in, and the Qantas we can fly with.