Qantas is beginning to look like a coiled spring as chief executive Alan Joyce resurrects the airline group's international division and successfully defends its domestic market share.
Pre-tax underlying earnings doubled from $95 million to $192 million, but an accounting change pulled forward $134 million of revenue, and Qantas posted an underlying pre-tax loss of $31 million in the second half.
The group generated positive cash flow of $372 million, however, and the second-half underlying loss was the price of seeing off a market share grab by Virgin Australia, in the business travel market in particular.
Airline industry capacity rises by about 4 per cent in a normal year, but it increased by twice as much in the year to June as the market share battle played out: Joyce boosted his group's total capacity by 5.6 per cent, but secured the Qantas castle.
The extra capacity came at a cost. Qantas' domestic earnings before interest and tax (EBIT) fell by 21 per cent from $463 million to $365 million, and Jetstar's EBIT fell by 32 per cent to $138 million. At the end of the year Qantas was still sitting on the 65 per cent share of the domestic market that Joyce believes maximises the group's profitability and still owned 84 per cent of the high-margin corporate travel market.
Qantas International's EBIT loss halved, to $246 million. Joyce says it is cash-positive, and on track to profit in the 2014-15 financial year, as planned.
The group's shares jumped from the opening on the profit news and closed 17¢ or almost 14 per cent higher at $1.40 because Qantas looks to be now on the cusp of a substantial earnings bounce.
The capacity increases that accompanied the market share war have ended, with Qantas' market share, including its business travel market share, intact.
The international division's recovery is on track, and Joyce is making Qantas more productive: units costs were lowered by 5 per cent during the year, and the group harvested $171 million in restructuring gains and $257 million in repeatable cost reductions.
Jetstar's profit slide also included $50 million of start-up costs on joint ventures in Japan and Hong Kong that will not continue if the ventures work, and Qantas' six-month-old alliance with Emirates is boosting passenger numbers. Joyce says codeshare bookings by Qantas customers on Emirates' network are running about twice as high as they were on Qantas' old alliance codeshare routes into Europe with airlines including British Airways, Air France and Iberia. Bookings from Emirates customers onto Qantas' domestic network are about three times higher than bookings from the old alliance partners.
Qantas is now also over the hump with its aircraft renewal program. The average age of the fleet has fallen from 9.5 years around the time of the global crisis to 7.9 years, the lowest it has been since Qantas was privatised in 1993. Capital expenditure that hit $2.4 billion in 2010-11 and $2.3 billion in 2011-12 was $1.4 billion in 2012-13, and will be about $1.2 billion this financial year.
A final, intangible factor is that inside Qantas confidence is rising.
The group's staff engagement score jumped by 8 percentage points to 74 per cent in 2012. There are weak spots: engagement with the pilots is one of them. In the obscure world of staff surveys, however, a one-year, 7 percentage point gain is notable.
More than 10,000 staff have also now completed a course designed by the United Kingdom-based Mary Gober group. It began in 2011 and will train a total of 18,000 people before it concludes in July next year.
The course teaches about black (negative) and red (positive) mindsets, and then arms staff with ways to occupy the red zone, and stay there.
Qantas' cabin crews and other staff who deal directly with travellers have completed the course, and on one measure at least, it appears to working: Joyce says net promoter scores from a group of 115,000 customers who rate their experience in airports, lounges and planes are rising.
He says conditions remain "challenging and volatile", and he is not giving guidance on earnings this year.
Fuel prices and the Australian dollar are as always wildcards, more so than usual right now, as the West considers action against Syria, and as the Australian dollar sits 15 per cent below its levels of 4½ months ago. A lower dollar is making Australia a cheaper travel destination, but it also pushes up on translated debt costs and fuel costs, and this month there is probably something coming that will drive it even lower - a decision by the US Federal Reserve to begin trimming its quantitative easing cash splash.
Thursday's market response shows, however, that investors reckon the hard yards have been won by Joyce. The group is certainly in a better place than Virgin Australia, which is due on Friday to confirm twice-downgraded guidance for a bottom-line loss of between $95 million and $110 million in the year to June.
Joyce's slightly cheeky observation on Thursday was that airline industry earnings fell in the year to June, but that Qantas' share of industry profits rose, to something more than 100 per cent, depending on how big the loss that Virgin announces actually is.