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Air New Zealand's outstanding profit result on Wednesday was just the curtain-raiser Qantas didn't need.
Where the Kiwi airline has defied the global problems in the aviation industry to post a 45 per cent boost in net profit and return a bumper dividend to its shareholders, Qantas looks set to break a less illustrious record and post a loss north of $1 billion.
The big question is how much further north. It's a white knuckle moment. Analysts' expectations are quite varied – the most optimistic of them are shooting for a $700 million loss, while other industry sources are suggesting it could be as high as $1.5 billion if the company decides to include major impairment charges on items such as aircraft.
Such an outcome would make for sensational headlines but it is the underlying result that will provide investors with some better clarity on how the national carrier is performing.
This is a company whose prospects matter to a wider group of constituents. In addition to shareholders, its performance will be closely watched by the government, staff, competitors, airline customers and, more particularly, its frequent flyers.
It is a stock that conservative investors have steered clear of but punters love because good (or bad) news can really move the share price.
Beyond the size of the loss, investors will be focusing on how Qantas boss Alan Joyce is faring with the transformation program that he has already outlined.
If Qantas decides to pursue a split of its international and domestic divisions in response to recent changes in the Qantas Sale Act, then this is the opportunity for Joyce to give the market an update on the board's thinking.
There has been much speculation that such a move is being considered, given the airline is free from some of the foreign ownership shackles that had limited overseas airlines and investors from taking a larger stake in the group.
Meanwhile, at an operational level there are $2 billion in costs being stripped out of the airline, 5000 staff being culled, aircraft being retired and unprofitable routes being jettisoned.
There will be intense interest as to whether the airline has seen any green shoots of improvement in the domestic side of the business since July, when the airline and its competitor, Virgin, raised the white flag on a long-time capacity and price war.
In addition, investors will be looking to see whether competition on the Asian routes has subsided and whether its budget offshoot Jetstar International is showing any signs of improvement in its performance.
Roughly half the cost cuts are thought to be coming from the international division but the airline has been light on detail around specific programs.
Based on speculation over the past month, it appears unlikely there will be any additional international routes cut. To the extent any more asset sales are announced, this would be confined to the possible sale of the Melbourne terminal. It appears the larger sale of the Sydney terminal is not on the agenda at present.
The bigger question is whether Qantas will announce the part-sale of its Frequent Flyer loyalty program, which is currently the company's biggest-earning asset. The latest speculation is that there will not be any move to deal in this asset. Whether it is ultimately sold depends on how much Qantas needs to further shore up its balance sheet.
If there are no major additional transformational or structural announcements from Qantas on Thursday, there is likely to be a fair level of disappointment among investors that are keen to see some radical corporate surgery.
They understand how critical the airline's financial position is. Short of some big moves, investors will need to see an outlook statement that provides some sense the cost initiatives are gaining traction or revenues have picked up.
In the first half of the financial year, the airline lost $252 million before tax on the back of a 4 per cent decline in revenue and a 3 per cent fall in yield.
Qantas domestic earned $57 million before interest and tax against a profit of $218 million in the first half of last year.
But it was Qantas international's ballooning loss that caused most of the red ink. It reported a loss before interest and tax of $262 million, compared with a loss of $91 million in the previous corresponding period.
We know the second half of 2014 has been worse but we don't know how much worse.
But we do know that Air New Zealand does not appear to have been afflicted by international competition or structural issues. It's humming along like a well-oiled machine, increasing passengers and capacity rather than shrinking. Air New Zealand's net profit rose from $NZ181 million last year to $NZ262 million in 2014.
And the board is expecting the current year's profit to improve again – which would make it the fourth consecutive year of earnings growth for the airline, which is 53 per cent owned by the New Zealand government.
