Hong Kong, 22 February 2018
The Qantas Group has delivered its highest-ever first half Underlying Profit Before Tax of $976 million for the six months ending 31 December 2017.
The result surpasses the previous record of $921 million achieved in the first half of FY16 and comes despite recent increases in fuel costs and continued international capacity growth. Both Underlying and Statutory profit before tax were significantly higher (15 per cent and 20 per cent respectively) than the first half of FY17.
All targets of the Group’s financial framework were met, enabling Qantas to keep rewarding shareholders, investing for customers and positioning for the future.
Group CEO Alan Joyce said the record result showed Qantas’ ability to keep delivering.
“After several years of consistent performance, we now have a lot of momentum behind us. We’re vigilant about maintaining that momentum and we’re confident about the future it allows us to build.
“Today’s result comes from investing in areas that provide margin growth and a network strategy that makes sure we have the right aircraft on the right route.
“Our lounges, Frequent Flyer program and initiatives like free Wi-Fi all drive customer satisfaction, and so does the network strength across Qantas and Jetstar.
“We’re seeing continued capacity discipline in the domestic market, coupled with a product advantage that’s delivering a significant profit share to the Group.
“This is a transition year for Qantas International and it’s setting up a bright future. We have the Dreamliner joining the fleet and important network changes on flights to Europe and across the Tasman, which will unlock significant benefits from FY19.
“For international to largely hold its own ahead of those benefits flowing through, and in the face of rising fuel costs and market capacity, shows its resilience.
“Qantas Loyalty performed very well with the Frequent Flyer program at its core, but it’s also opening up fresh revenue growth by expanding directly into areas like financial services and health insurance.
“We operate in very competitive markets right across the Group, and we’re focused on continuous improvement.
“This result includes $181 million in benefits from ongoing transformation as part of an average annual target of $400 million. Ultimately, that discipline is key to our ability to keep delivering for our customers, shareholders and people,” said Mr Joyce.
All targets of the Group’s financial framework were met or exceeded in the half.
Net debt continued to fall and remains towards the bottom of the range, at $5.1 billion. Sixty per cent of the Group fleet is unencumbered, including two new 787-9s purchased with cash. Debt maturity has been improved by an eight year, $350 million corporate debt program and short term liquidity remained strong at $2.8 billion.
Rolling 12-month return on invested capital was 20.9 per cent, with all operating segments delivering ROIC above their weighted average cost of capital. Net capital expenditure guidance for FY18 and FY19 is unchanged at a combined $3.0 billion, net of asset sales.
Operating cash flow increased by 48 per cent to reach a record $1.7 billion, providing excess capital for reinvestment and for returns to shareholders.
The Qantas Board has announced up to $500 million of capital to be returned to shareholders. This comprises an interim dividend of 7 cents per share (unfranked) to be paid on 12 April 2018 with a record date of 8 March 2018, as well as an on-market share buy-back of up to $378 million. This additional buy-back is expected to bring the total reduction of shares on issue to 24 per cent since October 2015.
INVESTING IN THE FUTURE
Jetstar A320 order
Jetstar will start taking delivery of aircraft from its existing order of 99 A320 aircraft, beginning with 18 A321LR NEOs from mid-2020.
These next generation, longer range aircraft can fly routes like Melbourne and Sydney to Bali, currently operated by the 787-8 Dreamliner. The arrival of the first four long range NEOs will add capacity on these routes with potential to also free up some 787-8 flying time for use on other leisure routes such as Vietnam, China, Thailand and Hawaii.
All 18 A321LR NEOs are expected to be delivered by the end of 2022 to replace Jetstar’s oldest A320s for use on domestic and international routes, and will each deliver a fuel burn improvement of around 15 per cent.
The Qantas Group retains flexibility with the sequencing of the rest of its A320 NEO order, which is approximately an even split of 232-seat A321LR NEOs and 186-seat A320 NEOs. The order is primarily focused on aircraft replacement but with scope to allow for growth depending on market conditions.
Qantas Group Pilot Academy
With fleet renewal and network growth, the Qantas Group is undergoing the largest pilot recruitment and training initiative in its history.
Since 2016, the Group has hired almost 600 new pilots in Australia, with another 350 to be recruited by the end of this calendar year.
As part of creating an ongoing talent pipeline, the national carrier will establish the Qantas Group Pilot Academy in 2019. The academy will initially focus on training up to 100 new pilots per year for direct entry to the Group, but will explore the potential to become a major training centre to meet strong demand for pilots in the region. It will represent an investment of up to $20 million of setup costs in FY19.
Investing in product
Qantas has also announced additional investments in customer experience, including:
Looking forward, the Group expects healthy consumer demand growth consistent with an improved global outlook. The Group’s current operating expectations are:
- Total Qantas Group capacity is expected to increase by ~1% in 2H18.
- FY18 fuel cost expected to be no more than $3.24b.
- FY18 transformation benefits expected to be greater than $400million.
- Capital expenditure net of asset sales expected to be $3.0b for FY18 and FY19 combined.
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APPENDIX – QANTAS BUSINESS UNITS’ PERFORMANCE
Qantas and Jetstar’s domestic flying operations combined posted their highest ever first half Underlying EBIT of $652 million.
The result was driven by ongoing capacity discipline and growing margins of both airlines, achieved through product and network superiority.
Qantas Domestic posted Underlying EBIT of $447 million, up 20 per cent. Unit revenue was up 8.6 per cent and load factor increased by 1.4 points to 78.7 per cent. The resources sector posted modest revenue growth for the first time since 2014. Jetstar’s domestic operations achieved a 7 per cent increase in unit revenue.
Qantas and Jetstar’s international operations performed well in the face of higher fuel costs and increased competitor capacity.
Underlying EBIT for Qantas International was lower, down 5.5 per cent to $222 million, however unit revenue increased slightly by 0.3 per cent. A capacity increase together with load factor increasing by 3.1 percentage points to 84.4 per cent lifted overall revenue by 7.3 per cent.
Jetstar’s international operations generated strong earnings, helped by the operating costs of the 787-8 but impacted by around $10 million from the Bali ash cloud disruption. Jetstar’s portfolio of airlines in Asia was profitable, driven by Japan and Singapore operations as well as a significant improvement in Jetstar Pacific’s performance as excess market capacity in Vietnam moderated.
Qantas Loyalty posted another record profit in the first half of $184 million, up 1.7 percent.
Regulatory changes to interchange fees had some impact on revenue but this was offset by overall growth in other parts of the Frequent Flyer program to help deliver total revenue increase of 2.7 percent.
Qantas’ own Platinum credit card issued in Australia continues to have a rapid growth rate, with more than 1 billion points earned already, and a low fee card was introduced in December 2017 as part of the continued expansion into financial services.
Qantas Business Rewards, which offers small business in Australia the ability to earn points on corporate expenses, continues to drive an increase in revenue from program partners and is also increasing market share for the airlines among small-to-medium enterprises.
Growth in these new ventures and the core Frequent Flyer program is expected to deliver a compound annual growth rate of 7–10 per cent for Qantas Loyalty in the five years to FY22.
APPENDIX – QANTAS NEW SYDNEY INTERNATIONAL BUSINESS LOUNGE
Qantas Sydney International Business Lounge will undergo a multimillion dollar rebuild, providing travellers with a completely new design.
Developed by David Caon, the principal designer of the Qantas Dreamliner interior as well as the airline’s lounges in Singapore and Hong Kong, in collaboration with Australian architecture firm Bates Smart, the lounge will offer at least 30 per cent more seating and a new Neil Perry dining experience to passengers.
Construction is scheduled to start in the third quarter of this calendar year and will be completed in stages to allow ongoing lounge access, targeting completion at the end of 2019.
APPENDIX – QANTAS PILOT ACADEMY
Qantas will establish a pilot academy capable of training up to 500 pilots a year, to help meet the increasing need for skilled aviators in one of the fastest growing global industries.
The Qantas Group Pilot Academy is expected to open its doors to students during 2019 and is likely to be established near an existing airfield in regional Australia to provide easy access to uncongested airspace.
The academy will initially train around 100 pilots a year for direct entry into the Qantas Group, including Jetstar and regional carrier, QantasLink. Depending on demand from other parts of the aviation industry, this could grow to 500 pilots a year on a fee-for-service basis.
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