QANTAS Group (QANTAS Airways and Jetstar Airways) (Sydney) has restructured its fleet plans which includes the cancellation of 35 Boeing 787-9 Dreamliners after reporting its financial results for its fiscal year.
The issued the following statement:
“The Qantas Group announced it would restructure its Boeing 787 aircraft delivery schedule as part of the five-year Qantas International turnaround plan.
There is no change to the Group’s plans for the Boeing 787-8 aircraft. Deliveries of 15 Boeing 787-8s to Jetstar Airways will continue as planned, with the first aircraft to arrive in the second half of 2013. This will enable the transfer of Airbus A330 aircraft from Jetstar to Qantas Domestic, and the eventual retirement of Qantas’ Boeing 767 fleet.
Fifty Boeing 787-9 options and purchase rights will be retained and brought forward by almost two years, available for delivery from 2016. However, firm commitments for 35 Boeing 787-9s will be cancelled. The restructure means a two-year delay in the Group’s first Boeing 787-9 delivery.
The changes will result in a reduction in capital expenditure commitments that would equal US$8.5 billion at list prices.
Qantas Group CEO Alan Joyce said the changes were consistent with the goals of the Group’s broader
“Qantas continues to practice disciplined capital management and, in the context of returning Qantas International to profit, this is a prudent decision,” Mr Joyce said. “The Boeing 787 is an excellent aircraft and remains an important part of our future. However, circumstances have changed significantly since our order several years ago. It is vital that we allocate capital carefully across all parts of the Group.
“Qantas has always maintained flexibility in its fleet plan and made changes when required. We have now substantially completed our fleet renewal program for the Qantas Group, with 114 new aircraft delivered over the past four years. Our average scheduled passenger fleet age is 8.3 years, the lowest since privatisation and highly competitive by international standards.
“We have 12 A380s in service across our long-haul network and the reconfiguration of nine Boeing 747-400s will be complete by late 2012. Boeing 737-800s will continue to enter the Qantas Domestic fleet as part of the Group’s existing fleet plan, while Airbus A330s will transfer from Jetstar as Boeing 787s are delivered. And Jetstar’s domestic and pan-Asian fleet requirements will be met over the long-term by our existing A320 order book and the arrival of Boeing 787-8s.
“Fifty Boeing 787-9s will remain available to the Group from 2016, in line with the timeframe of the Qantas International turnaround plan.”
On the financial side the group issued this report (all amounts in Australian dollars):
Qantas Group today (August 23) announced Underlying Profit Before Tax of $95 million for the year ended 30 June 2012.
The Group’s portfolio of businesses faced a challenging year – however, it is well-positioned for a strong,sustainable future.
The result was materially impacted by record high fuel costs ($4.3 billion, up $645 million) and industrial action culminating in the grounding of the Qantas fleet ($194 million). Operating conditions for the global aviation industry deteriorated significantly during the year, affecting most major airline businesses.
There were also one-off costs of $398 million, which are not included in Underlying PBT, as the Group initiated a turnaround plan for Qantas’ international network and addressed its legacy cost base.
As a result, the Group reported a Statutory Loss After Tax of $244 million for the year.
All parts of the Group were profitable with the exception of Qantas’ international network. Jetstar and Qantas Frequent Flyer achieved record results2 and Qantas’ domestic operations outperformed the prior year. The Group holds a leading position in the Australian domestic market while Jetstar continues to expand in Asia, including through the successful launch of Jetstar Japan.
In line with previous market guidance, Qantas’ international network made an Underlying EBIT loss of approximately $450 million and Qantas and Jetstar’s domestic networks together delivered Underlying EBIT of approximately $600 million.
Qantas Group CEO Alan Joyce said the Group had launched the biggest transformation program since
privatisation in extremely challenging circumstances.
“Qantas has been through an exceptional period in its history over the past 12 months,” Mr Joyce said.
“Over the course of the year we made significant progress in advancing the Group’s strategy – building on our strong domestic business and frequent flyer program and growing Jetstar across Asia. Qantas’ international turnaround plan is on track and set for improvement in 2012/13.
“We are now coming off a period of high capital expenditure that has given us the youngest fleet since Qantas became a public company in 1995 – an average age of 8.3 years for passenger aircraft4. Our Boeing 747 reconfiguration program is nearly complete, with the aircraft receiving outstanding customer feedback, and from this October we will also upgrade our domestic Boeing 767 fleet.
“We will continue to invest capital efficiently as we target greater competitiveness and customer satisfaction to deliver a stronger Qantas Group.”
The Group improved cash flow during the year, achieving a free cash flow positive position of $206 million in the second half of 2011/12. Cash held at 30 June 2012 was $3.4 billion with access to a $300 million undrawn standby facility, and the Group retained an investment-grade credit rating. Ten narrow-body aircraft were purchased with cash, meaning the Group has added 18 new unencumbered aircraft over the past two years.
During the year the Group took steps to reduce planned 2012/2013 capital expenditure to $1.9 billion, and expenditure will remain at that level through 2013/2014.
Fleet renewal is substantially complete after the delivery of 114 new aircraft over the past four years and the Group will now shift its focus to debt reduction. The Group’s future fleet delivery profile has been restructured with a reduction in potential commitments for the Boeing 787-9 from 85 to 50 (announced separately today), available from 2016.
Qantas reported an Underlying EBIT loss of $21 million, down $249 million compared with 2010/11, reflecting the poor performance of the international network. The Qantas segment result was also severely impacted by record fuel costs and industrial action.
Customer satisfaction in the domestic market is at its highest level in over three years and the Group continues to invest in Qantas’ domestic network, product and service. It remains the airline of choice for corporate travellers with strong double-digit corporate revenue growth and an estimated 84 per cent share of the domestic corporate travel market.
Significant progress was made in Qantas’ international turnaround plan launched in August 2011. Qantas increased capacity to its Dallas/Fort Worth and Santiago hubs, reconfigured seven out of a planned nine Boeing 747 aircraft with award-winning A380 interiors, strengthened alliance relationships and withdrew from major loss-making routes. Major business transformation initiatives, including heavy maintenance consolidation, were commenced during the year.
The benefits from these initiatives have started to flow and will deliver annual savings of approximately $300 million when all measures announced to date have been implemented.
Jetstar reported record Underlying EBIT of $203 million, up $34 million or 20 per cent on the prior year. Ancillary revenues grew by 27 per cent and unit costs were reduced to record lows. Domestically, Jetstar continues to hold a clear leadership position in the price-sensitive market.
Despite challenging operating conditions, Jetstar achieved capacity and passenger growth in all markets. Jetstar Japan was established during the year and commenced operations in July 2012, five months ahead of schedule, complementing airlines based in Singapore (Jetstar Asia) and Vietnam (Jetstar Pacific) – with Jetstar Hong Kong to be added in 2013, subject to regulatory approval. Each of these investments draws on Jetstar’s well-established brand, world-class ancillary revenue model and strong local partners.
Qantas Frequent Flyer achieved a record result, with Normalised Underlying EBIT of $231 million, up 14 per cent compared with 2010/11. The continued expansion and enhancement of the program saw billings increase by 14 per cent to $1.2 billion. Membership now stands at 8.6 million members, with over 500 program partners.
The acquisition of Wishlist Holdings Ltd, establishment of a new membership tier (Platinum One) and addition of major new partners such as Optus all contributed to Qantas Frequent Flyer’s strong performance.
Qantas Freight’s Underlying EBIT was $45 million, down $17 million compared with the prior year. The result reflects a broader downturn in global air freight markets, plus adverse fuel price and foreign exchange impacts that were only partially offset by yield improvements.
The Group’s operating environment and economic outlook for the first half of 2012/2013 remains challenging, volatile and dependent on a number of uncontrollable external factors.
Group capacity is expected to increase by 3-4 per cent in the first half of 2012/2013 compared to the first half of 2011/2012, while maintaining flexibility.
The Group aims to maintain a profit-maximising 65 per cent domestic market share. Given current market conditions, Group domestic capacity is expected to increase by 9-11 per cent in the first half of 2012/2013 compared to the first half of 2011/2012. However, the Group has significant flexibility to adjust domestic capacity should current market conditions change.
Underlying fuel costs (excluding carbon tax) for the Group are expected to be approximately $2.3 billion5 in the first half of 2012/2013 compared to $2.2 billion in the first half of 2011/2012, due to higher forward market jet fuel prices and increased flying.
No Group profit guidance is provided at this time due to the high degree of volatility and uncertainty in global economic conditions, fuel prices, exchange rates, as well as the major transformational change agenda underway.
1 Underlying Profit Before Tax (Underlying PBT) is a non-statutory measure and is the primary measure used by the Group’s chief operating decision making bodies for the purposes of assessing the financial performance of the Group. All line items in the Media Release are reported on an Underlying basis. A detailed reconciliation of Statutory and Underlying PBT is included in the Review of Operations.
2 Jetstar result based on Underlying EBIT. Qantas Frequent Flyer result based on Normalised EBIT, which is Underlying EBIT normalised for prior period changes in accounting estimates. Refer to the Review of Operations for a reconciliation of Normalised EBIT to Underlying EBIT.
3 Free cash flow – Operating cash flows less investing cash flows. Free cash flow is a measure of the amount of operating cash flows that are available (i.e. after investing activities) to fund reductions in net debt or payments to shareholders.
4 Average fleet age of the Group’s scheduled passenger fleet based on manufacturing dates.
5 As at 15 August 2012.
Copyright Photo: John Adlard. The Boeing 767-300 ERs are now likely to be operated longer under this revised plan. Boeing 767-338 ER VH-OGD (msn 24407) arrives at Sydney.