Category Archives: Jetstar Airways (Australia)

QANTAS loses a record $2.6 billion for its fiscal year, outlines its fleet plans

QANTAS Group (Jetstar Airways and QANTAS Airways) (Sydney) is changing its corporate organization in the wake of a large (record) financial loss of A$2.8 billion ($2.6 billion) for its fiscal year. The company hopes to attract new foreign investors with these changes.

The main changes is the creation of a holding company that will manage separate domestic and international divisions.

The company also performed a major write down of the value of its aircraft due to currency fluctuations in the past when the aircraft were purchased.

The company issued this full financial report (all figures are in Australian dollars) and its fleet plans.

QANTAS Group has announced an Underlying Loss Before Tax of $646 million and a Statutory Loss After Tax of $2.8 billion for the 12 months ended 30 June 2014.

The Underlying PBT result was driven by the cumulative impact of two years of industry capacity growth ahead of demand, leading to a $566 million decline in FY14 revenue, and by record Australian dollar fuel costs of $4.5 billion – up $253 million from FY13.

In response, QANTAS is driving an earnings recovery and de-leveraging the Group’s balance sheet to shape a profitable future and build long-term shareholder value.

The $2 billion accelerated QANTAS Transformation program announced in February is permanently reducing costs and laying the foundations for sustainable growth in earnings.

Transformation benefits totalled $440 million in FY14, including $204 million of second-half benefits from the accelerated QANTAS Transformation program.

A further $900 million of accelerated transformation projects are in the implementation phase, with more than $600 million of benefits from these projects to be realised in FY15.

To date, projects equivalent to more than half the $2 billion target have been delivered or are underway.

Unit costs were reduced by 3 per cent over the year, accelerating from a 2 per cent reduction in the first half to a 4 per cent reduction in the second half.

QANTAS CEO Alan Joyce said the underlying result had been foreshadowed at the Group’s half-year announcement in February.

“There is no doubt today’s numbers are confronting, but they represent the year that is past,” Mr Joyce said.

“We have now come through the worst. With our accelerated QANTAS Transformation program we are already emerging as a leaner, more focused and more sustainable QANTAS Group.

“There is a clear and significant easing of both international and domestic capacity growth, which will stabilise the revenue environment.

“We expect a rapid improvement in the Group’s financial performance – and a return to Underlying PBT profit in the first half of FY15, subject to factors outside our control.”

Significant one-off costs associated with QANTAS Transformation are recognized in the statutory result, including restructuring and redundancies ($428 million) and primarily non-cash costs relating to early aircraft retirements ($394 million). Of the 5,000 redundancies announced in February, 2,500 have been implemented as at August 28.

At the same time as delivering cost reduction, the Group has taken action to adjust its capacity and network in response to shifts in demand and the competitive environment – while retaining flexibility to make further adjustments if required.

International competitor capacity growth is expected to be 2.4 per cent in the first half of FY15 and domestic market capacity growth is expected to be around 1 per cent, significantly below recent trends for both markets.

Financial Position

Group liquidity at June 30 was $3.6 billion, comprising $3 billion in cash – up around $600 million from the half-year – and $630 million in undrawn committed facilities. With operating cash flow of $1.1 billion, the Group was net free cash flow neutral in FY14.

The Group significantly extended its debt maturity profile through two landmark bond issuances totalling $700 million, with no major unsecured refinancing required before April 2016. Net debt including operating lease liability was reduced by $96 million.

Overall capital investment has been reduced to maximise net free cash flow for debt reduction, while the Group has maintained targeted investment in fleet, product and service to sustain brand and yield premiums for Qantas and Jetstar.

Capital investment was $874 million in FY14. Planned capital investment in FY15 has been reduced from $800 million to $700 million, with a forecast of $800m in FY16.

The Group’s average fleet age remains at a 20-year low of 7.7 years, with 35 per cent of the fleet debt-free. Thirty-one new debt-free aircraft have been added since FY10, including seven in FY14.

Outcome of Structural Review

QANTAS today also announced the outcomes of the structural review that commenced in December 2013.

The Group has identified, valued and will continue to assess opportunities to sell non-core assets such as airport terminals, property and land holdings. Any proceeds from such sales will be used to repay debt.

After detailed strategic and structural assessment of QANTAS Loyalty, the decision has been made to retain this highly valuable business within the existing Group structure. It was determined that there was insufficient justification for a partial sale. QANTAS Loyalty continues to offer major profitable growth opportunities.

No new Jetstar ventures will be established while the Group is focused on transformation. Substantial value exists across the Jetstar Group airlines, to be realised over time.

Since 2012, QANTAS’ international and domestic airlines have reported their financial performance as separate segments, to strengthen accountability and performance. Following the partial repeal of the QANTAS Sale Act, the Group will establish a new holding structure and corporate entity for QANTAS International. This decision will create the long term option for QANTAS International to attract external investment and participate in partnership opportunities in the international aviation market, with a view to achieving efficiencies and improved returns to shareholders.

Fleet write down

Under accounting standards, the decision to establish a new holding structure and corporate entity for QANTAS International requires a change to QANTAS’ Cash Generating Units (CGUs) for impairment testing. The previous ‘QANTAS Brands’ CGU has been split into four separate CGUs: QANTAS International, QANTAS Domestic, QANTAS Loyalty and QANTAS Freight.

After being tested on a standalone basis for the first time, the QANTAS International CGU requires a write down of $2.6 billion. The size of the write down is largely due to the historic cost of aircraft purchased with an average exchange rate from Australian dollars to U.S. dollars of $0.68.

This writedown is a non-cash charge, recognised in the statutory result, with no cash impact on the Group’s or QANTAS International’s operations. It is a writedown to the carrying value of aircraft that QANTAS has no intention to sell and intends to retain in its fleet.

Following the write down, the carrying value of QANTAS International aircraft will be more reflective of the current market value of the fleet, and future depreciation expense will be approximately $200 million per year lower as a result of this change.

CEO Comment

Mr Joyce said the Group’s priority now was to push forward with the accelerated QANTAS Transformation program after a positive start.

“After an extremely difficult period, we are focused on building momentum with our turnaround in FY15,” Mr Joyce said.

“Our cash balance and liquidity position is strong, and the Group’s overall financial performance is rapidly improving. We are removing costs to drive earnings growth. And the work we’ve done over recent years to renew our fleet and improve service has been recognised with a string of awards and record customer satisfaction.

“In February we made a deliberate choice to continue investing in core initiatives for customers in order to hold our competitive position, keep our brands strong and maintain a yield premium in a challenging market. As we transform our business at pace, our airlines are providing better service than ever.

“The structural decisions we announce today give the Group maximum scope to attract capital in a fiercely competitive international aviation market. Standing still while the world changes around us is not an option.

“With our structural review complete, we can move forward with certainty.”

Breakdown of Results

QANTAS Domestic

QANTAS Domestic reported Underlying EBIT of $30 million, down from $365 million in FY13.

Group Underlying EBIT, including QANTAS Domestic and Jetstar’s domestic operations, was just below $50 million.

The earnings deterioration in FY14 was a result of market capacity increases ahead of demand, weaker demand in the resources and government sectors, price pressure in all industries, unrecovered carbon tax costs and an unfavourable fuel cost of $68 million.

In this volatile market, QANTAS Domestic’s strategy of maintaining a capacity, frequency and product advantage over the competition saw it remain Australia’s premium carrier of choice.

The airline held an 80 per cent share of the domestic corporate travel market by revenue, including 48 new accounts, eight accounts won back from the competition, 10 accounts lost and 182 accounts renewed.

Comparable unit costs were reduced by 3 per cent as QANTAS Transformation benefits began to flow, helping close the cost gap with the competition.

Both customer satisfaction and customer advocacy were at record levels in FY14, helped by QANTAS Domestic’s consistently superior on-time performance.

QANTAS Domestic was Australia’s most punctual major domestic airline every month in FY14 and, as at June 2014, had led the competition for 18 straight months – a key factor in winning and retaining corporate accounts.

QANTAS International

QANTAS International reported an Underlying EBIT loss of $497 million, compared with a loss of $246 million in FY13.

The business delivered another strong year of cost reduction, cutting comparable unit costs by 4 per cent, and has now realised more than $400 million of transformation benefits over the past two financial years. However, these benefits were offset in FY14 by competitor capacity growth of 9.5 per cent – well above demand – and record fuel costs.

Fuel price and foreign exchange movements hit Qantas International hardest of any of the Group’s businesses, with an impact of $142 million.

Between FY09 and FY14, competitor capacity growth in the Australian international market was 44 per cent, compared with global growth of 29 per cent. Importantly for the Group’s outlook, capacity expansion is now slowing, with expectations for competitor growth of 2.4 per cent in the first half of FY15.

By optimizing its network and fleet, including the retirement of older Boeing 747s, QANTAS International is cutting unit costs while improving the travel experience for customers. Retiming the QF9/10 services to Dubai and London, for example, has freed up an A380 to operate on the popular Dallas/Fort Worth route and will lead to a significant increase in asset utilization.

Customer satisfaction reached record levels in FY14 and customer advocacy was a record for the year. New lounges were opened in Singapore, Hong Kong and Los Angeles, while new and expanded codeshare agreements were struck with China Southern, LAN Airlines and Bangkok Airways.

These agreements complement the ground-breaking QANTAS-Emirates partnership launched in FY13. The Dubai route continues to receive the highest customer satisfaction anywhere on the QANTAS International network, with more than 2 million QANTAS customers having already travelled through the hub since the partnership was launched.

QANTAS International now offers its biggest ever global network, with 1,200 destinations available with Qantas and its partner airlines.

Jetstar Group

The Jetstar Group reported an Underlying EBIT loss of $116 million, down from Underlying EBIT of $138 million in FY13.

Controllable unit costs were reduced by 2 per cent. However, these gains were offset by an unfavourable fuel cost of $86 million, a yield decline of $113 million across the highly competitive South East Asian and Australian markets and an increase in associate start-up losses of $20 million. Total associate start-up losses in Asia were $70 million due primarily to the rapid expansion of Jetstar Japan as it consolidates its leading LCC position in the Japanese domestic market.

Jetstar’s domestic business in Australia remained profitable – as it has been every year since launch in 2004 – and continued to play its part in the Group’s successful two-brand strategy.

Customer satisfaction remains at record levels in Jetstar Airways’ domestic and international operations, helped by continued improvement in on-time-performance and the introduction of the Dreamliner on key international routes, including Bali, Phuket and Bangkok.

The Jetstar Group airlines in Asia, in which QANTAS is a minority investor, remain focused on distinct market priorities:

Growth at Jetstar Asia has been suspended in a very challenging Singapore market that saw capacity expand by 23 per cent in FY14, but the business made productivity gains, holds a substantial yield premium to its LCC competitors, and is ranked the nation’s leading LCC. Its performance is expected to improve as capacity growth moderates, with market correction already underway.

Jetstar Japan is Japan’s largest and fastest growing LCC, having carried over 5 million passengers since launch and opened a second domestic base in Osaka. The launch of operations from the second base is improving unit cost performance, as a result of increased asset utilisation from the 24-hour airport in Osaka. With LCCs still holding just 6 per cent of the Japanese domestic market, the business has significant growth potential.

Vietnam’s Jetstar Pacific cut unit costs and increased customer advocacy in a high-growth market. The business has completed its recapitalisation, has begun international services and will expand its fleet from 7 to 10 aircraft by December 2014.

The Board and management of Jetstar Hong Kong continue to work with local regulators towards gaining approval to begin operations.

QANTAS Freight

QANTAS Freight reported Underlying EBIT of $24 million, compared with $36 million in FY13.

Earnings were lower as a result of the sale of Star Track Express in FY13, while global air cargo markets remained challenging. However, the integration of Australian air Express with Qantas Freight is now complete and full run-rate benefits began to flow in the second half of FY14.

Outlook

The Group expects a return to an Underlying Profit Before Tax in the first half of FY15, subject to factors outside its control.

This is based on the following expectations:

A target of $300 million of Qantas Transformation benefits to be realised in the first half.

A stabilising operating environment, as market capacity growth subsides.

First half fuel costs in line with the first half of FY14.

The repeal of the carbon tax.

Reduced depreciation costs compared with the first half of FY14.

Fleet Update:

The QANTAS Group provided an update on its fleet and network strategy for FY15 and beyond.

Since FY09, the Group has taken delivery of more than 140 aircraft and retired or returned leases for 80 aircraft, resulting in an average fleet age of 7.7 years – the youngest for two decades and significantly below the average in North America, Europe and the Asia Pacific.

The Group’s focus now is on maximizing the advantages of this young, competitive fleet, and completing the retirement of older aircraft types.

QANTAS CEO Alan Joyce said the Group’s fleet strategy was based on clear, consistent principles:

Increasing fleet utilization in the international and domestic markets.

Putting the right aircraft on the right route.

Offering the best experience in every market for customers.

Realising the cost benefits of new-generation aircraft.

Fleet and Network Changes

Key fleet and network changes completed or announced during FY14 are as follows:

QANTAS International

A more than 5 per cent increase in asset utilization by QANTAS International, including the retime of Melbourne-Dubai-London services and allocation of an Airbus A380 to the Dallas/Fort Worth route from September 2014.

Gradual replacement of Boeing 747s with A330s on routes to Asia, with all Sydney-Singapore and Brisbane-Singapore services to be operated by A330s by the end of September 2014.

Early retirement of four Boeing 747-400s, as the Group works towards the retirement of all non-reconfigured Boeing 747-400s by early 2016. This will leave nine, newer Boeing 747-400s fitted with A380-standard interiors.

Four Boeing 787-8s delivered to Jetstar, allowing the transfer of three A330-200s from Jetstar to QANTAS Domestic.

QANTAS Domestic

Planning for a reduction in average ‘turn time’ for QANTAS Domestic aircraft to increase utilization, to be implemented during FY15.

The announcement that all the Group’s Boeing 737-800s will be refurbished from mid-2015, expanding total Boeing 737-800 capacity by 3 per cent, along with improvements to inflight entertainment systems.

Retirement of all older Boeing 737-400s (completed in February 2014).

Early retirement of seven Boeing 767-300s, with all aircraft of this type to go by the end of 2014. Current fleet size is 10 aircraft.

More targeted use of QANTAS Domestic’s bigger A330-200s to reflect demand, with a focus on East-West routes to Perth and peak East Coast services.

All of Network Aviation’s seven Brasilia turboprop aircraft have been retired (effective August 2014).

Network aviation now has a single fleet of 12 Fokker F100 jets.

Fleet Renewal and Simplification

In FY14 the Group took delivery of 23 new aircraft, retired 19 older aircraft and returned eight leases.

Under current plans for FY15 the Group will receive 10 new aircraft, retire 18 aircraft and return two leases.

As a result of ongoing fleet retirements and simplification, the Group’s mainline fleet will be reduced from 11 different types in FY13 to seven different types in FY16.

Restructured Order Book

The Group announced in February that more than 50 aircraft on order would be deferred or sold to reflect more efficient fleet utilization and slower capacity growth.

In light of the more subdued domestic capacity outlook and shift to more efficient utilization of narrow-body aircraft:

Two QANTAS Boeing 737-800s, including one sourced from the domestic fleet and one from the trans-Tasman fleet, will be sold during FY15.

A decision has been taken not to renew the leases on two QANTAS Domestic A330-200s, meaning these aircraft will leave the fleet in the first half of FY16.

Five Airbus A320ceos on order for Jetstar Airways have been sold, reflecting the more subdued outlook for domestic capacity in FY15.

Two QANTAS Link Bombardier Q300s will be sold during FY15.

In addition:

Orders for 21 Airbus A320ceos have been deferred by four years and converted to orders for 21 of the more-fuel-efficient A320neos, meaning that the Group has orders for a total of 99 A320neos.

The Group has pushed back the first of its 50 Boeing 787 options and purchase rights from 2016 to 2017, in line with the completion of the accelerated QANTAS Transformation plan.

As previously announced, the Group has deferred the final eight Airbus A380s on order for QANTAS International, with an ongoing review of delivery dates to meet potential future requirements.

As previously announced, the Group has deferred the final three of 14 Boeing 787-8s on order for Jetstar.
The Group retains significant flexibility in arrangements with manufacturers and lessors should the competitive environment or capacity forecasts change substantially.

Copyright Photo: John Adlard/AirlinersGallery.com. QANTAS is now planning for an early retirement of seven Boeing 767-300s. All 767s will be gone by the end of 2014. The current 767-300 fleet size is 10 aircraft. Boeing 767-338 ER VH-OGD (msn 24407) arrives at the Sydney hub.

QANTAS Airways: AG Slide Show

Jetstar Airways (Australia): AG Slide Show

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QANTAS Group reports a first half loss, attacks ownership of Virgin Australia, tough decisions ahead to reduce costs

QANTAS Group (Sydney) (QANTAS Airways and Jetstar Airways) today issued its first half financial report:

QANTAS announced an Underlying PBT loss of A$252 million ($225.1 million USD) and a Statutory Loss After Tax of A$235 million ($209.9 million USD) for the six months ending on December 31, 2013.

The underlying result is in line with guidance and reflects fundamental changes in the Australian aviation market, with a significant deterioration in earnings during the half.

Chief Executive Officer Alan Joyce said the result was unacceptable and comprehensive action would be taken in response.

“We are facing some of the toughest conditions QANTAS has ever seen,” Mr Joyce said.

“Australia has been hit by a giant wave of international airline capacity, with a 46 per cent increase in competitor capacity since 2009 – more than double the global increase of 21 per cent over the same period.

“The Australian domestic market has been distorted by current Australian aviation policy, which allows Virgin Australia to be majority-owned by three foreign government-backed airlines and yet retain access to Australian bilateral flying rights.

“Late last year, these three foreign-airline shareholders invested more than $300 million in Virgin Australia at a time when, as Virgin Australia reported to the ASX on February 6, it was losing money. That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses.

“QANTAS has been undertaking its biggest ever transformation over the past four years, cutting comparable unit costs by 19 per cent over four years, but this is not enough for the circumstances we face now.

“With structural economic changes being exacerbated by the uneven playing field in domestic aviation, we must now take actions that are unprecedented in scope and depth.

“We will accelerate our QANTAS Transformation program to achieve $2 billion in cost reductions by FY17. Hard decisions will be necessary to overcome the challenges we face and build a stronger business.”

Summary of Results

QANTAS Domestic

QANTAS Domestic reported Underlying EBIT1 of A$57 million, down from A$218 million in 1H13.

Competitor capacity growth in the domestic market continued to outpace QANTAS Group capacity growth, as it has since FY12. At the same time, demand was lower than market growth, putting pressure on yields and passenger loads.

Overall, the total domestic profit pool has shrunk from more than $700 million in FY12 to less than $100 million in 1H14. During this period the Virgin Australia Group added 4.5 billion Available Seat Kilometers (ASKs), compared to 4.3 billion ASKs added by the QANTAS Group.

A softening resources market, corporate account pricing pressure, and fuel and foreign exchange impacts also affected the QANTAS Domestic result.

Despite the challenging market conditions, QANTAS Domestic continues to deliver outstanding service, earning record customer advocacy. It was the most punctual major domestic airline in 12 out of 12 months during 2013, while its ongoing fleet renewal program helped reduce unit costs and improve the customer experience.

QANTAS Domestic remains the airline of choice for business travellers, holding more than 80 per cent of the corporate market by revenue in the half.

QANTAS International

Qantas International reported an Underlying EBIT loss of A$262 million, compared with a loss of A$91 million in 1H13.

The trend of intense competitor capacity growth in the Australian international market continued in the half. Total international market capacity growth for FY14 is expected to be 9 per cent, well above the global average, resulting in particularly strong yield pressure for QANTAS’ Asian and European markets.

QANTAS International made continued progress in reducing comparable unit costs (by 4 per cent in the half) and maintained record customer advocacy.

However, the lower Australian dollar has meant higher fuel costs, with a significant impact on the long-haul sectors flown by QANTAS International.

Jetstar Airways

The Jetstar Group reported an Underlying EBIT loss of A$16 million, down from an Underlying EBIT profit of A$128 million in 1H13.

Competitive pressure on yields (especially in South East Asia), a A$29 million share of associate losses, and fuel price and foreign exchange impacts were the main factors behind the result. Jetstar’s domestic operations in Australia remained profitable.

The fundamentals of Jetstar’s low-cost carrier model remain strong, with a 2 per cent improvement in unit costs1 and increased ancillary revenue1 during the half, and customer advocacy is at record levels. The introduction of the Boeing 787-8 into Jetstar’s long-haul network is delivering cost and customer service benefits.

QANTAS Loyalty

QANTAS Loyalty reported Underlying EBIT of A$146 million, a record result , up from Underlying EBIT of A$137 million in 1H13. The business continues to perform very strongly, with billings up 9 per cent in the half, three million awards redeemed and record customer advocacy. There are currently 9.8 million QANTAS Frequent Flyer members , with a target of 10 million for the full year.

QANTAS Loyalty’s growth initiatives are exceeding expectations, with a positive customer response to both the new QANTAS Cash member card and the AQUIRE small-to-medium enterprise loyalty platform.

QANTAS Freight

QANTAS Freight reported Underlying EBIT of A$11 million, down from A$22 million in 1H13, in the context of reduced capacity, consolidation and a weak global cargo market.

 Financial Position and Capital Expenditure

QANTAS has strong liquidity of A$3 billion, comprising A$2.4 billion in cash and A$630 million in undrawn debt facilities, as at December 31, 2013. There are no major unsecured debt maturities until April 2015.

Approximately 30 per cent of the QANTAS Group’s passenger fleet is debt-free. The Group has added 31 new unencumbered aircraft since FY10, including seven added in the first half of FY14. Twenty mid-life aircraft become debt-free in FY14. The Group’s average passenger fleet age is 7.6 years, the youngest in two decades.

Capital expenditure in FY14 is weighted to the first half, with $900 million invested in the six months to December 31, 2013 and a further A$300 million planned for the second half.

Following the review launched in December, planned capital investment has been aligned with financial performance, with a total reduction of A$1 billion over FY15 and FY16. Capital expenditure in FY15 and FY16 will be A$800 million in each year, including movements in operating lease liabilities1, while the Group maintains flexibility to make further changes if needed.

Outlook

The Group’s 2H14 operating environment remains very challenging and volatile. Soft underlying domestic demand is continuing in the seasonally weaker half, with domestic and international yields and loads expected to remain depressed.

The Group’s current operating expectations are as follows:

• Group capacity to increase by 3-3.5 per cent in 2H14 compared to 2H13.

• Group domestic capacity to increase by 3-4 per cent in 2H14 compared to 2H13, while maintaining flexibility.

• Underlying fuel costs expected to be approximately A$4.6 billion in FY14.

No Group profit guidance can be provided at this time due to major transformation being undertaken by Qantas, the high degree of volatility and uncertainty in the competitive environment, global economic conditions, fuel prices and foreign exchange rates.

Copyright Photo: Michael B. Ing/AirlinersGallery.com. Airbus A380-842 VH-OQK (msn 063) with “The Modern Family Flyer” sub-titles arrives in Los Angeles.

In January 2014 QANTAS issued this announcement:

QANTAS has announced a partnership with Twentieth Century Fox Television and Twentieth Century Fox Consumer Products to bring the top rated American comedy series “Modern Family” to film in Australia.

QANTAS will fly the cast and crew from Los Angeles in February as the Pritchett-Dunphy-Tucker clan takes a vacation down under for an episode to be broadcast later this season. Filming in Australia is expected to take two weeks.

Lauded for revitalizing the television sitcom, “Modern Family” is one of the largest critical and commercial hits of the past decade.  The recipient of four consecutive Emmy Awards for Outstanding Comedy Series and a Golden Globe Award for Best Comedy Television Series, “Modern Family” is both Network Ten and the ABC Television Network’s top-rated comedy series.

The partnership between QANTAS and Twentieth Century Fox Television’s “Modern Family” and Twentieth Century Fox Consumer Products follows the airline’s support in 2013 for a visit by The Ellen DeGeneres Show, which provided a 22 per cent increase in inbound flights to New South Wales alone, as well as overall boost in destination awareness for Australia.

The entire “Modern Family” cast, including, Ed O’Neill (Jay), Julie Bowen (Claire), Ty Burrell (Phil), Sofía Vergara (Gloria), Jesse Tyler Ferguson (Mitchell), Eric Stonestreet (Cameron), Sarah Hyland (Haley), Nolan Gould (Luke), Ariel Winter (Alex), Rico Rodriguez (Manny) and Aubrey Anderson-Emmons (Lily) will join co-creator and executive producer Steven Levitan for the visit to Australia.

“Modern Family” producers will travel to Australia in advance of the shoot in January to scout and identify preferred filming locations and potential storylines.

The series is produced by Twentieth Century Fox Television in association with Picador Productions and Steven Levitan Prods. Steven Levitan and Christopher Lloyd are the creators/executive producers. Danny Zuker, Dan O’Shannon, Bill Wrubel, Paul Corrigan, Brad Walsh, Abraham Higginbotham, Jeffrey Richman and Jeff Morton also serve as executive producers.

QANTAS Airways: AG Slide Show

Jetstar Airways: AG Slide Show

Jetstar Airways announces expanded Boeing 787 routes

Jetstar Airways (Melbourne) has announced a series of new Boeing 787 routes introducing the new type to new destinations. The 787 will be operated from Melbourne (Tullamarine) to Auckland from February 26 through March 28, 2014.

Jetstar took delivery of its first 787, the pictured 787-8 VH-VKA, on October 7 and received its second in December and third in early January 2014.

Jetstar introduced the Boeing 787 from Melbourne to the Gold Coast) on November 13, 2013 (see video below).

Jetstar introduced the 787 on its first international route on December 18 between Melbourne and Denpasar, Bali. The budget airline will add the new type on the Sydney-Denpasar, Bali route next month and Sydney-Phuket, Thailand in February. The Brisbane-Denpasar, Bali route will follow on April 16.

Jetstar 787s carry 335 passengers and feature a 21 seat business class cabin and 314 seats in economy with inflight entertainment available for purchase in every seat.

The airline will have transitioned to an all 787 long haul fleet by 2015, with the Dreamliner eventually replacing all current Jetstar Airbus A330 services, including Melbourne-Phuket. The A330s will be reassigned back to parent QANTAS Airways in order to replace the Boeing 767-300s.

Copyright Photo: Keith Burton/AirlinersGallery.com. The first 787-8, VH-VKA (msn 36227) arrives at the Melbourne (Tullamarine) base.

Jetstar Airways: AG Slide Show

Jetstar (Japan) logo

Routes from Melbourne:

Jetstar 12.2013 MEL Route Map

Video:

QANTAS Group issues a loss warning, asks the government for an even playing field

The QANTAS Group (QANTAS Airways) (Sydney) has announced a market update, accelerated cost reductions and a capital expenditure and structural review, in response to fundamentally changed market conditions. 

Market update

The Group expects to report an underlying loss before tax in the range of $250 million to $300 million for the six months ending December 31, 2013.  Trading conditions saw a marked deterioration in November in particular, with both passenger loads and yields below the already negative trends for the year to date.

The Group can also provide the following guidance for the first half of FY14:

    • Group capacity is expected to increase by 1.1 per cent in 1H FY14 compared to 1H FY13. Group Domestic capacity (comprising QANTAS Domestic, QANTAS Link and Jetstar Domestic) is expected to increase by 1.9 per cent in 1H FY14 compared to 1H FY13;
    • Total domestic market capacity is expected to increase by approximately 2.7 per cent, driven by estimated competitor capacity growth of 3.9 per cent;
    • Group yield (excluding the impact of foreign exchange movements) is expected to be approximately 3.5 per cent lower in 1H FY14 compared to 1H FY13, largely due to increased capacity in the domestic and international markets;
    • Group loads are expected to be 1.6 percentage points lower in 1H FY14 compared to 1H FY13; and
    • Underlying fuel costs (excluding the impact of the carbon tax) for 1H FY14 are expected to be approximately $2.27 billion, an increase of $88 million from 1H FY13.

The outlook for the second half of FY14 remains volatile and, given the uncertainty in global economic conditions, fuel prices and foreign exchange rates, it is not possible to provide further guidance at this time.

QANTAS CEO Alan Joyce said the circumstances demanded urgent action.

“We will do whatever we need to do to secure the QANTAS Group’s future,” Mr Joyce said.

“The challenges we now face are immense – but we will overcome them and we will continue to build a stronger and better QANTAS for Australia.

“Since the Global Financial Crisis, QANTAS has confronted a fiercely difficult operating environment – including the strong Australian dollar and record jet fuel costs, which have exacerbated QANTAS’ high cost base.

“The Australian international market is the toughest anywhere in the world.

“Our competitors in the international market, almost all owned or generously supported by their governments, have increased capacity to pursue Australian dollar profits, changing the shape of the market permanently.

“Since early 2012, there has also been an unprecedented distortion of the Australian domestic market, with Virgin Australia’s strategy to seek majority ownership and massive financial backing from foreign government-owned airlines (see Appendix 1).

“This foreign government capital has been used to finance dramatic increases in domestic capacity, with profound implications for the future of Australia’s aviation industry.  In November, Virgin Australia signaled its intention to continue its strategy, which is designed to weaken QANTAS in the domestic market, with a $300 million-plus injection from its foreign owners.

“The uneven playing field in Australian aviation is being tilted further.”

“We cannot and we will not stand still in these extraordinary circumstances.”

“As we take these urgent actions, we will continue to take the fight to the competition and strengthen our leading position in the domestic market, and we will continue the turnaround of Qantas International.”

Accelerated cost reduction program

The Group will make accelerated cost reductions across all areas of the business, to achieve total cost savings of $2 billion over three years.

The existing QANTAS Transformation program will be accelerated, with an expanded mandate to achieve these targets, including the following steps:

    • Head count reduction of at least 1,000 positions within 12 months, with an ongoing review
    • CEO and Board pay cut
    • Pay freeze and no FY14 bonus for executives
    • Review of spending with top 100 suppliers
    • Network optimisation and improved fleet utilization
    • Further overhead reductions

Mr Joyce said the Group had already made significant progress in becoming leaner and more efficient.

“We have reduced the Group’s unit costs, excluding fuel, by a total of 19 per cent since FY09, including by 5 per cent in FY13 (see Appendix 2).

“But these actions are not enough to deal with the current situation.”

Capital expenditure and structural review

Given the deterioration in earnings, the Group no longer expects to generate positive net free cash flow in the current financial year.

The Group will conduct a review of all planned capital expenditure to achieve further substantial reductions to ensure that the business generates positive net free cash flow from FY15.

This continues the deep cuts to capital expenditure already achieved since 2011.

The Group will also launch an immediate review to identify structural changes that could potentially unlock sources of capital and value for shareholders.  No options will be excluded from the review.

Mr Joyce said the Group would take all steps necessary to respond to the toughest market conditions it had ever faced.

“We will focus relentlessly on cutting costs and improving productivity, while maintaining our competitive advantages as a business,” Mr Joyce said.

Australia’s best airline for customers

Mr Joyce said customers would remain at the heart of the Group’s strategy, with a continued focus on service in all areas.

“We have Australia’s best airline and loyalty program, with nearly 10 million loyal frequent flyers,” Mr Joyce said.  “Over the past two years, we have developed a global network based on strategic alliances, including the ground-breaking Emirates partnership and expanding relationships in Asia.

“The QANTAS customer experience is the best it has ever been.  After an intensive fleet renewal program, our average passenger aircraft age is now below eight years, the youngest in two decades, and we have revitalised service with a focus on training and new technology.  Customer satisfaction is soaring, with record scores in both the international and domestic markets.”

Discussions with the Australian Government

“As we work through our cost reductions, capital expediture and structural review, no options will be off the table,” Mr Joyce said.

“Political leaders recognize QANTAS’ strategic importance, its critical role in providing essential air services, and the benefits to Australia of a strong and viable national carrier.

“None of the measures being discussed with the government would alleviate the need for us to take the comprehensive actions we have announced today.  Government action will, however, be key in enabling us to keep competing effectively on a level playing field.”

Read the analysis by Reuters: CLICK HERE

Copyright Photo: John Adlard/AirlinersGallery.com. QANTAS Airways’ Boeing 737-838 VH-VXA (msn 29551) with special “Official Airline of Cricket Australia – Now It’s On Our Turf” color scheme in support of Cricket Australia.

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QANTAS Group returns to being profitable, halving its losses on international routes

QANTAS Airways (Sydney) is already reaping the benefits of its new relationship with Emirates (Dubai) and the changes it has already made on its international route structure. The QANTAS Group has been shedding unprofitable international routes, cutting jobs, reducing capital spending and selling assets in order to reduce its debt. The QANTAS Group reported a fiscal year underlying profit before tax of A$192 million ($171.5 million), a statutory profit before tax of A$17 million ($15.1 million) and a statutory profit after tax of A$6 million ($5.3 million) for the year ended June 30, 2013.

QANTAS Domestic, Jetstar Airways and QANTAS Loyalty were all profitable, while QANTAS International halved its
underlying EBIT losses.

On the domestic front which is softening, QANTAS is facing stiff competition from Virgin Australia Airlines (Brisbane).

Read the analysis by Reuters: CLICK HERE

Read the full report from QANTAS: CLICK HERE

In other news, QANTAS also announced a series of improvements to its international network:

The improvements are:

    • Starting a new route, PerthAuckland*, to be offered on a seasonal basis between early December and the end of January, operated by a QANTAS A330 aircraft twice per week.
    • Upgrading one return SydneyHong Kong service to an Airbus A380 aircraft, increasing the number of A380 return services on this route from four to five per week.
    • Increasing frequency to daily on Brisbane–Los Angeles* using the aircraft made available by the A380 upgrade on the Hong Kong route.
    • Retiming Qantas’ existing SydneyChristchurch* service so that it connects with more international services from Sydney and complements the existing Emirates service on this route.

QANTAS Alan Joyce and Gareth Evans

QANTAS Group Chief Executive Officer Alan Joyce and Gareth Evans head the briefing.

*Subject to regulatory approval

The schedule is being progressively loaded from today for travel after 27 October 2013

ROUTE CHANGE EFFECTIVE DATE CUSTOMER BENEFIT
Perth–Auckland New route, seasonal.Two return services per week, departing Perth on Friday and Saturday, using a QANTAS A330. First service from Perth will be 6 December 2013.Last service from Auckland will be 1 February 2014. Adding almost 1,000 seats per week to what is currently a monopoly route over the busy Christmas and summer holiday period.An internationally configured A330 with Skybeds used on the route.
Sydney–Hong Kong Upgrading one return service per week from a B747 to A380.Increases the number of A380 services on this route from four to five per week, with the remainder operated by B747s. 4 November 2013 Increase in capacity by almost 5 per cent per week.Additional A380 flying into Asia.
Brisbane–Los Angeles Increase in the number of services on this route from six to seven using a B747. 2 December 2013 Additional convenience of a daily service from Brisbane.Increase in capacity on this route by about 15 per cent per week.
Sydney–Christchurch QANTAS flight retimed from morning to evening, meaning that the return flight (Christchurch to Sydney) arrives in Sydney at 8:50am instead of 3:55pm. Qantas code available on Emirates flight from Christchurch, which leaves at 4:55pm to arrive in Sydney at 6:15pm. Qantas code also available on Jetstar flight from Christchurch, which leaves at 6.35am to arrive in Sydney at 8.05am. 27 October 2013 Greatly improved onward connections for customers flying from Christchurch to Sydney and then to onward international and domestic flights.Removes need for South Island residents to fly via Auckland to connect with key international flights out of Sydney.Complements the existing Emirates service by providing a double daily service scheduled at either end of the day.

Copyright Photo: John Adlard/AirlinersGallery.com. Airbus A380-842 VH-OQD (msn 026) is pictured in action at the Sydney base.

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Jetstar Airways celebrates its 100th aircraft with a special livery

Jetstar Airways (Australia) (Melbourne) this month celebrated reaching 100 aircraft, a milestone reflecting the impressive scale of the airline across Asia Pacific.

Since launching in 2004, Jetstar has grown from a small domestic carrier – with just 14 aircraft flying up and down the east coast of Australia – to become the fastest airline brand in Asia Pacific to grow its fleet to 100 aircraft.

Jetstar Group Chief Executive Officer Jayne Hrdlicka said this milestone was only possible because of the 400,000 passengers who choose to fly with the Jetstar Group each week.

To commemorate this milestone, Jetstar has applied a special 100th aircraft livery on its first Sharklet-equipped Airbus A320.

The livery features 132 people doing the Jetstar star jump including passengers and ambassadors from across Asia Pacific representing the five Jetstar branded airlines.

“This aircraft also celebrates the huge achievement of carrying more than 100 million passengers in our nine year history,” Ms Hrdlicka added.

“The delivery of this new A320, with its remarkable wing-tip technology, reflects our on-going commitment to invest in modern aircraft and innovation to benefit our customers.

“The distinctive wing-tips bring about higher fuel efficiencies and help us to continue to deliver everyday low fares to our customers.”

The Jetstar Group now has three aircraft fitted with the fuel saving Sharklets – one each for Jetstar Asia, Jetstar Japan and now Jetstar Australia and New Zealand.

The Airbus A320-232 with the special 100th livery registration of VH-VFN (msn 5566) will be flown on major domestic routes and over the coming months and is expected to visit New Zealand, Singapore and Japan.

The Jetstar Group is made up of Jetstar Airways (subsidiary of the QANTAS Group) in Australia and New Zealand, Jetstar Asia in Singapore, Jetstar Pacific in Vietnam and Jetstar Japan in Japan.

Subject to regulatory approval, Jetstar Hong Kong will fly to destinations in Greater China, Japan, South Korea and South East Asia later this year.

Copyright Photo: John Adlard. VH-VFN taxies at Sydney with the special celebratory photos and livery.

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QANTAS Group announces a fleet update, will retire its last Boeing 737-400 and 767-300, the Boeing 737-800 fleet will grow to 75

The QANTAS Group (QANTAS Airways) (Sydney) has announced it will upgrade its entire fleet of Airbus A330s and order new Boeing 737-800s to drive its strategy in the international and domestic markets.

Beginning in late 2014, the Group will reconfigure the interior of 10 Airbus A330-300s and 20 A330-200s with a new flat seat in business class, refreshed economy cabin and a new inflight entertainment offering.

The A330-300s will be operated by QANTAS International on its network between Australia and Asia, while the A330-200s will be operated by QANTAS Domestic on routes between the east coast and Perth – enabling the final retirement of the Group’s Boeing 767s.

The Group will also purchase five additional Boeing 737-800 aircraft for QANTAS Domestic (for delivery during 2014) and extend the leases on two existing Boeing 737-800s this year.

The A330 reconfiguration program and the additional Boeing 737-800 orders do not affect the Group’s planned capital expenditure of $1.6 billion in 2012/13 and $1.5 billion in 2013/14..

The airline will also upgrade 20 A330-200s for QANTAS Domestic’s wide body fleet – meaning the trans-continental flights will be operated by aircraft featuring lie-flat beds in business and the latest inflight entertainment technology.

The Boeing 737-800 fleet will ultimately grow to 75 aircraft.

The older narrow body Boeing 737-400s will be phased out by the end of 2013 and Boeing 767s by mid-2015.

The group recently announced new orders for five additional Boeing 717 aircraft and three additional Bombardier Q400s for its regional operations.

On the financial side, the Group announced the following statement:

The Qantas Group has announced a statutory profit after tax of A$111 million (all currencies in Australian dollars) (and an underlying profit before tax of A$223 million) for the six months ended 31 December 2012.

Key points:
-Statutory Profit After Tax: $111 million, up 164 per cent
– Underlying Profit Before Tax1: $223 million, up 10 per cent
– Qantas Loyalty: record result2, underlying EBIT up 15 per cent
– Qantas International: 65 per cent improvement, turnaround on course
– Qantas Domestic and Jetstar: solid earnings despite excess capacity in domestic market
– Emirates partnership announced, interim authorisation granted, fares on sale
– No interim dividend declared

The result is in line with previous guidance and reflects progress in the Group’s strategy, despite challenging conditions in international and domestic air travel markets.

All operating segments of the Group’s portfolio were profitable with the exception of Qantas International. However, losses in QANTAS International were reduced by 65 per cent in 1H13 compared with 1H12.

Underlying profit before tax for the first half included $125 million in revenue from the agreement negotiated with Boeing in August 2012 to restructure the Group’s Boeing 787 order.

The Group incurred $136 million in one-off transformation costs during the first half, which have been recognised as items outside of underlying profit before tax.

CEO commentary and Group performance

Qantas CEO Alan Joyce said the Group was delivering against all its strategic goals.

“During 1H13 we increased underlying profit by 10 per cent, announced a global aviation partnership with Emirates3, launched Jetstar Japan, reinforced our position in the Australian domestic market, reduced comparable unit costs by 3 per cent4, announced the early repayment of $650 million in debt, commenced a share buy-back and sold non-core assets,” Mr Joyce said.

“In total, the Group achieved $172 million in transformation benefits in 1H13.

“The operating environment remains complex and volatile, but we are now beginning to realise the benefits of the tough decisions that we have made over the past 18 months.

“This progress would not have been possible without the passion and commitment of everyone at the Qantas Group, right across the company, and I thank all our people for their contribution.”

QANTAS International

QANTAS International reported an underlying EBIT loss of $91 million in 1H13 – an improvement of $171 million compared with 1H12.

“QANTAS International is well advanced in its turnaround plan,” Mr Joyce said.

“The 65 per cent improvement in QANTAS International’s underlying EBIT is testament to the steps taken to remove cost from the businesses, from closing down loss-making routes to retiring aircraft and consolidating
operations.

“But we have also moved to renew QANTAS International: nine Boeing 747s have been upgraded with A380- standard cabins, we have strengthened our alliances with American Airlines and LAN Airlines around the new hubs of
Dallas/Fort Worth and Santiago, and we are introducing new customer services such as chauffeur transport. International customer satisfaction has reached the highest level ever recorded.5

“From March 31, subject to final regulatory approval, our partnership with Emirates will take effect – giving our customers one-stop access to over 65 destinations in Europe, the Middle East and North Africa, via a superb hub in Dubai.

“At the same time, we will strengthen our network in Asia. Earlier this month we announced a new schedule for QANTAS services to the region, increasing dedicated capacity.

“Taken together, these measures provide a platform to return Qantas International to profit and, over the long term, target growth opportunities.”

QANTAS Domestic

QANTAS Domestic reported underlying EBIT of $218 million in 1H13, down from $328 million in 1H12.

“Clearly the Australian domestic market is highly competitive,” Mr Joyce said. “We have seen elevated levels of capacity growth from competitors attempting to claim market share from QANTAS Domestic.

“This has put pressure on yield for all airlines – but QANTAS Domestic has remained the airline of choice for business travellers, maintaining its 84 per cent share of the corporate market. During the first half we renewed 40 accounts and won 39 new accounts, including four won back from the competition.6

“We have continued to invest in the domestic business, with new and upgraded aircraft and a big focus on improving customer service through training and technology. Qantas Domestic consistently outperformed its main competitor for on-time performance during 2012 and achieved record customer satisfaction.7

“We also continue to grow in regional Australia, both through QantasLink and through our expanding charter business in mining regions. We are confident that with our balanced portfolio of domestic airlines we will
remain the leader in every segment of the market.”

Jetstar Airways:

Jetstar Airways reported underlying EBIT of $128 million in 1H13, down from $147 million in 1H12, reflecting domestic market conditions and start-up investments in Jetstar Japan and Jetstar Hong Kong.

“Jetstar’s revenues increased by 12 per cent as it positioned itself for a new phase of growth,” Mr Joyce said.

Jetstar Japan commenced domestic operations in July and has made a strong start – with over 600,000 passengers carried in its first six months.

“Singapore-based Jetstar Asia continued to grow, with an improvement in profitability, while the performance of Vietnam-based Jetstar Pacific is also improving after an ownership restructure and fleet renewal program.

“Jetstar Hong Kong’s application for regulatory approval is well underway, and though we do not take the outcome for granted, we believe there is a compelling case for a new low cost airline in this market.

“Already the largest low cost carrier in the Asia Pacific by revenue, we are now building up Jetstar’s scale across the region to support forecast passenger demand – using a capital-light model that draws on close
partnerships with local market leaders.”

Group financial position

The Group’s liquidity position is strong at $3.5 billion and disciplined financial management remains a core priority.

“In August 2012 we said that we would focus on debt reduction after a period of relatively high capital expenditure, and that’s what we have done,” Mr Joyce said.

“During the first half we announced the early repayment of over $650 million of debt. At the same time, we launched a share buy-back, reflecting the Board’s confidence in the Group’s underlying financial strength and long term strategy.

“These steps were enabled by $750 million in cash generated by the sale of our stake in StarTrack to Australia Post and the restructure of our Boeing 787 delivery schedule – prudent transactions in keeping with our commitment to disciplined financial management.”

Planned capital expenditure has been reduced by $600 million, with a forecast of $1.6 billion in 2012/13 and $1.5 billion in 2013/14.

Net free cash flow in 1H13 was $205 million and the Group continues to target positive net free cash flow9 on a full-year basis.

Outlook

The operating environment for the QANTAS Group in 2H13 remains challenging and volatile.

Group capacity is expected to increase by 0.5-1.5 per cent in 2H13 compared with 2H12. Group domestic capacity is expected to increase by 5-7 per cent in 2H13 compared with 2H12, while maintaining flexibility.

Underlying fuel costs for the Group are expected to be approximately $2.25 billion10 in 2H13.

No Group profit guidance is provided at this time due to the high degree of volatility and uncertainty in the competitive environment, global economic conditions, fuel prices and foreign exchange rates.

Copyright Photo: John Adlard. The last Boeing 767-300 will be retired by mid 2015. Boeing 767-336 ER VH-ZXB (msn 24338) in the special QANTAS Socceroos livery is pictured at the Sydney hom and base.

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