Category Archives: QANTAS Group

QANTAS Group announces major changes

QANTAS Group has made this announcement:

  • Three year strategy to guide recovery and return to growth in changed market.
  • Costs reduced by $15 billion during three year period of lower activity; $1 billion in ongoing cost savings per annum from FY23.
  • Around 100 aircraft to be grounded for up to 12 months; some for longer.
  • Job losses and extended stand downs to manage long period of reduced flying (especially internationally).
  • Equity raising of up to $1.9 billion to accelerate recovery and position for new opportunities.
    • Approximately $1.4 billion fully underwritten institutional Placement and up to $500 million non-underwritten Share Purchase Plan[1].
    • Issue price for new shares under the Placement of $3.65.
    • Pro forma liquidity of $4.6 billion following completion of the underwritten Placement and before the SPP proceeds, with $3.6 billion of cash and $1.0 billion of undrawn facilities.

 

The Qantas Group has announced a three year plan to accelerate its recovery from the COVID-19 crisis and create a stronger platform for future profitability, long-term shareholder value and to preserve as many jobs as possible.

The immediate focus of the plan is to:

  • Rightsize the Group’s workforce, fleet and other costs according to demand projections, with the ability to scale up as flying returns.
  • Restructure to deliver ongoing cost savings and efficiencies across the Group’s operations in a changed market.
  • Recapitalise through an equity raising to strengthen the Group’s financial resilience for recovery and the opportunities it presents.

Subsequent phases of the plan focus on the increasing ramp up of flying and pursuing new opportunities – including the airline’s ambition for more non-stop international flights.

The plan is designed to account for the uncertainty associated with the crisis, preserving as many key assets and skills as the Group can reasonably carry to support the eventual recovery. COVID represents the biggest challenge ever faced by global aviation and the Group’s response to the crisis is scaled accordingly. This unfortunately means a large number of job losses across Qantas and Jetstar.

The plan targets benefits of $15 billion over three years, in line with reduced flying activity including fuel consumption savings, and delivering $1 billion per annum in ongoing cost savings from FY23 through productivity improvements across the Group. Key actions of the plan include:

  • Reducing the Group’s pre-crisis workforce by at least 6,000 roles across all parts of the business.
  • Continuing the stand down for 15,000 employees, particularly those associated with international operations, until flying returns.
  • Retiring Qantas’ six remaining 747s immediately, six months ahead of schedule.
  • Grounding up to 100 aircraft for up to 12 months (some for longer), including most of the international fleet. The majority are expected to ultimately go back in to service but some leased aircraft may be returned as they fall due.
  • A321neo and 787-9 fleet deliveries have been deferred to meet the Group’s requirements.

The cost of implementing the plan is estimated at $1 billion, with most of this realised during FY21.

CEO COMMENTARY

Announcing the plan Qantas Group CEO Alan Joyce said: “The Qantas Group entered this crisis in a better position than most airlines and we have some of the best prospects for recovery, especially in the domestic market, but it will take years before international flying returns to what it was.

“We have to position ourselves for several years where revenue will be much lower. And that means becoming a smaller airline in the short term.

“Most airlines will have to restructure in order to survive, which also means they’ll come through this leaner and more competitive. For all these reasons, we have to take action now.

“Adapting to this new reality means some very painful decisions. The job losses we’re announcing today are confronting. So is the fact thousands more of our people on stand down will face a long interruption to their airline careers until this work returns.

“What makes this even harder is that right before this crisis hit, we were actively recruiting pilots, cabin crew and ground staff. We’re now facing a sudden reversal of fortune that is no one’s fault, but is very hard to accept.

“This crisis has left us no choice but we’re committed to providing those affected with as much support as we can. That includes preserving as many jobs as possible through stand downs, offering voluntary rather than compulsory redundancies where possible, and providing large severance payouts for long serving employees in particular.

“As we’ve done throughout this crisis, our decisions are based on the facts we have now and the road we see in front of us. Our plan gives us flexibility under a range of scenarios, including a faster rebound or a slower recovery.

“Despite the hard choices we’re making today, we’re fundamentally optimistic about the future. Almost two-thirds of our pre-crisis earnings came from the domestic market, which is likely to recover fastest – particularly as state borders prepare to open. We have the leading full service and low fares airlines in Australia, where distance makes air travel essential, and diversified earnings through Qantas Loyalty.

“We still have big ambitions for long haul international flights, which will have even more potential on the other side of this.

“As a business, recapitalising means we can get ready sooner for new opportunities, returning to profit and building long term shareholder value. As the national carrier, we remain committed to supporting tourism, connecting regional communities and safely flying millions of people every year.”

EQUITY RAISING

The Board has today announced that the Group will seek to raise up to $1.9 billion, comprising of a fully underwritten institutional Placement to raise approximately $1,360 million and a non-underwritten Share Purchase Plan for eligible existing shareholders to participate of up to $500 million[1].

Proceeds from the Equity Raising will be used to accelerate the Group’s recovery, strengthen its balance sheet and position it to capitalise on opportunities aligned with its strategy.

The Placement issue price of $3.65 per share represents a 12.9% discount to the last traded price of $4.19 on 24 June 2020.

The approximately 372.7 million new fully paid ordinary shares issued under the Placement represents a 25% increase to total shares on issue – which itself has decreased by more than a third through share buybacks in recent years.

IMPACT ON OUR PEOPLE

Of the Group’s 29,000 people, around 8,000 are expected to have returned to work by the end of July this year. It’s anticipated that this will increase to around 15,000 by the end of calendar year 2020 in line with the opening up of domestic flying, and increase further during calendar 2021 and 2022 as the international network returns, reaching 21,000 active employees by June 2022.

Redundancies are proposed to manage a surplus of around 6,000 roles, with the temporary surplus of around 15,000 managed through a mix of stand down, annual leave and leave without pay.

Stand-ups will increase as travel restrictions lift and flying returns. This allows the Group to preserve as many jobs as possible for the longer term and respond faster if recovery timelines improve.

In line with its obligations, the Group will consult with relevant unions on the proposed job losses announced today. These span the following areas of Qantas and Jetstar:

  • Non-operational – at least 1,450 job losses, mainly in corporate roles, due to less flying activity.
  • Ground operations – at least 1,500 job losses across airports, baggage handling, fleet presentation and ramp operations due to less flying activity.
  • Cabin crew – at least 1,050 job losses due to early retirement of the 747s and less flying activity. A further 6,900 cabin crew will be on stand down from July 2020 onwards.
  • Engineering – at least 630 job losses due to 747 retirement, less flying activity (particularly of the wide-body fleet) and redistribution of work from Jetstar’s Newcastle base to make better use of existing maintenance capacity in Melbourne.
  • Pilots – at least 220 job losses mostly due to early retirement of the 747s. A further 2,900 pilots will be on stand down from July 2020 onward.

Additional reduction in total roles will result from contractors, particularly in corporate areas such as IT, not returning.

ASSET IMPAIRMENTS

While most of the Group’s long-haul aircraft are expected to steadily return to service over time, there is significant uncertainty as to when flying levels will support its 12 Airbus A380s.  These assets will be idle for the foreseeable future, which represents a significant percentage of their remaining useful life. As a result, the carrying value of the A380 fleet, spare engines and spare parts will be written down to their fair value, resulting in an estimated non-cash impairment charge in the FY20 statutory result. This represents the majority of the asset impairment charge of $1.25–$1.4 billion, outlined in the table below. As a consequence of the writedown, future depreciation expenses will reduce.

FUEL HEDGING

The Group’s fuel was fully hedged for the second half of FY20, and 90% hedged for the first half of FY21.  With the significant decline in flying activity, the Group’s overall capacity flown has resulted in a substantial reduction in fuel consumption from April 2020 and the anticipated decline in consumption to June 2021 will lead to the non-cash recognition of hedge ineffectiveness of $550–$600 million in the FY20 statutory result.

FY20 FINANCIAL PERFORMANCE

After reporting a strong Underlying Profit Before Tax of $771 million in the first half of FY20, the Group saw a significant reduction in revenue during the second half. By taking swift action to reduce its cash burn as travel demand evaporated, the Group expects to report a full year result between breakeven and a small Underlying Profit Before Tax.

Qantas Loyalty is expected to make the largest positive contribution to this result, with only a 5%–10% reduction in earnings compared to FY19 as a result of the impact of COVID on travel related products and credit card spend. The program continues to see strong levels of engagement, with a range of initiatives planned over the next six months to maintain and improve its value to members and partners.

Qantas Freight performed strongly, driven by major increases in ecommerce that are also expected to continue.

The table below reflects the Group’s current expectations of significant items it expects to recognise outside of its Underlying FY20 result.

Items outside of Underlying FY20 1H20 Impact
(previously reported)
Estimated FY20 impact (subject to review and audit processes)
Transformation costs and discretionary bonuses to non-executive employees awarded in prior years $123 million ~$200 million
Recovery plan restructuring costs including redundancies NIL $600-700 million
Asset impairments including the A380 fleet (non-cash) NIL $1,250-1,400 million
Hedge ineffectiveness[2] (non-cash) NIL $550-600 million[3]
Total $123 million ~$2.8 billion

 

CURRENT FINANCIAL POSITION

Following completion of the underwritten Placement, the Group’s available liquidity is expected to be $4.6 billion excluding the SPP proceeds, including a $1 billion undrawn facility. As at 31 May 2020, pro forma net debt is expected to be $4.7 billion with no major debt maturities until June 2021 and no financial covenants on its debt.

CEO TENURE

At the Board’s request, Alan Joyce has agreed to remain Qantas Group CEO as the recovery plan is implemented and through to at least the end of FY23. This will provide the leadership, experience and stability required as the Group navigates this incredibly challenging period.

REVOCATION OF INTERIM DIVIDEND

On 19 March 2020, the Group announced the deferral of its interim dividend due to uncertainty caused by the unfolding coronavirus crisis.

This uncertainty has now crystallised into a significant detrimental impact on the Group’s earnings and cash position. Further, the fully franked nature of the interim dividend was based on franking credits expected from taxable profits in the second half, which will now not materialise.

Accordingly, the Board has decided to revoke the interim dividend, avoiding the outflow of $201 million of cash and helping to maintain strong liquidity in the face of this unprecedented crisis. Decisions on future dividends will continue to be made in-line with the Group’s financial framework.

EQUITY RAISING – TRANSACTION SUMMARY

Placement

The approximately $1,360 million Placement is fully underwritten and will be offered to institutional investors at $3.65 per share (Placement Price), representing a 12.9% discount to the last traded price of $4.19 on Wednesday 24 June 2020. The Placement will result in the issue of 372.7 million new shares (Placement Shares), representing approximately 25.0% of Qantas’ existing shares on issue.

The Placement is being conducted today, Thursday, 25 June 2020, and Qantas’ shares will remain in a trading halt pending completion of the Placement.

The Placement is within Qantas’ placement capacity under the Temporary Extra Placement Capacity Class Waiver Decision (as amended) effective from 23 April 2020, and accordingly no shareholder approval is required in connection with the Placement.

It is intended that eligible existing institutional shareholders who bid for up to their ‘pro-rata’ share of new shares under the Placement will be allocated their full bid, on a best endeavours basis.  For the remaining shares under the Placement, Qantas will seek to prioritise allocations to existing shareholders and then introduce new shareholders, in each case based on factors including likelihood of long term support for the Group, the nature of the investor, support to date and existing holdings (if applicable) and the size and timeliness of bids into the book.

Share Purchase Plan (SPP)

Eligible shareholders in Australia and New Zealand will have the opportunity to apply for up to $30,000 of new fully paid ordinary shares (SPP Shares) free of any brokerage, commission and transaction costs.

The price paid by eligible shareholders for SPP Shares will be the lesser of:

  • the Placement Price; and
  • a 2.5% discount (rounded down to the nearest cent) to the 5-day VWAP of Qantas shares up to, and including, the closing date of the SPP (expected to be 22 July 2020).

Qantas considers that the SPP will cater for the vast majority of its non-institutional shareholders, enabling them to participate and potentially increase their relative percentage holdings in Qantas.

The Qantas Board has determined to cap the size of the SPP at $500 million, in aggregate.

As the SPP is not underwritten, the SPP may raise more or less than this amount. If the SPP raises more than $500 million, Qantas may decide in its absolute discretion to accept applications (in whole or in part) that result in the SPP raising more than $500 million. If Qantas decides to conduct any scale back of applications, for example because the aggregate amount applied for under the SPP exceeds Qantas’ requirements, the scale back will be applied on a pro rata basis to shareholdings of participating eligible shareholders at the record date of the SPP.

Further details of the SPP will be provided to eligible shareholders in due course. A SPP booklet will be sent to eligible shareholders on 2 July 2020. The closing date for applications by eligible shareholders is 22 July 2020.

Eligible shareholders wishing to acquire new shares under the SPP will need to apply in accordance with the instructions in the SPP booklet.

The Placement Shares and SPP shares will rank equally in all respects with Qantas’ existing ordinary shares from the date of allotment.

A timetable in respect to the Placement and SPP is provided at Appendix A.

Under ASX listing rules, Qantas Directors are not entitled to participate in the Placement, but can (and intend to) participate fully in the SPP if they are Australian/New Zealand residents.

QANTAS to sell its minority share of Jetstar Pacific which will become Pacific Airlines

QANTAS Group has confirmed it will sell its 30 percent minority share of Jetstar Pacific Airlines of Vietnam to co-owner Vietnam Airlines

QANTAS wants to focus on its other airlines.

Jetstar Pacific made this announcement:

Vietnam Airlines and QANTAS Group (Australia) have agreed to promote changes to Jetstar Pacific to improve business production and profitability of this low-cost airline, while promoting scale and the brand power of Vietnam Airlines in the domestic market.

Jetstar Pacific will conduct the procedures needed to change the brand name to Pacific Airlines, with a new logo and brand recognition set inspired by Vietnam Airlines’s main color. The time Jetstar Pacific officially operates under new name Pacific Airlines will be based on authorities decision.


Pacific Airlines will also convert booking system from Navitaire to Sabre – Vietnam Airlines system in operation – to synchronize the flight, booking procedures and features for customers with Vietnam Airlines.

After changing the brand name, Vietnam Airlines and Pacific Airlines will continue to create a product series that not only meets the diverse needs of customers from low-to high-end cost segment, but also increases value, benefits for both customers and businesses.

Jetstar Pacific Airlines became the first low-cost airline in Vietnam when it was launched in May 2008. The carrier flies to 16 domestic and international destinations with its fleet of 10 Airbus A320 aircraft.

Jetstar Pacific is owned by two major shareholders. Vietnam Airlines holds 70 percent, and the QANTAS Group holds 30 percent.

Jetstar Pacific Airlines aircraft photo gallery:

QANTAS Airways announces “Fly Well” program

QANTAS Airways has made this announcement:

  • Range of measures introduced to ensure a safe travel environment and give extra peace of mind.
  • Masks on board, hand sanitising stations and enhanced aircraft cleaning among the improvements.
  • More flexibility added to bookings so people can plan with confidence.

Qantas and Jetstar will roll out a series of wellbeing improvements to give peace-of-mind in preparation for domestic travel restrictions easing.

The ‘Fly Well’ program brings together a number of temporary measures already in use by the Qantas Group, including on repatriation flights from virus hot-spots, and represents a combination of best-practice medical advice and feedback from customers.

Rolling out from 12 June, the key measures at each point of the journey will be:


Pre-flight

  • Information sent to all customers before they fly, so they know what to expect.
  • Contactless check-in (via online/app) and self-serve bag drop strongly encouraged, including use of Q Bag Tags.
  • Hand sanitising stations at departure gates.
  • Temporary changes to Qantas Lounges, including increased physical distancing, hand sanitising stations, enhanced disinfection of surfaces and adjustments to food and drink service.
  • Working with airports on other safeguards in the terminal, including regular disinfection of security screening points and installing hygiene screens at airline customer service desks, wherever practical.


On board

  • Masks provided to all passengers on each flight – while not mandatory from a safety point of view, they are recommended to be worn in the interests of everyone’s peace-of-mind.
  • Enhanced cleaning of aircraft with a disinfectant effective against Coronaviruses, with a focus on high contact areas – seats, seatbelts, overhead lockers, air vents and toilets.
  • Sanitising wipes given to all passengers to wipe down seat belts, trays and armrests themselves, if preferred.
  • Simplified service and catering to minimise touchpoints for crew and passengers.
  • Passengers asked to limit movement around cabin, once seated.
  • Sequenced boarding and disembarkation to minimise crowding.

In addition, the air conditioning systems of all Qantas and Jetstar aircraft are already fitted with hospital-grade HEPA filters, which remove 99.9% of all particles including viruses. Air inside the cabin is refreshed on average every five minutes during flight.

All airline employees are required to follow strict personal hygiene protocols, for the benefit of themselves and others.

All passengers are encouraged to download the Australian Government’s COVIDSafe app as part of improving the ability of health authorities to contain the spread of Coronavirus. In-line with public health advice, anyone with cold and flu like symptoms should stay at home.


COMMENTS

Qantas Group CEO Alan Joyce said: “Safety is absolutely core to how we operate and that applies to new challenges like managing the risk of coronavirus so people can fly with confidence.

“From the early rescue flights we operated right into Wuhan and then more recently bringing Australians back from places like the US and Europe, we have a lot of experience at creating a safe cabin environment for passengers and crew.

“We’re relying on the cooperation of passengers to help make these changes work for everyone’s benefit, and we thank them in advance for that. Given the great job Australians have done at flattening the curve, we’re confident they’ll respond positively to these temporary changes to how we fly.

“We’ll continue to work with government and monitor the rollout of these measures closely, which are designed  with safety in mind and help people feel comfortable given the new norms that have emerged in response to the Coronavirus crisis,” added Mr Joyce.

Qantas Group Medical Director, Dr Ian Hosegood, said: “The data shows that actual risk of catching Coronavirus on an aircraft is already extremely low. That’s due to a combination of factors, including the cabin air filtration system, the fact people don’t sit face-to-face and the high backs of aircraft seats acting as a physical barrier. As far as the virus goes, an aircraft cabin is a very different environment to other forms of public transport.”

“Social distancing on an aircraft isn’t practical the way it is on the ground, and given the low transmission risk on board, we don’t believe it’s necessary in order to be safe. The extra measures we’re putting place will reduce the risk even further,” added Dr Hosegood.

The Fly Well program will be reviewed after its first month of operation and shaped by customer feedback and medical advice.


IMPROVED FLEXIBILITY FOR CUSTOMERS

Customer research shows 98 per cent of frequent flyers are planning their next trip once restrictions lift. To help improve flexibility as travel restrictions are steadily adjusted, Qantas and Jetstar are introducing more flexibility from today.

  • Domestic : Customers can book any Qantas or Jetstar Australian domestic flight between 21 May and 30 June 2020, for travel between 12 June and 31 October 2020, and we will waive the change fee one time if you decide to change the date of your travel. Customers will have to cover any fare increase (if relevant) for the new booking.
  • International flight credit extension: Further flexibility has been introduced for international bookings (excluding Trans-Tasman). Customers with an existing Qantas or Jetstar international flight booking, for travel between 1 August and 31 October 2020, who wish to change their plans, can cancel their booking and retain the full value as a flight credit. Flight credits must be requested by 30 June 2020 and are valid for booking and travel across domestic and international services by 31 December 2021. Jetstar credit vouchers allow up to two years to travel from issue date. Customers will have to cover any fare increase (if relevant) for the new booking.

If a flight is cancelled by us, customers will be rebooked on the next available flight at no additional cost. Alternatively, customers can choose a flight credit or a refund.

QANTAS Airways aircraft photo gallery:

QANTAS Group secures $1.05 billion in additional funding, secured by seven Dreamliners

QANTAS Group has made this announcement:

The QANTAS Group has completed a new round of debt funding, securing $1.05 billion in additional liquidity to strengthen its position as it manages through the Coronavirus outbreak.

This debt has been secured against part of the Group’s fleet of unencumbered aircraft[1], which were bought with cash in recent years. The loan has a tenure of up to 10 years at an interest rate of 2.75 percent.

David Gray /Getty Images for Qantas

This funding increases the Group’s available cash balance to $2.95 billion with an additional $1 billion undrawn facility remaining available.

The Group’s net debt position remains at the low end of its target range, at $5.1 billion, with no major debt maturities until June 2021. In line with the rest of the QANTAS debt book, the new funding contains no financial covenants.

With a further $3.5 billion in unencumbered assets, the QANTAS Group retains flexibility to increase its cash balance as a prudent measure in the current climate. As previously announced, various steps have been taken to significantly reduce activity levels and costs given the dramatic revenue impact of the Coronavirus pandemic and the related travel restrictions on Jetstar and Qantas passenger services.

QANTAS Group CEO Alan Joyce said: “Over the past few years we’ve significantly strengthened our balance sheet and we’re now able to draw on that strength under what are exceptional circumstances. Everything we’re doing at the moment is focused on guaranteeing the long term future of the national carrier, including making sure our people have jobs to return to when we have work for them again.”

[1] Seven of the Group’s 11 wholly-owned Boeing 787-9s have been securitised against this funding.

QANTAS Airways aircraft photo gallery:

 

QANTAS and Jetstar to suspend scheduled international flights, all A380s. 747s and Dreamliners grounded

QANTAS Group has made this announcement:

  • QANTAS and Jetstar to suspend scheduled international flights from late March, following latest government travel advice; some ongoing ad hoc services possible.
  • 60 percent reduction to domestic flights, focused on cutting frequency.
  • Two-thirds of employees to be temporarily stood down to preserve as many jobs as possible longer term.
  • Payment of $201 million shareholder dividend deferred until September 2020.

The QANTAS Group has outlined the customer and employee impact of a huge drop in travel demand triggered by the public health response to the Coronavirus crisis.

Earlier this week, cuts to 90 percent of international flying and about 60 per cent of domestic flying were announced by QANTAS and Jetstar. With the Federal Government now recommending against all overseas travel from Australia, regularly scheduled international flights will continue until late March to assist with repatriation and will then be suspended until at least the end of May 2020. As the national carrier, Qantas is in ongoing discussions with the Federal Government about continuation of some strategic links.

More than 150 aircraft will be temporarily grounded, including all of QANTAS’ A380s, 747s and 787-9s and Jetstar’s 787-8s.  Discussions are progressing with airports and government about parking for these aircraft.

Essential domestic, regional and freight connections will be maintained as much as possible.

QANTAS’ fleet of freighters will continue to be fully utilised. Some domestic passenger aircraft will also be used for freight-only flights to replace lost capacity from regular scheduled services. There is no impact on Qantas Loyalty’s operations as a result of today’s announcement.

INTERNATIONAL NETWORK CHANGES

The QANTAS Group is making the following changes:

  • All regularly scheduled QANTAS and Jetstar international flights from Australia will be suspended from end March until at least end May 2020. Some flights may continue in order to maintain key links, based on ongoing discussions with the Federal Government.
  • Jetstar Asia (Singapore) will suspend all flights from March 23 to at least April 15, 2020.
  • Jetstar Japan has suspended international flights and cut domestic flying.
  • Jetstar Pacific (Vietnam) has suspended international flights and will significantly cut domestic flying.

DOMESTIC NETWORK CHANGES

The Group will maintain connectivity to almost all Australian domestic and regional destinations that QANTAS, QANTAS Link and Jetstar currently operate to. The 60 percent reduction in capacity will come mostly from a significant reduction in flight frequency, but also route suspensions and postponing a number of new route launches.

(The route-by-route detail of these changes can be found here.)

PEOPLE IMPACT

In order to preserve as many jobs as possible longer term, QANTAS and Jetstar will stand down the majority of their 30,000 employees until at least the end of May 2020.

During the stand down, employees will be able to draw down on annual and long service leave and additional support mechanisms will be introduced, including leave at half pay and early access to long service leave. Employees with low leave balances at the start of the stand down will be able to access up to four weeks’ leave in advance of earning it. Unfortunately, periods of leave without pay for some employees are inevitable.

Senior Group Management Executives and the Board have increased their salary reductions from 30 per cent to 100 per cent until at least the end of this financial year, joining the Chairman and Group CEO in taking no pay. Annual management bonuses have also been cancelled.

SHAREHOLDER IMPACT

Given the current extraordinary circumstances, a decision has been made to defer payment of the shareholder dividend announced on 20 February from 9 April until 1 September 2020. This is in addition to the cancellation of the off-market buy back, previously announced.

CEO COMMENTARY

Comments from Qantas Group CEO Alan Joyce:

“The efforts to contain the spread of Coronavirus have led to a huge drop in travel demand, the likes of which we have never seen before. This is having a devastating impact on all airlines.

“We’re in a strong financial position right now, but our wages bill is more than $4 billion a year. With the huge drop in revenue we’re facing, we have to make difficult decisions to guarantee the future of the national carrier.

“The reality is we’ll have 150 aircraft on the ground and sadly there’s no work for most of our people. Rather than lose these highly skilled employees who we’ll need when this crisis passes, we are instead standing down two-thirds of our 30,000 employees until at least the end of May.”

“Most of our people will be using various types of paid leave during this time, and we’ll have a number of support options in place. We’re also talking to our partners like Woolworths about temporary job opportunities for our people.

“This is a very hard set of circumstances for our people, as it is for lots of parts of the community right now.

“No airline in the world is immune to this, with the world’s leading carriers making deep cuts to flying schedules and jobs. Our strong balance sheet means we’ve entered this crisis in better shape than most and we’re taking action to make sure we can ride this out.

“Since this crisis started, there has been overwhelming support from our customers. That gives me even more confidence that we’ll get through this,” added Mr Joyce.

CUSTOMER INFORMATION

Customer contact centres are currently experiencing long wait times from people seeking to change their travel plans as a result of the Coronavirus. To help manage the demand we ask that customers only call if they have travel within the next 48 hours.

To avoid further inconvenience, we’re converting all bookings on cancelled flights to a travel credit, which can be used anywhere on our network.  Affected customers will be contacted directly from next Monday.  Any customers travelling before the end of May who wish to change their booking are also eligible to receive a travel credit instead.

If flights were booked through a travel agency or third-party website (e.g. Webjet, Booking.com), customers will need to contact them directly to make changes to their booking.

QANTAS Airways aircraft photo gallery:

QANTAS Group makes drastic cuts leaving only two Airbus A380s flying

The QANTAS Group has announced further cuts to its international flying, reducing capacity by almost a quarter for the next six months.

The latest cuts follow the spread of the Coronavirus into Europe and North America over the past fortnight, as well as its continued spread through Asia, which has resulted in a sudden and significant drop in forward travel demand.

These additional changes will bring the total international capacity reduction for QANTAS and Jetstar from 5 percent to 23 percent versus the same time last year and extend these cuts until mid-September 2020.

The biggest reductions remain focussed on Asia (now down 31 percent compared with the same period last year). Capacity reductions to the United States (down 19 percent), the UK (down 17 percent) and Trans-Tasman (down 10 percent) will also be made in line with forward booking trends.

CHANGES TO SERVICES

Rather than exit routes altogether, QANTAS will use smaller aircraft and reduce the frequency of flights to maintain overall connectivity.

This approach results in eight of the airline’s largest aircraft, the Airbus A380, grounded until mid-September. A further two A380s are undergoing scheduled heavy maintenance and cabin upgrades, leaving two of its A380s flying.

In response to strong customer demand for the direct Perth-London service, the existing Sydney-Singapore-London return service (QF1 and QF2) will be temporarily re-routed to become a Sydney-Perth-London service from April 20, 2020.

The start of QANTAS’ new Brisbane-Chicago route will be delayed from April 15 to mid-September.

Jetstar will make significant cuts to its international network, including suspending flights to Bangkok and reducing flights from Australia to Vietnam and Japan by almost half. Jetstar’s daily Gold Coast to Seoul flight was suspended last week.

(See table below for more detail of international network changes.)

Domestically, QANTAS and Jetstar capacity reductions will be increased from 3 per cent to 5 per cent[1] through to mid-September 2020, in line with broader economic conditions.

In total, this is the equivalent of grounding 38 Qantas and Jetstar aircraft[2] across the international and domestic network. The Group’s total capacity reduction changes from 4 per cent (announced on February 20) to 17 percent for the last quarter of FY20.

Given the reduced flying across the QANTAS Group fleet, maintenance work will be brought forward where possible to make best use of this time.

IMPACT ON FINANCIAL PERFORMANCE

The Group is taking decisive action to mitigate the significant adverse impact of Coronavirus on demand, including longer range capacity cuts that improve the business’ ability to reduce costs. However, given the dynamic and uncertain nature of this situation, it is not possible to provide meaningful guidance at this time on the size of that impact on Group earnings for the remainder of FY20.

In line with its Financial Framework the Group is in a strong position, with low debt levels and a long debt maturity profile, $1.9 billion in cash plus a further $1 billion in undrawn facilities and $4.9 billion in unencumbered assets.

To help maintain this position in the face of current uncertainty, the Board has decided to cancel the off-market buyback announced in February, which will preserve $150 million in cash. The interim dividend of 13.5 cents per share will still be paid on 9 April.

COST REDUCTION MEASURES

In addition to cutting capacity, a number of cost reduction measures will be triggered across the QANTAS Group, including:

  • Annual management bonuses set to zero for FY20.
  • For the remainder of FY20:
    • QANTAS Chairman will take no fees.
    • Group CEO will take no salary.
    • QANTAS Board will take a 30 percent reduction in fees.
    • Group Executive Management will take a 30 percent pay cut.
  • Freeze of all non-essential recruitment and consultancy work.
  • Asking all QANTAS and Jetstar employees to take paid or unpaid leave in light of reduced flying activity.

A material drop in fuel price has provided a significant cost benefit in addition to the saving from lower consumption. The Group’s total fuel cost is now expected to be $3.74b[3] (excluding the benefit of capacity reductions compared with the same time last year) with limited participation to further falls in Brent crude prices.

CEO COMMENTARY

Announcing the changes, QANTAS Group CEO Alan Joyce, said: “In the past fortnight we’ve seen a sharp drop in bookings on our international network as the global coronavirus spread continues.

“We expect lower demand to continue for the next several months, so rather than taking a piecemeal approach we’re cutting capacity out to mid-September. This improves our ability to reduce costs as well as giving more certainty to the market, customers and our people.

“We retain the flexibility to cut further or to put capacity back in as this situation develops.

“The QANTAS Group is a strong business in a challenging environment. We have a robust balance sheet, low debt levels and most of our profit comes from the domestic market. We’re in a good position to ride this out, but we need to take steps to maintain this strength.

“When revenue falls you need to cut costs, and reducing the amount of flying we do is the best way for us to do that.

“Less flying means less work for our people, but we know coronavirus will pass and we want to avoid job losses wherever possible. We’re asking our people to use their paid leave and, if they can, consider taking some unpaid leave given we’re flying a lot less.

“Annual management bonuses have been set to zero and the Group Executive team will take a significant pay cut for the rest of this financial year.

“It’s hard to predict how long this situation will last, which is why we’re moving now to make sure we remain well positioned. But we know it will pass, and we’ll be well positioned to take advantage of opportunities when it does.”

ADVICE FOR CUSTOMERS

QANTAS and Jetstar will contact customers affected by these changes in the coming week. Customers who booked via a travel agent (including online travel agents) will be contacted by their agent rather than the airline.

Typically, customers flying internationally will be offered an alternative flight via another capital city or a partner airline, or an alternative day. Disruption to domestic passengers is expected to be minimal given the continued high frequency on most routes.

The latest information will be published on Qantas and Jetstar websites. Customers are encouraged to check this before calling the airline.

To provide customers with greater flexibility and confidence when they book, Qantas and Jetstar will waive change fees for new international bookings made from today until the end of March, if customers change their travel plans[4]. This applies to travel commencing up to June 30, 2020 and is limited to one free change per customer. Customers will need to pay any fare difference.

SUMMARY OF QANTAS GROUP NETWORK CHANGES

Route Change Effective dates (until mid-Sept 2020)
Asia
Sydney-Tokyo (Haneda) B747 replaced by smaller A330 30 March
Melbourne-Singapore  – 7 return flights per week cancelled (QF 37/38)

– B787 replaced by larger A330 on 7 return flights per week (QF 35/36)

– 20 April– 4 May
North America 
Brisbane-Chicago Route launch postponed Was to start 15 April
Brisbane-San Francisco Route suspended (3 return flights per week) 18 April
Sydney-San Francisco B787 replaced by larger B747 18 April
Melbourne-San Francisco Route suspended (4 return flights per week) 18 April
Sydney-Dallas/Fort Worth A380 replaced by smaller B787 20 April
Melbourne-Los Angeles A380 replaced by smaller B787 1 June
Sydney-Vancouver Seasonal service suspended (3 return flights per week) June and July only
United Kingdom
Sydney-London (Heathrow) – Flights to operate via Perth (instead of Singapore)then non-stop to London.

– Perth-London to become double daily as a result.

– A380 replaced by smaller B787

20 April
South America
Sydney-Santiago Delaying planned B787 introduction and continuing with B747 1 August

Note: The suspension of the A380 and First Class from Singapore routes will see the QANTAS First Lounge in Singapore close temporarily, with customers instead invited to use the adjacent QANTAS Business Lounge.

Note: QANTAS Boeing 787 has approx. 250 less seats than an A380.  

 

QANTAS – Extension of previously announced cancellations

(Until mid-Sept 2020 unless stated)

Route Change
Sydney-Shanghai Route continues to be suspended until at least mid-July (7 flights per week)(sole route to mainland China)
Sydney-Hong Kong Reduced from 14 to 7 return flights per week
Melbourne-Hong Kong Reduced from 7 to 4 return flights per week (1 additional cancellation per week from previously announced cuts)
Brisbane-Hong Kong Reduced from 7 to 3 return flights per week (1 additional cancellation per week from previously announced cuts)

 Note: Further capacity reductions will also be made on flights to Japan and New Zealand, with other Asian routes under evaluation.

 

Jetstar Airways – Summary of New Changes

Routes Change Effective date (until end June but may be extended)
Asia
Melbourne-Bangkok Route suspended 1 May
Sydney/Melbourne-Ho Chi Minh Flights reduced by over 50 per cent 1 May
Japan routes Flights reduced by almost 40 per cent 20 May
Brisbane-Bali Minor flight reductions 1 May

Note: Further capacity reductions will also be made on flights to New Zealand, with other Asian routes are under evaluation.

 

Jetstar Airlines in Asia – Summary of changes

Jetstar Asia (based in Singapore) will cut capacity by almost 40 percent with reductions in frequencies across the network. Singapore to Taipei and Osaka routes will be suspended.

Jetstar Japan has suspended its international services to Hong Kong, Taipei and Shanghai until at least the end of May and will reduce flights to Manila. Further reductions will be made to its Japanese domestic network.

Jetstar Pacific (based in Vietnam) has also suspended all international routes to the end of April, with the exception of Ho Chi Minh-Bangkok where flights have been halved. Further reductions are being made to its Vietnamese domestic network.

[1] Versus Q4 FY19.

[2] Includes seven Jetstar Asia (Singapore) aircraft and nine aircraft across Jetstar Japan and Jetstar Pacific (Vietnam).

[3] Compared with estimate of $3.85b at 20 February 2020.

[4] Changes need to be made at least three days before the date of travel.

 

QANTAS Airways aircraft photo gallery:

Air France-KLM Group steps up cooperation with QANTAS Group

Air France-KLM released this statement:

Loyalty Programs Collaborate to Enhance Customer Value Proposition

After the resumption of codeshare cooperation in 2018, offering best-in-class solutions to fly between Europe and Australia via Singapore and Hong Kong, the Air France-KLM Group and Qantas Group have continued working on further cooperation opportunities for the benefit of their respective customers.

Starting December 9, 2019 members of Flying Blue, the loyalty program used by the airlines of the Air France-KLM Group, can earn1 miles and XP (Experience Points) as well as spend miles on Qantas flights.

Flying Blue elite members will also have access to additional benefits such as priority airport services and additional checked baggage allowance when traveling on Qantas.

New Codeshare with Jetstar

By the end of December, both Air France and KLM plan to launch a codeshare cooperation with Jetstar Airways and Jetstar Asia Airways, two airlines which are part of the Qantas Group portfolio, connecting respectively in Denpasar and Singapore, thus expanding customer travel options to Southeast Asia and Australia.

Air France and KLM customers will benefit from a seamless travel experience with single ticket itineraries and through-checked baggage.

Under this agreement, Air France and KLM customers will have access to a wider range of destinations in Southeast Asia. Connecting in Singapore from Amsterdam or Paris, Air France and KLM will place their code on 12 additional destinations2 operated by Jetstar Asia Airways: Da Nang (Vietnam), Ho Chi Minh City (Vietnam), Denpasar (Indonesia), Medan (Indonesia), Surabaya (Indonesia), Phnom Penh (Cambodia), Siem Reap (Cambodia), Kula Lumpur (Malaysia), Penang (Malaysia), Phuket (Thailand), Yangon (Myanmar), and Darwin (Australia).

During the winter 2019 season, KLM plans to implement codeshares with Jetstar Airways providing itineraries beyond its Denpasar flight to four destinations in Australia: Adelaide, Melbourne, Perth, and Sydney2.

Also expected during December 2019, Air France, KLM and Qantas will extend their codeshare to flights connecting in Bangkok, on top of the existing codeshare via Singapore and Hong Kong, and providing a third route to connect Amsterdam and Paris with Sydney.

Additionally, the two airline groups continue to explore opportunities like potential cooperation with airport lounges.

(1) Earning of miles and XP is only possible on Qantas operated flights that are marketed by Air France, KLM or Qantas
(2) All subject to governmental authorizations

Jetstar Airways aircraft photo gallery:

QANTAS Group to slash carbon emissions

100 Centenary Scheme - "QANTAS Time Capsule Towards 2120"

The QANTAS Group will reach net zero carbon emissions by 2050 in a major expansion of the airline’s commitment to a more sustainable aviation industry.

The national carrier will:

  • Immediately double the number of flights being offset
  • Cap net emissions from 2020 onwards
  • Invest $50 million over 10 years to help develop a sustainable aviation fuel industry

 

CUTTING NET CARBON EMISSION

This announcement means that Qantas is the only airline group to commit to cap its net emissions at 2020 levels, and the second to commit to net zero emissions by 2050.

In total, these commitments are the most ambitious carbon emissions targets of any airline group globally.

Qantas, Jetstar*, QantasLink and Qantas Freight will offset all growth in emissions from domestic and international operations from 2020.

This includes offsetting all net emissions from Project Sunrise, the carrier’s plan to operate non-stop flights from the east coast of Australia to London and New York, should the project proceed. This will also extend to domestic flying, meaning that growth on key routes like Melbourne-Sydney will be carbon neutral.

The aviation industry, which contributes around 2 per cent of global CO2 emissions, has committed to halving emissions by 2050 compared to 2005 levels. It was the first industry to make such commitments. Qantas had signed up to those commitments but will now exceed them.

Qantas will work with industry, research institutions and governments to develop the long-term solutions to significantly reduce greenhouse gas emissions from the aviation industry over the next three decades.

OFFSETTING FLIGHTS

Qantas currently operates the largest carbon offset program in the aviation industry, with around 10 per cent of customers booking flights on Qantas.com choosing to offset their flights.

From today, Qantas and Jetstar will double the number of flights offset by matching every dollar spent by customers who tick the box to fly carbon neutral. By matching our customers’ commitment, we expect even more people to offset their emissions.

This additional investment will see Qantas Future Planet, which is already the largest private sector buyer of Australian carbon credits, support more conservation and environmental projects in Australia and around the world.

Existing projects include protecting the Great Barrier Reef, working with Indigenous communities to reduce wildfires in Western Australia and securing over 7000 hectares of native Tasmanian forest.

SUSTAINABLE AVIATION FUEL

Qantas will invest $50 million over the next ten years to help develop a sustainable aviation fuel industry.

Sustainable aviation fuel can reduce carbon emissions by eighty per cent compared to traditional jet fuel, but are currently almost double the price.

Qantas will work with governments and private sector partners to support the development of sustainable aviation fuel in Australia and overseas to make it more viable and increase demand throughout the industry.

The national carrier will also continue to reduce its emissions through continued investment in more fuel efficient aircraft, more efficient operations such as single-engine taxiing, and smarter flight planning to reduce fuel burn.

Qantas is on track to replace its Boeing 747 fleet by the end of 2020 with the more fuel-efficient B787 Dreamliners, which burn 20 per cent less fuel than aircraft of a similar size. Jetstar’s A321neo (LR) aircraft,
which begin arriving next year, use 15 per cent less fuel than the aircraft they are replacing.

The Qantas Group continues to work with aircraft and engine manufacturers on next-generation technology that will deliver a further step-change in emissions reduction – however, innovations such as electric aircraft engines are still some time away.

CEO COMMENTS

Qantas Group CEO Alan Joyce said these commitments would make Qantas a leader in the aviation industry’s efforts to reduce carbon emissions.

“We recognise that airlines have a responsibility to cut emissions and combat climate change. We’ve already made some good progress, especially by investing in newer aircraft that have a much smaller carbon footprint.

“We want to do more, and faster. We’re effectively doubling our carbon offsetting program from today and we’re capping our net emissions across Qantas and Jetstar from 2020 so that all new flying will be carbon
neutral.

“Qantas offsets all of its own travel needs and so do many of our customers. By matching their efforts, we’re hoping it will encourage even more people to offset and the program will keep growing.

“These short-term actions will go towards a longer-term goal of being completely net carbon neutral by 2050. It’s ambitious, but achievable.

“Innovation is going to be key. We’re investing $50 million to hopefully kickstart a sustainable aviation fuel industry in Australia. We know from our own trials that the technology works but we need to get to a scale of production where it’s a practical substitute.

“Concerns about emissions and climate change are real, but we can’t lose sight of the contribution that air travel makes to society and the economy. The industry has already come a long way in cutting its footprint and the solution from here isn’t to simply ‘fly less’ but to make it more sustainable.

“We’re doing this because it’s the responsible thing to do, but hopefully it will also encourage more people to choose Qantas and Jetstar because of the action we’re taking,” added Mr Joyce.

Copyright Photo: Gordon Reid via John Adlard.

In other news, Qantas has completed precautionary inspections of thirty-three 737NG aircraft, checking for hairline cracks that have appeared in some high cycle aircraft worldwide.

The cracks relate to the ‘pickle fork’ structure, which is located between the wing and fuselage. Qantas brought forward these precautionary checks by up to seven months and completed them within seven days.

Of the 33 of Qantas’ 737 aircraft that required inspection, three were found to have a hairline crack in the pickle fork structure. These aircraft have been removed from service for repair.

The aircraft had all completed around 27,000 cycles. Any aircraft with more than 22,600 cycles was inspected, in line with advice from regulators.

Qantas will minimise any customer impact from having these aircraft temporarily out of service.

Qantas is working with Civil Aviation Safety Authority and Boeing to resolve this issue, which involves some complex repair work. All three aircraft are expected to return to service before the end of the year.

CEO of Qantas Domestic, Andrew David said: “As people would expect with Qantas, we’ve gone above what was required to check our aircraft well ahead of schedule.

“We would never fly an aircraft that wasn’t safe. Even where these hairline cracks are present they’re not an immediate risk, which is clear from the fact the checks were not required for at least seven months.

“Unfortunately, there were some irresponsible comments from one engineering union, which completely misrepresented the facts. Those comments were especially disappointing given the fantastic job our engineers have done to inspect these aircraft well ahead of schedule, and the priority they give to safety every day of the week,” added Mr David.

Qantas will continue to monitor aircraft that are in scope of the airworthiness directive as inspections fall due.

Top Copyright Photo: QANTAS Airways Boeing 787-9 Dreamliner VH-ZNJ (msn 66074) (100 Centenary) PAE (Nick Dean). Image: 948008.

QANTAS Airways aircraft slide show:

QANTAS Group posts record revenue, strong profit in FY 2019

QANTAS Group posts record revenue, strong profit in FY2019:

  • Underlying Profit Before Tax: $1.30 billion (down 17%)
  • Statutory Profit Before Tax: $1.27 billion (down 6%)
  • Record revenue for the Group
  • Statutory Earnings Per Share: 54.6c (flat on last year)
  • Return On Invested Capital: 18.4%
  • Net free cash flow: $1,244 million
  • Shareholder return of 13 cents per share fully franked dividend, plus an off-market buyback of up to 79.7 million shares
  • $1,250 staff travel bonus for 25,000 non-executive employees, worth $32 million
  • The Qantas Group has achieved an Underlying Profit Before Tax of $1.30 billion and a Statutory Profit Before tax of $1.27 billion for the Financial Year 2019.

While the Underlying result was 17 per cent lower compared with the Group’s record profit in FY18, it was impacted by an $614 million increase in fuel costs from higher oil prices and a further $154 million of the foreign exchange impacts on non-fuel net expenditure.

The result was also impacted by a $92 million non-cash expense on provisions for items including employee leave entitlements – part of an accounting requirement that means this charge increases when interest rates fall.

All key parts of the Group’s portfolio remain strongly profitable, generating significant cashflow that allows for ongoing investment as well as shareholder returns.

CEO COMMENTARY

Qantas Group CEO Alan Joyce said the FY19 performance was particularly positive given mixed market conditions.

“This result shows the strength of our individual businesses but also the strength of our portfolio as a whole. Even with headwinds like fuel costs and foreign exchange, we remain one of the best performing airline groups in the world.

“Our performance is the result of having the right strategy and the ability to deliver it.

“Domestically, our dual brand approach with Qantas and Jetstar continued to give us a leadership position in the corporate, premium leisure and budget travel categories, all with strong margins.

“Qantas International has improved its competitive position by evolving its fleet, network and partnerships. We’ve carved out some unique advantages like the Perth-London route and there is a lot of value still to be unlocked through our alliances.

“Qantas Loyalty returned to double-digit earnings growth in the second half, thanks to new revenue streams from insurance and financial services as well as improvements to the Frequent Flyer program.

“The simple message from this result is that the Qantas Group has solid foundations to keep investing and innovating, and to keep rewarding our shareholders as a result.

“We’re pleased to reward around 25,000 of our people with a $1,250 staff travel bonus each, which would take a family of four from Sydney to Honolulu on Jetstar. Since 2015, we’ve now set aside more than $340 million in cash and staff travel bonuses for non-executives.

“Looking ahead, the overall market remains mixed. Domestically, we’re seeing weakness in the price sensitive leisure market but premium leisure demand is steady.

“Overall demand from our corporate customers is flat, with continued strength in the resources sector offsetting weaker demand from other industries, like financial services and telecommunications. In competitive terms we’re growing our overall share of the corporate and SME sectors.

“Internationally, the outlook remains positive for premium international travel demand, helped by a reduction in broader market capacity.

“Our anticipated flat Group domestic capacity for the first half of FY20 reflects the mixed environment, and we’ll continue to monitor our settings against demand and our strategic position,” said Mr Joyce.

GROUP DOMESTIC

Group Domestic delivered an Underlying EBIT of $1.03 billion, down by 4 per cent. Unit Revenue from Qantas and Jetstar’s domestic operations grew by a combined 4 per cent on flat capacity, as fares caught up to higher oil costs.

Qantas Domestic, which achieved its second-highest Underlying Profit, increased Unit Revenue by 5 per cent and seat factors were steady at 78 per cent.

Qantas’ share of both the corporate and small business markets grew, helping to offset some broader weakness in travel demand. Qantas maintained a 15 point customer satisfaction premium to its domestic competitor.

The resources market continued to strengthen, with capacity added in Western Australia and Queensland contributing to a $47 million revenue increase from this part of the market.

Jetstar’s domestic Unit Revenue increased by 3 per cent and ancillary revenue per passenger rose by 12 per cent, driven largely by take-up of new baggage options and Club Jetstar reaching 340,000 members. The airline’s upgrade of its A320 cabins is now complete, delivering a 3 per cent capacity improvement per aircraft.

As a low fares leader, the Jetstar Group sold almost two-thirds of its fares for less than $100.

GROUP INTERNATIONAL

Qantas International delivered an Underlying EBIT of $285 million, down by 28 per cent. There was a significant improvement in second half performance, as competitor capacity and overall fare levels adjusted to higher fuel prices.

Unit Revenue grew by 6 per cent compared with FY18 and seat factor grew by 2 percentage points to 86 per cent.

Network and fleet changes continue to deliver benefits, with particularly strong performances on the Perth-London route and Singapore hub services. Competitive pressure on the Pacific remained intense but Qantas’ performance is expected to improve following implementation of the American Airlines joint business and the start of new routes, including Brisbane-Chicago in FY20.

Qantas Freight continued to provide steady earnings, which will be supported going forward by an expanded seven-year contract with Australia Post.

Jetstar’s international services achieved significant Unit Revenue growth, with solid performance on key leisure routes such as Bali and Japan.

Jetstar Japan delivered a record profit[1] (opens in new window) and Jetstar Pacific remained profitable, while Jetstar Asia faced challenges due to a significant increase to airport charges and taxes in its home market of Singapore. Jetstar’s regional services in New Zealand were loss-making and market conditions are being monitored closely.

QANTAS LOYALTY

Qantas Loyalty achieved a record Underlying EBIT of $374 million, up 8 per cent.

Earnings growth was driven by the core Frequent Flyer Program as well as new insurance and financial products.

Total points redeemed grew by 12 per cent compared with a 5 per cent increase in membership. High levels of engagement with the program are expected to keep improving as the recent changes to redemption costs and flight availability take full effect from September 2019. Already, there has been a 24 per cent increase in Classic flight redemptions since these changes were announced in June.

The Qantas Business Rewards program, which helps drive airline market share in the SME segment as well as earnings from Loyalty partners, reached 250,000 members.

Growth of credit cards that earn Qantas Points continued to outperform the broader market[2] (opens in new window) and Qantas’ own premium cards performed well. Qantas health insurance customers grew by 46 per cent[3] (opens in new window), helped by one of the lowest average premium increases in the market.

FINANCIAL FRAMEWORK

The Group continued to deliver on the three pillars of its financial framework.

Operating cashflow was strong at $2.81 billion and net debt is now below the target range[4] (opens in new window) at $4.7 billion. Net capital expenditure was $1.6 billion after adjusting for cash received from the sale of Qantas Catering and the Melbourne Domestic Terminal lease. This resulted in net free cashflow of $1.24 billion.

Ongoing transformation delivered $452 million of revenue and cost benefits.

The Group’s total fuel cost was $3.85 billion, an increase of $614 million on FY18. Ongoing efficiency measures, including fleet modernisation and a new flight planning system, drove a 2.2 per cent improvement in fuel efficiency.

The Group incurred $374 million income tax on its FY19 profit.

REWARDING SHAREHOLDERS

The Qantas Board has announced a fully franked dividend totaling $204 million dollars or 13 cents per share to be paid on 23 September 2019 with a record date of 3 September 2019, as well as an off market buy-back of up to 79.7 million shares. Detail on the buyback, which is worth approximately $400 million at yesterday’s share price, is available via https://www.investor.qantas.com.

This latest buyback, once complete, will bring the total reduction in shares on issue by nearly one third since 2015 – the most of any company in the ASX All Ordinaries in the past five years.

Surplus capital will continue to be assessed at each half, in-line with our financial framework. The first tranche of this surplus will be allocated to a base dividend, which is currently assessed at $400 million a year. Adjusting for the EPS benefits from the buyback announced today, this equates to 27 cents a share per annum.

INVESTING FOR THE FUTURE

The Qantas Group continues to invest for the future, with key initiatives including:

  • Today’s announcement of three research flights for Project Sunrise before the end of calendar 2019. Operating non-stop from New York and London to Sydney using Qantas’ existing 787-9s, and made possible by carrying a small number of people to minimise weight, the flights will test different approaches to crew and passenger wellbeing as part of designing unique ultra-long haul services. The research flights, which are re-routed delivery flights, will have their emissions fully offset. The final business case for Project Sunrise has several hurdles to pass ahead of a final decision in December 2019. (See separate release and video (opens in new window).)
  • A complete refurbishment of Qantas’ 12 Airbus A380 aircraft, including upgrades to each class of cabin, a new on-board lounge and 27 per cent increase in premium seating. Work on the first aircraft is underway, which is expected to be in service by September.
  • Delivery of six additional 787-9s for Qantas International from October 2019, taking the total fleet to 14 aircraft.
  • Increasing lounge capacity in Qantas’ Singapore hub by 60 per cent, including an expansion to the existing Business Lounge and opening of a new First lounge.
  • Rolling out $25 million of improvements to Frequent Flyer, including 1 million more reward seats per annum, reducing some carrier charges for points bookings by up to 50 per cent and cutting the points required for international Economy seats by up to 10 per cent.
  • Progress towards cutting 100 million single-use plastics by end-2020 and eliminating 75 per cent of waste to landfill by end-2021.
  • Preparations to introduce the A321 NEO to Jetstar, with 18 aircraft to begin arriving from mid-2020. 

OUTLOOK

The Group continues to focus on matching capacity with demand, together with growing revenue to recover higher fuel costs.

The Group’s current operating expectations for FY20 are[5] (opens in new window):

  • Total fuel bill is expected to increase to ~A$3.95 billion (up ~$100 million) and is fully hedged.
  • Group capacity is expected to increase by ~1 per cent in in the first half of FY20. Group Domestic is expected to be flat to slightly down. Group International is expected to increase by ~1.5 per cent while competitor capacity is expected to decline by ~1 per cent in the first half of FY20.
  • Inflation impact on Group expenditure (including wage growth) expected to be ~$250 million.
  • Transformation benefits are expected to be ~$400 million.
  • Gross capital expenditure expected to be $2.0 billion for FY20.
  • Net underlying depreciation and amortisation expected to be ~$130 million higher than FY19.

[1] (opens in new window) Record AUD profit share.

[2] (opens in new window) Qantas Points earning credit cards includes co-branded credit cards and Qantas Premier cards. Based on RBA credit and card charges statistics at June 2019 and Qantas internal analysis.

[3] (opens in new window) Qantas/ NIB internal analysis and estimates.

[4] (opens in new window) Net Debt Target Range as at 30 June 2019 is $5.2 billion to $6.5 billion.

[5] (opens in new window) See Investor Presentation for detailed outlook assumptions.

QANTAS backs the Airbus A321XLR with an agreement for 36 aircraft

QANTAS Airways Limited is backing Airbus’ new extended range A321XLR with an agreement covering 36 aircraft. This includes the conversion of 26 existing A320neo Family orders plus a new firm order for 10 A321XLRs.

The aircraft will allow the QANTAS Group, which includes low-cost carrier Jetstar, to improve its network and fleet flexibility to better serve point-to-point markets in Australia, Asia and the South Pacific.

Images: Airbus.