Category Archives: QANTAS Group

QANTAS announces five new Link destinations

QANTAS Airways (Sydney) has announced a number of new regional routes, providing customers with direct services to five new destinations on its domestic network.

Through better utilization of aircraft, QANTAS will provide customers with access to the following new routes: Brisbane to Port Macquarie, Melbourne to Coffs Harbour, Sydney to Hervey Bay, Sydney to Hamilton Island and Brisbane to Miles.

Domestic Routes

Copyright Photo: Keith Burton/AirlinersGallery.com. Sunstate Airlines‘ Bombardier DHC-8-402 (Q400) VH-LQM (msn 4450) departs from Sydney.

QANTAS Airways: AG Slide Show

QANTAS Link-Sunstate Airlines: AG Slide Show

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QANTAS to cut 5,000 jobs and 50 aircraft, including 8 remaining A380s to be deferred, last 3 787s to be deferred, retirement of 747-400s to be expedited

QANTAS Airways (Sydney) has also issued its cost-reduction plan on the heels of its first half financial loss reported today (please see the separate financial report). The QANTAS Group issued this statement detailing the cuts:

QANTAS today announced detail of its $2 billion cost reduction program and capital expenditure review.

QANTAS will take action to permanently reduce costs in all parts of the QANTAS Group through to FY17, including fleet and network changes, productivity improvements, consolidation of business activities, new technology and procurement savings.  More than 50 aircraft will be deferred or sold and the Group’s workforce will be reduced by 5,000 full-time equivalent positions by FY17.

The QANTAS Group’s planned capital expenditure net of operating lease liability will be reduced to $800 million in both FY15 and FY16, a total reduction of $1 billion.

QANTAS has reached agreement on the return of its Brisbane Airport terminal lease, together with related assets, to the airport owner at a cash value of $112 million. The broader structural review of the QANTAS Group portfolio continues and no final decisions have been made on other assets.

Chief Executive Officer Alan Joyce said QANTAS would do everything in its control to overcome some of the toughest market conditions it had ever faced.

Market Conditions

“It’s clear that the market QANTAS operates in has changed, with structural economic shifts exacerbated by an uneven playing field in Australian aviation policy,” Mr Joyce said.

“This situation is reflected in the financial result QANTAS announces today, an Underlying PBT1 loss of $252 million for the half-year.  This is an unacceptable and unsustainable result.  Comprehensive action is needed in response.

“QANTAS’ competitors have increased capacity to Australia by 46 per cent since 2009, more than double the world average, at a time of record fuel costs and economic volatility.

“We have met these challenges head on.  Over the past four years, we have been carrying out the biggest transformation since QANTAS was privatized – cutting comparable unit costs1 by 19 per cent over four years, introducing new aircraft and technology on a large scale, modernizing work practices and revitalising service.  But this is not enough for the circumstances we now face.

“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 – 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 6 February, it was losing money.  That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses.

“The Virgin Australia Group has increased capacity into the domestic market at more than twice the rate of the Qantas Group since July 2011.  As a result of these combined capacity increases, the total domestic profit pool has been shrunk from more than $700 million in FY12 to less than $100 million in 1H14.

“We have been clear with the Australian Government about the uneven playing field and the measures we believe could address it.  But our focus today is on the immediate steps that Qantas must take.”

Immediate Priorities

“We must take actions that are unprecedented in scope and depth to strengthen the core of the Qantas Group business.

“To reach $2 billion in cost cuts over three years, we have to work our assets harder, become more productive, retire older aircraft, and make sure that our fleet and network are the right size.  We must defer growth and cut back where we can, so that we can invest where we need to.

“We have already made tough decisions and nobody should doubt that there are more ahead.

“While the implementation and pace of delivery must change, the guiding principles of our strategy will not.  Safety remains our first priority and we are committed to being the airlines of choice for customers in all our markets.

“Our long-term goal remains the transformation of the Qantas Group for profitable, sustainable growth.

“Over the next three years, we aim to secure our strong Group domestic position and maximise Qantas International’s competitiveness.

“QANTAS Loyalty will continue to access new markets and revenue streams, building on its success to date.

“When it comes to Jetstar in Asia, we need to take the right decisions in accord with current market circumstances and our balance sheet.  In Singapore, growth has been suspended by the Jetstar Asia Board until such time as conditions improve.

“The over-arching focus in Asia continues to be profitably bedding down existing businesses and partnerships.  Jetstar has been a pioneer Australian brand across Asia and we continue to see major opportunities for it in the world’s fastest-growing aviation region.”

Commitment to Customers

“Despite the tough decisions we have to make, we will keep delivering outstanding service for our customers,” Mr Joyce said.

“Important customer investments will continue, such as the upgrade of our Airbus A330 fleet and the opening of new lounges in Hong Kong and Los Angeles, and the service that QANTAS passengers receive will not be compromised.   Thanks to the skill and commitment of our people, we have earned record customer advocacy, and we plan to keep it there.”

Accelerated Qantas Transformation Program

Fleet and Network

After a detailed review of network and schedules, the QANTAS Group will re-assign aircraft to better match demand, defer aircraft orders, dispose of aircraft, increase fleet utilization and exit under-performing routes.

    • QANTAS Domestic will increase utilisation of narrow-body aircraft, allowing Airbus A330 aircraft in the domestic market to concentrate solely on East-West services and peak services on the Sydney-Melbourne-Brisbane triangle.
    • A330-200s will be freed up to enter the QANTAS International fleet as replacement aircraft, helping to accelerate the retirement of older Boeing 747 aircraft.
    • All six of QANTAS International’s non-reconfigured Boeing 747s will be retired ahead of schedule, by the second half of FY16.  Nine reconfigured Boeing 747s with A380-standard interiors will remain.
    • QANTAS’ final two Boeing 737-400s have been retired this month and all Boeing 767s will be retired by the third quarter of FY15, resulting in cost and passenger benefits from fleet simplification.
    • QANTAS International’s eight remaining Airbus A380 orders will be deferred, with an ongoing review of delivery dates to meet potential future requirements.  Schedule changes will allow maximum use of QANTAS’ current 12 A380s.
    • The final three of 14 Jetstar Airways Boeing 787-8s on firm order will be deferred.
    • Jetstar’s A320 order book has been restructured.

In total, more than 50 aircraft will be deferred or sold.

By FY16, the Group’s passenger fleet will have been simplified from 11 aircraft types to seven aircraft types, with an average age of eight years.

Over the next 12 months, QANTAS will exit underperforming routes and make aircraft changes on certain routes to better match capacity to demand.

    • QANTAS International will withdraw from the Perth-Singapore route (first quarter FY15).
    • QANTAS’ Brisbane-Singapore and Sydney-Singapore services will be operated by Airbus A330s, replacing Boeing 747s (first quarter FY15)
    • QANTAS services between Melbourne and London will be re-timed in November 2014 to reduce A380 ground time in Heathrow (second quarter FY15).  There are no changes to overall capacity on London flights.
    • The Melbourne-London service change frees up an A380 for additional flying, and QANTAS will evaluate opportunities to use the aircraft on other routes.

Workforce Changes

Over the next three years, QANTAS will reduce employee numbers across the Group by the equivalent of 5,000 full-time positions, through measures including:

    • Reduction of management and non-operational roles by 1,500.
    • Operational positions affected by fleet and network changes.
    • Restructure of line maintenance operations.
    • The closure of Avalon maintenance base, as previously announced.
    • Restructure of catering facilities including the closure of Adelaide catering, as previously announced.

The wage freeze for executives implemented in December 2013 will continue and will be extended to all QANTAS Group employees.

The wage freeze will be:

    • Ongoing for executives.
    • Immediate for open EBAs.
    • Proposed for other EBA-covered staff.

This is in addition to the reduction of fees paid to the QANTAS board and a reduction in the take home pay of the QANTAS CEO by 36 per cent this financial year.

No pay rises or bonuses will be contemplated until QANTAS is profitable again on a full-year Underlying PBT basis.

Mr Joyce said these were hard but necessary decisions to protect as many QANTAS jobs as possible and build a strong business for the future.

“I regret the need for these wide-ranging job losses, but we will do everything we can to make the process easier for employees who leave the business,” Mr Joyce said.

“At the end of this transformation, QANTAS will remain an employer of more than 27,000 people, the vast majority based in Australia – and we will be a better and more competitive company.”

Capital Expenditure and Financial Position

The Group’s planned capital expenditure net of operating lease liability in FY14 will be $1 billion.

Planned capital investment, including movements in operating lease liabilities, will be $800 million per year in FY15 and FY16 – a total reduction of $1 billion over the two years.  QANTAS will maintain flexibility to make further changes if needed.

Transformation through FY17 will be funded through the reprioritisation of capital, future free cash flow as benefits from the cost reduction program begin to flow, and asset sales.  QANTAS continues to target positive free cash flow from FY15, with capital expenditure aligned to financial performance.

QANTAS has total liquidity of $3 billion, comprising $2.4 billion in cash and $630 million in standby debt facilities, as at 31 December 2013.

Update on Structural Review

QANTAS has reached agreement on the return of its Brisbane Airport terminal lease, together with related assets, to Brisbane Airport Corporation, with a cash value of $112 million to be recognised in the second half of FY14.

QANTAS continues to work through the broader structural review of the QANTAS Group portfolio launched in December 2013.

The review has identified a number of high-quality assets of significant value.

No final decisions have been made about other assets within the Group’s portfolio.

QANTAS will update the market as and when required.

Copyright Photo: Bernhard Ross/AirlinersGallery.com. The retirement of the on-converted Boeing 747-400s will be expedited. Boeing 747-48E VH-OEB (msn 25778) rests between flights at Frankfurt.

QANTAS Airways: AG Slide Show

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

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.

QANTAS Airways: AG Slide Show

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.

QANTAS Airways: AG Slide Show

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.

QANTAS Airways: AG Slide Show

QANTAS Group to lease five Boeing 717s, order three Bombardier Q400s and cancel one Boeing 787

The QANTAS Group (QANTAS Airways) (Sydney) has  announced an update to its fleet plan to capitalize on growth in Australian domestic markets.

QANTAS will lease an additional five Boeing 717 aircraft (above) and purchase three Bombardier DHC-8-402 (Q400) aircraft (below), due to start arriving from the second half of 2013.

The company has also made a change to its international fleet plan, with the cancellation of a single Boeing 787-8 Dreamliner on order for Jetstar Airways.

The remaining 14 Boeing 787-8s will be delivered to Jetstar as planned, with the first aircraft to arrive in mid-2013. This will enable the gradual transfer of Airbus A330 aircraft from Jetstar to QANTAS Domestic and the retirement of QANTAS’ Boeing 767 fleet.

Mr Joyce said the cancellation of one B787 took advantage of flexibility in its fleet plan and contract with Boeing.

“The original 787 order for Jetstar was designed to replace all 11 of its existing A330s that are used for long haul services plus provide another four lines of flying for future growth.

“While the plan is for Jetstar’s long haul network to keep expanding we are using the flexibility in our agreement with Boeing to cancel a firm order knowing that we can replace it with one of our 50 options for this aircraft down the track, and with a full view of what market conditions are like at the time,” added Mr Joyce.

Jetstar’s short haul growth plans continue to be supported by the QANTAS Group’s existing order of Airbus A320 aircraft.

Mr Joyce said the QANTAS Group remained firmly committed to the Dreamliners for both Qantas International and Jetstar, and that it retained options and purchase rights for 50 Boeing 787s of either -8 or -9 variants available for delivery from 2016.

In an important milestone for the Jetstar Boeing 787 program, production of its first aircraft has just begun. With delivery of the aircraft not due until mid-2013, the airline is confident current technical issues will be resolved by Boeing.

The decision to amend the 787 order was reached at the end of 2012 and the agreement with Boeing has now been finalized.

The fleet changes announced will have no material impact on the Group’s planned capital expenditure, which remains unchanged at $1.8 billion for FY13 and $1.9 billion for FY14.

Top Copyright Photo: Peter Gates. Boeing 717-231 VH-NXN (msn 55095) of Cobham Aviation Services Australia operating as a QANTAS Link carrier poses for the camera at Brisbane.

QANTAS Link-Cobham Aviation Services Australia: AG Slide Show

QANTAS logo

QANTAS Link-Sunstate Airlines: AG Slide Show

Bottom Copyright Photo: John Adlard. Bombardier DHC-8-402 (Q400) VH-QOC (msn 4117) of Sunstate Airlines approaches the Sydney hub.