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United Continental Holdings reports third quarter net income of $520 million excluding special charges, only $6 million with the charges

United Continental Holdings, Inc. (United Airlines) (Chicago) reported third-quarter 2012 net income of $520 million, or $1.35 per diluted share, excluding $514 million of net special charges. Including special charges, UAL reported third-quarter 2012 net income of $6 million, or $0.02 per diluted share.

UAL third-quarter consolidated passenger revenue decreased 2.6 percent year-over-year. Third-quarter consolidated passenger revenue per available seat mile (PRASM) decreased 1.3 percent compared to the same period in 2011.
Consolidated unit costs (CASM) holding fuel rate and profit sharing constant and excluding special charges and third-party business expense increased 2.5 percent year-over-year on a consolidated capacity reduction of 1.4 percent. Third-quarter consolidated CASM increased 6.6 percent year-over-year.
UAL ended the third quarter with $7.2 billion in unrestricted liquidity.

Third-Quarter Revenue and Capacity

For the third quarter of 2012, total revenue was $9.9 billion, a decrease of 2.6 percent year-over-year. Third-quarter consolidated passenger revenue decreased 2.6 percent to $8.8 billion, compared to the same period in 2011.

Consolidated revenue passenger miles (RPMs) decreased 1.5 percent on a consolidated capacity (available seat miles) decrease of 1.4 percent year-over-year for the third quarter, resulting in a third-quarter consolidated load factor of 85.2 percent.

Consolidated yield for the third quarter of 2012 decreased 1.2 percent year-over-year. Third-quarter 2012 consolidated PRASM decreased 1.3 percent compared to the same period in 2011.

Mainline RPMs in the third quarter of 2012 decreased 1.9 percent on a mainline capacity decrease of 1.4 percent year-over-year, resulting in a third-quarter mainline load factor of 85.7 percent. Mainline yield for the third quarter of 2012 decreased 1.5 percent compared to the same period in 2011. Third-quarter 2012 mainline PRASM decreased 2.0 percent year-over-year.

Passenger revenue for the third quarter of 2012 and period-to-period comparisons of related statistics for UAL’s mainline and regional operations are as follows:

	3Q 2012 Passenger Revenue (millions)	Passenger Revenue vs. 3Q 2011	PRASM vs. 3Q 2011	Yield vs. 3Q 2011	Available Seat Miles vs. 3Q 2011

Domestic	$3,325	(5.8%)	(4.2%)	(2.6%)	(1.7%)

Atlantic	1,591	(8.0%)	(4.5%)	(3.7%)	(3.7%)
Pacific	1,450	11.0%	9.9%	7.2%	1.0%
Latin America	627	(6.8%)	(8.3%)	(9.4%)	1.6%
International	3,668	(1.1%)	0.0%	(0.7%)	(1.1%)

Mainline	6,993	(3.4%)	(2.0%)	(1.5%)	(1.4%)
Regional	1,781	0.5%	1.6%	(0.9%)	(1.1%)

Consolidated	$8,774	(2.6%)	(1.3%)	(1.2%)	(1.4%)

Year-over-year cargo and other revenue in the third quarter of 2012 decreased 2.3 percent, or $27 million, to $1.1 billion.

Third-Quarter Costs

Total operating expenses, including special charges, increased $473 million, or 5.1 percent, in the third quarter compared to the same period of 2011. Third-quarter 2012 operating expenses, excluding fuel, profit sharing, special charges and third-party business expense, increased $92 million, or 1.7 percent, year-over-year. Third-party business expense was $55 million in the third quarter.

Both consolidated and mainline CASM, excluding special charges and third-party business expense, increased 2.3 percent in the third quarter of 2012 compared to the same period of 2011. Third-quarter consolidated and mainline CASM, including special charges, increased 6.6 and 7.5 percent year-over-year, respectively.

In the third quarter, consolidated and mainline CASM, excluding special charges and third-party business expense and holding fuel rate and profit sharing constant, increased 2.5 percent and 2.0 percent, respectively, compared to the results for the same period of 2011.

Third-Quarter Liquidity and Return on Invested Capital

UAL ended the third quarter with $7.2 billion in unrestricted liquidity, including $500 million of undrawn commitments under a revolving credit facility. During the third quarter, the company had gross capital expenditures of $412 million. The company made debt and principal payments under capital lease of $487 million including $104 million of prepayments in the third quarter. The company’s return on invested capital for the 12 months ended Sept. 30, 2012, was 9.3 percent, below the company’s goal of a 10 percent return over the business cycle.

Third-Quarter 2012 Events

United recorded a U.S. Department of Transportation domestic on-time arrival rate of 72.4 percent and a system completion factor of 98.6 percent for the quarter. For international flights, United recorded an on-time arrival rate of 71.0 percent. The on-time arrival rates are based on flights arriving within 14 minutes of scheduled arrival time.
On Aug. 2, the company reached an agreement in principle for a joint collective bargaining agreement with the Air Line Pilots Association representing pilots from the company’s United and Continental subsidiaries. Flight attendants from the company’s Continental and Continental Micronesia subsidiaries ratified new labor agreements, and the company began the joint collective bargaining process with the Association of Flight Attendants, which represents all flight attendants. The company and the International Association of Machinists announced that they would engage in expedited joint collective bargaining agreement negotiations for fleet service employees, passenger service employees and certain other work groups. The company is also in the process of commencing joint negotiations with the International Brotherhood of Teamsters, which represents maintenance technicians.
United employees earned cash incentive payments totaling $5 million for exceeding 80 percent domestic on-time arrival performance for the month of September.
United took delivery of its first Boeing 787. United is the first North American carrier to take delivery of the 787, and the aircraft is the first of five new Dreamliners the airline expects to receive this year from its total order for 50 of the aircraft.
United announced routes for its Boeing 787 aircraft, in addition to the previously announced service from its Denver hub to Tokyo Narita, including service between its Houston hub and Lagos, Nigeria, and from its Los Angeles hub to Tokyo Narita and Shanghai. The airline will also operate Dreamliner service from its Houston hub to Amsterdam and London Heathrow on a temporary basis.
The company announced an order to purchase 150 narrowbody Boeing 737 aircraft, including 100 Boeing 737 MAX 9 aircraft and 50 Boeing 737-900ER aircraft for delivery between 2013 and 2022. These new aircraft will allow United to replace older, less-efficient aircraft to reduce fuel and operating costs, enhance the customer experience and maximize network opportunities.
During the quarter, United launched service from Newark to Istanbul. In addition, the carrier launched service from San Francisco to Raleigh-Durham, N.C., from Denver to Shreveport, La., and from Newark to Columbia, S.C. United also announced 12 new routes during the quarter, including flights from its San Francisco hub to Taipei, Taiwan, and Paris, as well as from Washington, D.C. to San Salvador, from Cleveland to Nashville and from Chicago to Monterrey, Mexico, Thunder Bay, Canada, and Nassau, Bahamas.
Emphasizing the importance of service and reliability, United awarded new Ford vehicles to 11 employees for their perfect attendance. Thousands of employees were eligible, and United selected the winners during a random drawing.
United now has 180 airplanes featuring DIRECTV®, offering customers more live television access than any other airline in the world.
United Economy Plus seating is now on 90 percent of United’s entire mainline fleet, and the company continues to install flat-bed seats in premium cabins on its international fleet. United now has 159 aircraft featuring flat-bed seats, more than any other U.S. carrier.
United launched its MileagePlus Digital Media Store, a first-of-its-kind in the airline industry, giving MileagePlus members the opportunity to use miles for music tracks, albums and movies.

United Airlines:

Hawaiian reports a third quarter net profit of $40.6 million

Hawaiian Holdings, Inc. (Honolulu), parent company of Hawaiian Airlines, Inc. (Honolulu), reported third quarter 2012 adjusted net income of $40.6 million or $0.77 per diluted share, reflecting economic fuel expense, and GAAP net income for the third quarter of 2012 of $45.5 million, or $0.86 per diluted share.

Financial Highlights:

Adjusted net income, reflecting economic fuel expense, increase of 35.2% year-over-year and GAAP net income increase of 77.6% year-over-year.
Adjusted operating margin of 13.4%, reflecting economic fuel expense, and operating margin of 13.6%
Adjusted net income margin of 7.4%, reflecting economic fuel expense, and net income margin of 8.3%.
Operating cost per available seat mile (CASM) excluding fuel decrease of 6.8%.
Unrestricted cash and cash equivalents of $433.5 million.

The Company reported operating income of $74.9 million in the third quarter of 2012, compared with operating income of $60.9 million in the same period in 2011.

Operating revenue was $549.3 million, a 20.5% increase compared to the same period in 2011. Capacity for the third quarter of 2012 increased 28.0% year-over-year to 4.1 billion available seat miles, resulting in operating revenue per available seat mile (ASM) of 13.56 cents, down 5.8% from the same period in 2011. Passenger yield (passenger revenue per revenue passenger mile) decreased 3.6% year-over-year to 14.77 cents, resulting in a year-over-year decrease in passenger revenue per ASM of 5.7% to 12.30 cents. Selected Statistical Data is included in Table 2.

Total operating expenses increased 20.1% year-over-year to $474.4 million. CASM decreased 6.1% year-over-year to 11.71 cents. Excluding fuel, CASM decreased 6.8% year-over-year to 7.62 cents. Reconciliations of GAAP and non-GAAP financial measures are included in Tables 2 and 6.

Aircraft fuel costs increased 21.9% year-over-year to $165.8 million and represented 34.9% of total operating expenses. Hawaiian’s average cost per gallon of jet fuel decreased 4.1% year-over-year to $3.04 (including taxes and delivery). The financial impact of hedging activities is included in nonoperating income (expense), and as such is not reflected in fuel expense.

The Company believes that economic fuel expense is the best measure of the effect of fuel prices on its business as it most closely approximates the net cash outflow associated with the purchase of fuel for its operations in a period. The Company defines economic fuel expense as GAAP fuel expense plus (gains)/losses realized through actual cash (receipts)/payments received from or paid to hedge counterparties for fuel hedge derivative contracts settled during the period. For the three months ended September 30, 2012, economic fuel expense was $167.4 million ($3.07 per gallon), compared with $138.3 million ($3.22 per gallon) in the prior-year period. Analyses of economic fuel expense for the third quarter 2012 and 2011 and pro-forma net income (loss) and diluted net income (loss) per share reflecting economic fuel expense are included in Tables 3 and 4.

Nonoperating income (expense) totaled ($1.1) million, compared with ($13.6) million in the same period in 2011. The Company recognized gains on its fuel hedging activities, reflected in nonoperating income (expense), totaling $6.5 million compared with losses of $9.7 millionduring the same period in 2011.

A summary of the Company’s fuel derivatives contracts as of October 17, 2012 is included as Table 5.

As of September 30, 2012, the Company had:

Unrestricted cash and cash equivalents of $433.5 million.
Available borrowing capacity of $67.4 million under Hawaiian’s Revolving Credit Facility.
Outstanding debt and capital lease obligations of approximately $674 million consisting of the following:
- $251.2 million outstanding under secured loan agreements to finance a portion of the purchase price for four Airbus A330-200 aircraft.
- $174.6 million in secured loan agreements for a portion of the purchase price for 15 previously leased Boeing 717-200 aircraft.
- $108.2 million in capital lease obligations for an Airbus A330-200 aircraft and two Boeing 717-200 aircraft.
- $68.0 million outstanding under floating rate notes issued in conjunction with the acquisition of three Boeing 767-300 ER aircraft.
- $71.8 million outstanding of Convertible Senior Notes.

Copyright Photo: Bruce Drum. Boeing 767-33A ER N589HA (msn 33422) taxies to the runway at Seattle/Tacoma bound for Honolulu.

Hawaiian Airlines:

Air Canada to form a new leisure group with combination of new low-cost airline subsidiary and Air Canada Vacations

Air Canada (Montreal) has unveiled plans to form an integrated leisure group, combining the activities of its tour operator business, Air Canada Vacations, with its new low-cost leisure airline to launch in 2013. In addition, the airline announced the appointment of Michael Friisdahl as President and Chief Executive Officer to lead its new leisure group which will be a wholly owned subsidiary of Air Canada.

The new low-cost leisure carrier will commence service in June 2013 with two Boeing 767-300 ER aircraft and two Airbus A319 aircraft that will be released from Air Canada’s mainline fleet. It will serve popular holiday destinations in Europe and the Caribbean that are either currently underserved, or that do not generate adequate profitability with Air Canada’s existing cost structure. At launch, the leisure carrier will assume select Air Canada leisure services and will also operate certain new destinations not currently operated by Air Canada. Further details on the leisure airline’s summer 2013 program, schedule and product offering will be communicated later this fall with Air Canada’s 2013 schedule. The carrier’s plans are subject to obtaining the necessary regulatory approvals.

The leisure carrier will increase its fleet as Air Canada starts to take delivery of new Boeing 787 Dreamliner aircraft in 2014, thereby freeing up aircraft for transfer to the leisure carrier. As this occurs and subject to commercial demand, the leisure carrier may operate up to 20 Boeing 767-300 ER aircraft and 30 Airbus A319 aircraft, for a total of 50 aircraft.

On September 20, 2012, Air Canada announced that it will hire more than 900 employees over the next 12 months to meet its planned workforce requirements at the main airline. In addition, 200 new jobs will be created for flight attendants and pilots at the new low-cost leisure carrier.

Copyright Photo: Bruce Drum. Boeing 767-300s will be freed up with the arrival of the 787 Dreamliners. Boeing 767-3U0 ER C-GHPF (msn 26206) completes its final approach into Miami International Airport (MIA).

Air Canada:

British Airways and Japan Airlines to start their joint venture on October 1

British Airways (London) and JAL-Japan Airlines (Tokyo) will start their new joint venture on October 1.

British Airways issued the following statement:

British Airways and Japan Airlines (JAL) will begin a joint business agreement with the two airlines sharing revenue on applicable flights between Europe and Japan.

The joint business, which starts on October 1, 2012, will benefit customers by providing better links between Europe and Japan, greater choice of flights to more destinations, enhanced frequent flyer benefits and the potential to launch new routes.

British Airways and JAL, both members of the oneworld® alliance, have been forging ever closer ties in their evolution to the joint business. Earlier this month, JAL and British Airways began offering codeshare flights between Tokyo (Haneda and Narita) and London (Heathrow). The joint business will now see the two airlines co-operating on all non-stop flights operated by JAL or British Airways between Japan and Europe. This will not only include the 19 weekly services between the UK and Japan, but also JAL’s services to Paris and Frankfurt. This gives customers the flexibility of using a combination of JAL and British Airways flights and aligned fares on their journey to and from Japan and Europe, significantly increasing their options.

JAL and British Airways will also be improving flight transfers for customers by enhancing and expanding the codeshare network beyond their respective hub cities. JAL customers will, be able to book seats to the new codeshare destinations of Belfast, Helsinki, Frankfurt, and Gothenburg. British Airways will extend its reach to more destinations in Japan by codesharing on flights to Kansai, Okayama, Izumo, Okinawa, Nagasaki, Hiroshima and Kagoshima. Further expansion of codeshare arrangements are expected in the future. The websites of the two airlines will also be updated to enable customers to make bookings and check-in online, and access the flight information they need, irrespective of the carrier they are flying on.

Customers participating in JAL and British Airways’ loyalty programs will continue to enjoy reciprocal benefits as customers of oneworld, but top tier members of the respective loyalty schemes will now have the opportunity to earn bonus points on applicable flights on either airline.

In other news, British Airways will start nonstop London (Gatwick)-Alicante Boeing 737-400 service service on March 31, 2013 per Airline Route.

Top Copyright Photo: Michael B. Ing. Boeing 767-336 ER G-BNWD (msn 24336) climbs away from the London (Heathrow) hub.

British Airways:

JAL-Japan Airlines:

Bottom Copyright Photo: Ken Petersen. Boeing 767-346 ER JA615J (msn 33850) in the special Samantha Thavasa motif lands at the Tokyo (Narita) hub.

LAN Airlines orders 10 additional 767-300 ER/F Blended Winglet systems

Aviation Partners Boeing (Seattle) announced today that LAN Airlines (Santiago) has ordered 10 additional Blended Winglet Systems for Boeing 767-300 ER passenger and freighter aircraft. This order brings LAN’s order total to 57 Blended Winglet systems for the Boeing 767-300 ER/F fleet making it the largest APB customer for this model.

Blended Winglet technology installed on a Boeing 767-300 ER/F reduces fuel burn by up to 500,000 gallons per aircraft per year while reducing carbon dioxide emissions by over 5,000 tons per year. Blended Winglets can also extend the range of a Boeing 767-300E R/F by as much as 320 nautical miles, or increase the payload of the aircraft by as much as 16,000 pounds.

LAN has purchased 10 new Blended Winglet systems from APB and selected Delta Tech Ops and Mexicana MRO to perform these modifications promoting the growth of both MRO’s, especially Mexicana, which is now capable of carrying out winglet modifications. Mexicana also becomes the newest Maintenance Repair and Overhaul facility to accomplish the Boeing 767-300 ER/F Blended Winglet installation. Mexicana had hoped to restart scheduled passenger operations.

Nearly 5,000 Blended Winglet Systems are now in service on Boeing 737s, 757s and 767s with more than 200 airlines worldwide. Since certification in 2009, APB has taken orders (firm and options) for 389 Boeing 767-300 ER/F Blended Winglet systems. APB estimates that Blended Winglets have saved airlines worldwide more than 3.3 billion gallons of jet fuel to-date.

Copyright Photo: Bruce Drum. Brand new Boeing 767-316 ER CC-BDH (msn 41748) at Paine Field near Everett will soon be receiving its set of Aviation Partners Blended Winglets.

LAN Airlines (Chile):

TAM Airlines to retire the Boeing 767-300 on December 17

TAM Linhas Aereas (TAM Airlines) (Sao Paulo) is planning to retire its last Boeing 767-300 on December 17 according to Airline Route. The venerable wide body is being replaced by newer Airbus A330-200s.

TAM Airlines:

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Caribbean Airlines takes delivery of its second Boeing 767-300 ER

Caribbean Airlines (Port of Spain) on August 31, 2012 accepted this former LAN Airlines Boeing 767-316 ER, its second copy of the type. The pictured 767-316 ER is now appropriately registered as 9Y-LHR (msn 27597, ex CC-CDP) in salute of London Heathrow Airport, served for many years by BWIA.

Copyright Photo: Nigel Steele. 9Y-LHR is pictured arriving at the POS base on August 31. Like the first (9Y-LGW), it also carries the special “Celebrating 50 Years of Independence” emblem.

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Caribbean Airlines:

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Delta and AeroMexico to jointly build a heavy maintenance facility in Guadalajara

Delta Air Lines Inc. (Atlanta) and AeroMexico (Mexico City) plan to begin construction of a jointly operated aircraft maintenance, repair and overhaul (MRO) center at the Intercontinental Airport in Queretaro, next to that State’s Aerospace Park.

As part of a Memorandum of Understanding (MOU) and continuation of their commercial alliance, the carriers will invest equal amounts in a project to move work currently being done at the Guadalajara International Airport and expand MRO capabilities for their own aircraft and other carriers. The new facility’s heavy maintenance capacity will allow for up to seven aircraft to be serviced simultaneously.

According to both carriers, “this project represents one of the most important investments in aviation infrastructure in Mexico in history and proves that the joint efforts between the private and public sectors benefit the country’s economic growth.”

Delta Air Lines acquired a 4.17 percent stake in Grupo Aeromexico in June of this year.

It is unclear if any heavy maintenance will be moved from Atlanta to Guadalajara.

Top Copyright Photo: Michael B. Ing. Boeing 767-332 N139DL (msn 25984) with a United Way logo approaches for landing at Los Angeles International Airport.

Delta:

AeroMexico:

Caribbean Airlines takes delivery of its first Boeing 767-300

Caribbean Airlines (Port of Spain) yesterday (August 28) took delivery of its first (of two) Boeing 767-300. The former LAN Airlines (Santiago) Boeing 767-316 ER CC-CEB (msn 26327) is now registered appropriately as 9Y-LGW. The wide-body airliner was greeted with the traditional water cannon salute at POS on its arrival. Caribbean is planning to restore London (Gatwick) service from both Barbados and Trinidad with this new type.

The pictured 9Y-LGW also carries a special “Trinidad and Tobago – Celebrating 50 Years of Independence” logo.

Caribbean Airlines Slide Show:

QANTAS cancels 35 Boeing 787-9 Dreamliners

QANTAS Group (QANTAS Airways and Jetstar Airways) (Sydney) has restructured its fleet plans which includes the cancellation of 35 Boeing 787-9 Dreamliners after reporting its financial results for its fiscal year.

The issued the following statement:

“The Qantas Group announced it would restructure its Boeing 787 aircraft delivery schedule as part of the five-year Qantas International turnaround plan.

There is no change to the Group’s plans for the Boeing 787-8 aircraft. Deliveries of 15 Boeing 787-8s to Jetstar Airways will continue as planned, with the first aircraft to arrive in the second half of 2013. This will enable the transfer of Airbus A330 aircraft from Jetstar to Qantas Domestic, and the eventual retirement of Qantas’ Boeing 767 fleet.

Fifty Boeing 787-9 options and purchase rights will be retained and brought forward by almost two years, available for delivery from 2016. However, firm commitments for 35 Boeing 787-9s will be cancelled. The restructure means a two-year delay in the Group’s first Boeing 787-9 delivery.

The changes will result in a reduction in capital expenditure commitments that would equal US$8.5 billion at list prices.

Qantas Group CEO Alan Joyce said the changes were consistent with the goals of the Group’s broader
strategy.

“Qantas continues to practice disciplined capital management and, in the context of returning Qantas International to profit, this is a prudent decision,” Mr Joyce said. “The Boeing 787 is an excellent aircraft and remains an important part of our future. However, circumstances have changed significantly since our order several years ago. It is vital that we allocate capital carefully across all parts of the Group.

“Qantas has always maintained flexibility in its fleet plan and made changes when required. We have now substantially completed our fleet renewal program for the Qantas Group, with 114 new aircraft delivered over the past four years. Our average scheduled passenger fleet age is 8.3 years, the lowest since privatisation and highly competitive by international standards.

“We have 12 A380s in service across our long-haul network and the reconfiguration of nine Boeing 747-400s will be complete by late 2012. Boeing 737-800s will continue to enter the Qantas Domestic fleet as part of the Group’s existing fleet plan, while Airbus A330s will transfer from Jetstar as Boeing 787s are delivered. And Jetstar’s domestic and pan-Asian fleet requirements will be met over the long-term by our existing A320 order book and the arrival of Boeing 787-8s.

“Fifty Boeing 787-9s will remain available to the Group from 2016, in line with the timeframe of the Qantas International turnaround plan.”

On the financial side the group issued this report (all amounts in Australian dollars):

Qantas Group today (August 23) announced Underlying Profit Before Tax of $95 million for the year ended 30 June 2012.

The Group’s portfolio of businesses faced a challenging year – however, it is well-positioned for a strong,sustainable future.

The result was materially impacted by record high fuel costs ($4.3 billion, up $645 million) and industrial action culminating in the grounding of the Qantas fleet ($194 million). Operating conditions for the global aviation industry deteriorated significantly during the year, affecting most major airline businesses.

There were also one-off costs of $398 million, which are not included in Underlying PBT, as the Group initiated a turnaround plan for Qantas’ international network and addressed its legacy cost base.

As a result, the Group reported a Statutory Loss After Tax of $244 million for the year.

All parts of the Group were profitable with the exception of Qantas’ international network. Jetstar and Qantas Frequent Flyer achieved record results² and Qantas’ domestic operations outperformed the prior year. The Group holds a leading position in the Australian domestic market while Jetstar continues to expand in Asia, including through the successful launch of Jetstar Japan.

In line with previous market guidance, Qantas’ international network made an Underlying EBIT loss of approximately $450 million and Qantas and Jetstar’s domestic networks together delivered Underlying EBIT of approximately $600 million.

Qantas Group CEO Alan Joyce said the Group had launched the biggest transformation program since
privatisation in extremely challenging circumstances.

“Qantas has been through an exceptional period in its history over the past 12 months,” Mr Joyce said.

“Over the course of the year we made significant progress in advancing the Group’s strategy – building on our strong domestic business and frequent flyer program and growing Jetstar across Asia. Qantas’ international turnaround plan is on track and set for improvement in 2012/13.

“We are now coming off a period of high capital expenditure that has given us the youngest fleet since Qantas became a public company in 1995 – an average age of 8.3 years for passenger aircraft⁴. Our Boeing 747 reconfiguration program is nearly complete, with the aircraft receiving outstanding customer feedback, and from this October we will also upgrade our domestic Boeing 767 fleet.

“We will continue to invest capital efficiently as we target greater competitiveness and customer satisfaction to deliver a stronger Qantas Group.”

The Group improved cash flow during the year, achieving a free cash flow positive position of $206 million in the second half of 2011/12. Cash held at 30 June 2012 was $3.4 billion with access to a $300 million undrawn standby facility, and the Group retained an investment-grade credit rating. Ten narrow-body aircraft were purchased with cash, meaning the Group has added 18 new unencumbered aircraft over the past two years.

During the year the Group took steps to reduce planned 2012/2013 capital expenditure to $1.9 billion, and expenditure will remain at that level through 2013/2014.

Fleet renewal is substantially complete after the delivery of 114 new aircraft over the past four years and the Group will now shift its focus to debt reduction. The Group’s future fleet delivery profile has been restructured with a reduction in potential commitments for the Boeing 787-9 from 85 to 50 (announced separately today), available from 2016.

Segment performance

Qantas reported an Underlying EBIT loss of $21 million, down $249 million compared with 2010/11, reflecting the poor performance of the international network. The Qantas segment result was also severely impacted by record fuel costs and industrial action.

Customer satisfaction in the domestic market is at its highest level in over three years and the Group continues to invest in Qantas’ domestic network, product and service. It remains the airline of choice for corporate travellers with strong double-digit corporate revenue growth and an estimated 84 per cent share of the domestic corporate travel market.

Significant progress was made in Qantas’ international turnaround plan launched in August 2011. Qantas increased capacity to its Dallas/Fort Worth and Santiago hubs, reconfigured seven out of a planned nine Boeing 747 aircraft with award-winning A380 interiors, strengthened alliance relationships and withdrew from major loss-making routes. Major business transformation initiatives, including heavy maintenance consolidation, were commenced during the year.

The benefits from these initiatives have started to flow and will deliver annual savings of approximately $300 million when all measures announced to date have been implemented.

Jetstar reported record Underlying EBIT of $203 million, up $34 million or 20 per cent on the prior year. Ancillary revenues grew by 27 per cent and unit costs were reduced to record lows. Domestically, Jetstar continues to hold a clear leadership position in the price-sensitive market.

Despite challenging operating conditions, Jetstar achieved capacity and passenger growth in all markets. Jetstar Japan was established during the year and commenced operations in July 2012, five months ahead of schedule, complementing airlines based in Singapore (Jetstar Asia) and Vietnam (Jetstar Pacific) – with Jetstar Hong Kong to be added in 2013, subject to regulatory approval. Each of these investments draws on Jetstar’s well-established brand, world-class ancillary revenue model and strong local partners.

Qantas Frequent Flyer achieved a record result, with Normalised Underlying EBIT of $231 million, up 14 per cent compared with 2010/11. The continued expansion and enhancement of the program saw billings increase by 14 per cent to $1.2 billion. Membership now stands at 8.6 million members, with over 500 program partners.

The acquisition of Wishlist Holdings Ltd, establishment of a new membership tier (Platinum One) and addition of major new partners such as Optus all contributed to Qantas Frequent Flyer’s strong performance.

Qantas Freight’s Underlying EBIT was $45 million, down $17 million compared with the prior year. The result reflects a broader downturn in global air freight markets, plus adverse fuel price and foreign exchange impacts that were only partially offset by yield improvements.

Outlook

The Group’s operating environment and economic outlook for the first half of 2012/2013 remains challenging, volatile and dependent on a number of uncontrollable external factors.

Group capacity is expected to increase by 3-4 per cent in the first half of 2012/2013 compared to the first half of 2011/2012, while maintaining flexibility.

The Group aims to maintain a profit-maximising 65 per cent domestic market share. Given current market conditions, Group domestic capacity is expected to increase by 9-11 per cent in the first half of 2012/2013 compared to the first half of 2011/2012. However, the Group has significant flexibility to adjust domestic capacity should current market conditions change.

Underlying fuel costs (excluding carbon tax) for the Group are expected to be approximately $2.3 billion⁵ in the first half of 2012/2013 compared to $2.2 billion in the first half of 2011/2012, due to higher forward market jet fuel prices and increased flying.

No Group profit guidance is provided at this time due to the high degree of volatility and uncertainty in global economic conditions, fuel prices, exchange rates, as well as the major transformational change agenda underway.

¹ Underlying Profit Before Tax (Underlying PBT) is a non-statutory measure and is the primary measure used by the Group’s chief operating decision making bodies for the purposes of assessing the financial performance of the Group. All line items in the Media Release are reported on an Underlying basis. A detailed reconciliation of Statutory and Underlying PBT is included in the Review of Operations.

² Jetstar result based on Underlying EBIT. Qantas Frequent Flyer result based on Normalised EBIT, which is Underlying EBIT normalised for prior period changes in accounting estimates. Refer to the Review of Operations for a reconciliation of Normalised EBIT to Underlying EBIT.

³ Free cash flow – Operating cash flows less investing cash flows. Free cash flow is a measure of the amount of operating cash flows that are available (i.e. after investing activities) to fund reductions in net debt or payments to shareholders.

⁴ Average fleet age of the Group’s scheduled passenger fleet based on manufacturing dates.

⁵ As at 15 August 2012.

Copyright Photo: John Adlard. The Boeing 767-300 ERs are now likely to be operated longer under this revised plan. Boeing 767-338 ER VH-OGD (msn 24407) arrives at Sydney.

QANTAS Airways: