Tag Archives: QANTAS Group

QANTAS Group reports its yearly profit was down 91%

QANTAS Group made this announcement:

  • Underlying Profit Before Tax: $124 million (down 91%)
  • Statutory Loss Before Tax: $2.7 billion (majority of which is non-cash, including aircraft
    write downs)
  • $4 billion revenue impact from COVID crisis in 2H20
  • Operating cash flow: $1.1 billion
  • Liquidity of $4.5 billion providing considerable buffer to manage uncertainty
  • Significant progress on initial steps of three-year recovery plan

 

In what has been the most challenging period in its long history, the Qantas Group reported a $124 million Underlying Profit Before Tax for the 12 months ended 30 June 2020, down 91 per cent on the prior year.

This reflects a strong first half of the year ($771 million Underlying Profit Before Tax) followed by a near total collapse in travel demand and a $4 billion drop in revenue in the second half[1] due to the COVID-19 crisis and associated border restrictions.

Fast action to radically cut costs and place much of the flying business into a form of hibernation helped minimise the financial impact from this extraordinary sequence of events. From April to end of June, Group revenue fell 82 per cent while cash costs were reduced by 75 per cent, helping to limit the drop in Underlying Profit Before Tax in 2H20 to $1.2 billion[2].

At the statutory level, the Group reported a $2.7 billion Loss Before Tax –– due mostly to a $1.4 billion non-cash write down of assets including the A380 fleet and $642 million in one-off redundancy and other costs as part of restructuring the business for recovery.

Despite significant uncertainty across most markets, the Group remains well positioned to take advantage of the eventual return of domestic and, ultimately, international travel demand. In the meantime, Qantas Freight and Qantas Loyalty continue to generate significant cashflow and charter operations for the resources sector are performing strongly.

 

CEO COMMENTARY

Qantas Group CEO Alan Joyce said the second half of FY20 was the toughest set of conditions the national carrier had faced in its 100 years – but that it had the resilience to deal with them.

“The impact of COVID on all airlines is clear. It’s devastating and it will be a question of survival for many. What makes Qantas different is that we entered this crisis with a strong balance sheet and we moved fast to put ourselves in a good position to wait for the recovery.

“We’ve had to make some very tough decisions in the past few months to guarantee our future. At least 6,000 of our people will leave the business through no fault of their own, and thousands more will be stood down for a long time.

“Recovery will take time and it will be choppy. We’ve already had setbacks with borders opening and then closing again. But we know that travel is at the top of people’s wish lists and that demand will return as soon as restrictions lift. That means we can get more of our people back to work.

“COVID is reshaping the competitive landscape and that presents a mix of challenges and opportunities for us. Most airlines will come through this crisis a lot leaner, which means we have to reinvent how we run parts of our business to succeed in a changed market.”

Mr Joyce said the FY20 result showed how the COVID crisis had derailed what would have been a strong financial performance.

“We were on track for another profit above $1 billion when this crisis struck. The fact that we still delivered a full year underlying profit shows how quickly we adjusted when revenue collapsed.

“Qantas Loyalty’s profit was down less than 10 per cent and member satisfaction increased in the fourth quarter, which shows the strength of that business. Qantas Freight has been a major beneficiary of the shift to people shopping online and our charter flying for resources companies is strong.

“COVID will continue to have a huge impact on our business and we’re expecting a significant underlying loss in FY21.

“Looking further ahead, we’re in a good position to ride out this storm and make the most of the recovery. Our market position is set to strengthen as the only Australian airline with a full service and low fares domestic offering as well as long haul international services,” added Mr Joyce.

 

GROUP DOMESTIC

A very strong performance by Group Domestic in the first half more than offset the 50 per cent drop in revenue in the second half caused by COVID-related restrictions.

Qantas Domestic achieved EBIT of $173 million while Jetstar’s domestic flying achieved EBIT of $112 million, including absorbing a $33 million impact of industrial action over the peak summer period.

Both Qantas and Jetstar demonstrated high levels of adaptability in responding to cascading domestic border restrictions – cutting costs and maximising limited revenue opportunities. This included launching new Qantas routes such as Sydney to Ballina and Orange, and redeploying A320s to meet resources sector demand in Western Australia.

A three-day Jetstar sale in June saw some 150,000 fares sold, reaching a record rate of 220 bookings per minute – demonstrating the latent demand for travel when borders do re-open.

As a result of the Group’s main domestic competitor significantly reducing its fleet and closing its low-cost carrier, the Group expects its market share to naturally grow from around 60 per cent to up to 70 per cent as the market recovers.

 

GROUP INTERNATIONAL

Qantas International made a $56 million profit for the year, driven largely by a record performance by Qantas Freight and a huge increase in e-commerce.

The Group’s regular scheduled international flights effectively ceased in April, replaced by over 100 services operated by Qantas on behalf of the Federal Government to cities including Hong Kong, London, Los Angles, Lima, Buenos Aires and Mumbai.

Jetstar’s international businesses moved into losses driven by border closures. Domestic flying in New Zealand was planning a return to near-full capacity by end-August but remains flexible given changing restrictions.

Jetstar Asia in Singapore is reducing its fleet and workforce by more than 25 per cent. Jetstar Japan was impacted by local lockdowns but resumed all domestic routes in July and is planning to operate 75 per cent of pre-COVID capacity in August.

In June, the Group announced its plans to exit Jetstar Pacific in Vietnam, of which it is a 30 per cent shareholder.

 

QANTAS LOYALTY

Qantas Loyalty achieved an underlying EBIT of $341 million – the largest single positive contribution to the Group’s FY20 profit and only 9 per cent lower than its result last year. The main reasons for this decline were lower earnings from travel-related products and a softening in consumer spending on credit cards.

Total Frequent Flyer membership increased by 4 per cent and membership of the Qantas Business Rewards program (aimed at small enterprises) increased by 20 per cent.

Despite limited opportunities to redeem points for travel, Frequent Flyer member satisfaction set a quarterly record in Q4. This is supported by engagement initiatives including automatic extension of tier status for 12 months; more opportunities to earn points on the ground, including with BP fuel (with more than 500,000 signing up for this part of the program) and Afterpay (with 55,000 members signing up to earn in the first four weeks); and a significant increase in reward seats on domestic flights.

Other new businesses, including retail, health insurance and car insurance, continued to diversify Loyalty’s earnings.

 

GOVERNMENT SUPPORT

The Group acknowledges the significant industry assistance provided by the Federal Government in response to COVID, reflecting the importance of aviation to the broader economy.

As one of the most heavily impacted companies, the Qantas Group collected $267 million in JobKeeper payments, the majority of which was paid directly to employees on stand down and the rest used to subsidise wages of those still working.

Qantas and Jetstar operated a series of domestic, regional and international flights on behalf of the Federal Government, as well as some freight services, to maintain critical links that had been made commercially unviable by travel restrictions. These flights were operated on a fee-for-service basis, with fare revenue offsetting the cost to the taxpayer.

To 30 June 2020, the total gross benefit of Government support was $515 million and the net benefit (after costs for flights operated) was $15 million.

The nature of ongoing industry assistance means the level of support received in FY21 will depend on the amount of flying activity.

 

SUPPORTING OUR CUSTOMERS

A number of customer initiatives were introduced during the year, including:

  • Launched the Fly Well program with range of measures (including masks, hand sanitising stations, changes to inflight service) to ensure a safe travel environment and give extra peace of mind.
  • Offered customers with new bookings the option to move flights with no change or cancellation fees.
  • Significantly increased flexibility for travel credits as well as providing refunds.

 

SUPPORTING OUR PEOPLE

In recognition of the significant impact of the COVID crisis on its people, the Group has put a variety of support mechanisms in place, including:

  • Working with other companies to connect people on stand down with secondary employment opportunities.
  • Offering a suite of support mechanisms, including financial counselling and psychological support.
  • Running weekly virtual town hall meetings to give updates and answer live questions.
  • Offering voluntary (rather than compulsory) redundancy wherever possible and providing large severance payouts for long-serving employees in particular.

 

FINANCIAL FRAMEWORK

The Group’s available liquidity was $4.5 billion at 30 June 2020, including $1 billion of undrawn facilities.

The Group successfully raised more than $1.4 billion through a fully underwritten institutional placement and retail Share Purchase Plan.

As at 30 June 2020, net debt was $4.7 billion and remains at the lower end of the target range. The Group has no major debt maturities until June 2021 and no financial covenants on debt.

Planned net capital expenditure was reduced by $400 million in the second half for a total of $1.6 billion for FY20. Significant further reductions are forecast in FY21 with the deferral of 787-9 and A321neo deliveries to meet the Group’s requirements.

 

FUEL HEDGING

The Group’s fuel consumption was fully hedged for the second half of FY20 and 90 per cent hedged for the first half of FY21 with significant participation to falling prices. Given the significant decline in flying activity from April 2020 and the anticipated decline in fuel consumption in FY21, the Group has recognised $571 million of de-designated hedge losses in the FY20 statutory result.

 

UPDATE ON RECOVERY PLAN

Implementation of the three-year recovery plan, announced in June 2020, is well underway. The plan will create a stronger platform for future profitability, long-term shareholder value and preserve as many jobs as possible.

Several key parts of the plan are complete or in progress, including:

  • Around 4,000 of at least 6,000 redundancies expected to be finalised by end-September 2020, with continued union consultation.
  • Ongoing stand down of around 20,000 employees, enabling retention of core skills until work returns.
  • Early retirement of the Boeing 747 fleet and more than 100 aircraft now in storage (in a state that significantly reduces the need for ongoing maintenance).
  • Raised $1.4 billion in equity in addition to the $1.75 billion of long term debt funding secured during the second half of FY20.

The plan targets $15 billion in benefits over three years from reduced activity, with $1 billion per annum in ongoing cost savings from FY23 through efficiency gains across the Group.

Recent developments in Victoria and the reimposition of some border restrictions in other parts of Australia are not expected to have a material impact on the delivery of the three-year plan.

 

OUTLOOK

The Group’s recovery plan allows for a high level of flexibility given uncertainty on border restrictions and travel demand, while also acknowledging the critical nature of air transport to the Australian economy. Key assumptions and indicators at this stage include:

Group Domestic

  • Given current border restrictions, 20 per cent of pre-COVID Group Domestic capacity is scheduled for August.
  • Recent sales activity shows high levels of latent travel demand when restrictions are eased.

Group International

  • International network unlikely to restart before July 2021; possibly earlier for Trans Tasman.

Loyalty

  • Expected to continue strong cash flow contribution in FY21.
  • Recovery in domestic travel an opportunity to increase reward seats and maintain member engagement.
  • Actively growing opportunity to earn points on the ground, but this is linked to broader consumer confidence levels.

Qantas Freight

  • Domestic demand expected to remain strong due to growth in e-commerce.
  • Strong international freight demand expected to continue but not at peak levels seen in 4Q20.

 

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 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:

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 acquires a 19.9% share of Alliance Airlines

Alliance Airlines (Australia) Fokker F.28 Mk. 0100 (Fokker 100) VH-XWS (msn 11314) BNE (Ton Jochems). Image: 945035.

The QANTAS Group has issued this statement:

The QANTAS Group has taken a 19.9 percent shareholding of Australian-based charter operator, Alliance Airlines.

Alliance Airlines is a significant service provider to the resources sector, which continues to stimulate travel demand in Western Australia and Queensland in particular. Alliance is a profitable, well-managed business with high levels of operational maturity. It is also a long-term provider to the QANTAS Group and flies regional services on behalf of the national carrier.

 

The 19.9 percent stake was acquired for an average price of $2.40 per share and for a total cost of $60 million.

QANTAS expects to ultimately seek regulatory approval from the ACCC to build on its current shareholding, with a longer-term view of taking a majority position in Alliance Airlines in order to better serve the charter market by unlocking synergies.

In the meantime, QANTAS is supportive of the ‘business as usual’ approach of Alliance Airlines management and is not seeking Board representation.

Top Copyright Photo (all others by the airline): Alliance Airlines (Australia) Fokker F.28 Mk. 0100 (Fokker 100) VH-XWS (msn 11314) BNE (Ton Jochems). Image: 945035.

Alliance aircraft slide show:

Alliance Airlines Route Map:

 

QANTAS Group reports a record full year profit

  • Underlying Profit Before Tax: $1.6 billion (up 14%)
  • Statutory Profit Before Tax: $1.4 billion (up 18%)
  • Statutory Earnings Per Share: 56c (up 21%)
  • Return On Invested Capital: 22%
  • Net free cash flow: $1,442 million (up 10%)
  • Shareholder return of up to $500 million: 10 cents per share ordinary franked dividend, plus an on-market buyback of up to $332 million
  • Bonus for 27,000 non-executive employees, worth a total of $67 million
  • Extension of global lounge improvement program –– six additional ports to be upgraded
  • Commitment to create a second pilot academy facility in regional Australia.

 

The QANTAS Group has reported an Underlying Profit Before Tax of $1.6 billion for the 2018 financial year – a record for the national carrier.

All parts of the business contributed to the result, helped by healthy levels of demand across key markets, higher revenue and a particularly strong performance in the domestic flying businesses of Qantas and Jetstar.

The result enables the Group to return further capital to shareholders, keep investing for customers and reward its employees with a cash bonus.

 

CEO COMMENTS

Chief Executive Officer Alan Joyce said the record profit reflected a strong market as well as the benefits of ongoing work to improve the business and build long-term shareholder value.

“These numbers show a company that’s delivering across the board,” said Mr Joyce.

“Our investment in free Wi-Fi and cabin improvements are delivering a better experience for customers as well as higher earnings for Qantas and Jetstar. The overall value for the travelling public remains extremely strong, with domestic sale fares almost 40 per cent lower in real terms than they were fifteen years ago.

“We’re seeing healthy demand across key sectors matched with improving levels of capacity discipline, which is a positive sign for the year ahead.

“This record result comes despite higher oil prices. We’re facing another increase to our fuel bill for FY19 and we’re confident that we will substantially recover this through a range of capacity, revenue and cost efficiency measures, in addition to our hedging program.

“Ultimately our success relies on the great service and dedication to safety from our people, which is supported by continuing to invest and innovate.

“We’re very pleased to reward our people with a bonus for this fantastic result. It brings the total amount set aside for non-executive employees to over $300 million over the past four years for their part in the Group’s exceptional performance,” added Mr Joyce.

 

GROUP DOMESTIC

The Group’s domestic flying operations delivered EBIT of $1.1 billion, which is 25 per cent higher than FY17 and represents a new record for the business.

This was achieved through the combination of Qantas and Jetstar’s network, schedule and product strengths in key markets, and supported by capacity discipline driving higher seat factors and higher unit revenue.

Margin growth was helped through efficiency gains (such as Jetstar’s A320 cabin refit program) and investing for a higher premium (such as new lounges and free inflight Wi-Fi on Qantas). Qantas Domestic achieved a 19 per cent increase in earnings from a 6 per cent increase in revenue.

The Group maintained its corporate share, increased its share of small to medium enterprises, and saw a continuation of growth in the resources sector that began in the first half of the year. Demand was also boosted by flows from international partner airlines on to domestic services. Leisure demand remains strong and Jetstar carried 24 million passengers domestically and internationally for under $100.

 

GROUP INTERNATIONAL

Qantas International increased its earnings by 7 per cent to $399 million and maintained its margin in the face of strong competition and higher fuel prices.

Qantas International made several important structural changes during the year, including the introduction of the 787, new routes like Perth–London and taking on additional Trans Tasman flying for partner Emirates. These changes started delivering cost and revenue benefits in late FY18, which will continue through FY19 onwards.

Jetstar International posted a strong profit after managing an $11 million impact from Bali ash clouds and start-up of new routes like Melbourne-Ho Chi Minh.

Jetstar branded airlines in Asia were all profitable and continue to give the Group a capital-light foothold in key growth markets. The expansion of Qantas’ Singapore hub has been helped by traffic flows and onward connections with these airlines.

Qantas Freight continued to perform well, with the international market strengthening and the domestic market stable.

 

QANTAS LOYALTY

Qantas Loyalty achieved a record result of $372 million, up 1 per cent from the prior year. Margins dropped by 0.4 percentage points due to a mix of market conditions and bonus points promotions to support the launch of new financial products, but remained strong at 24.1 per cent.

The impact of interchange fee adjustments – which continued into the second half of the year – was mitigated by consumer demand for Qantas Points. While total growth in new credit cards issued in Australia shrank by 4 per cent, cards that earn Qantas Points grew at 7 per cent[2] (opens in new window), showing the value that points have in card acquisition.

The Frequent Flyer program grew by 4.2 per cent[3] (opens in new window) to reach 12.3 million members. Levels of member engagement increased, helped by the widening number of partners in the program and additional ‘opt-ins’ among Woolworths customers to earn Qantas Points.

There was continued revenue growth from new ventures, including health insurance and Qantas’ own premier credit card. Further expansion into financial services is planned in the first half of FY19.

 

FINANCIAL FRAMEWORK

The Group delivered against its financial framework in FY18.

Net free cash flow increased by $133 million, helping to push net debt below the low end of the preferred range. This gives future flexibility for earnings accretive investment and to continue rewarding shareholders.

The Group remains on track for a combined $3 billion in capital expenditure for FY18 and FY19 (net of asset sales), with $1.97 billion of this delivered in FY18. Ongoing transformation delivered $463 million of revenue and cost benefits.

Hedging helped minimise impact of fuel price increases during FY18, giving the Group time to adjust revenue settings to reflect increased costs. This has continued into FY19, with the first half of the year 87 per cent hedged.  Ongoing efficiency measures drove a 1 per cent reduction in fuel consumption and the same is expected in FY19.

Continued profitability saw Qantas exhaust the last of its available carry forward tax losses and incur company tax in the second half of FY18.

 

SHAREHOLDER RETURNS

The Qantas Board has announced up to $500 million to be returned to shareholders. This comprises an increased, fully franked dividend of 10 cents per share to be paid on 10 October 2018 with a record date of 6 September 2018, as well as an on market buy-back of up to $332 million.

This will bring the amount of capital returned to Qantas shareholders to $3.1 billion since October 2015 and the total reduction in shares on issue to around 26 per cent.

 

INVESTING FOR THE FUTURE 

Several major investments were announced during FY18, including six additional 787-9s for Qantas International, accelerated retirement of remaining 747s, a major upgrade of A380 cabins and 18 new A321LR NEOs for Jetstar.

Work on Project Sunrise – which will unlock direct flights from the east coast of Australia to London and New York by 2022 – advanced to the request for proposal stage with Airbus and Boeing. And several lounge upgrades were announced, underway or completed.

Qantas has today announced an extension of its global lounge upgrade program, designed to support demand for premium travel across six additional ports. They are:

  • Updated and expanded Sydney International First Lounge
  • Major upgrade to the Auckland Lounge
  • Refreshed Tokyo Narita Lounge
  • Expanded Brisbane International Lounge
  • Two regional lounge upgrades – Tamworth and Hobart.

The Qantas Group has today also committed to a second Pilot Academy facility, which will help meet the unprecedented global demand for skills as the aviation sector continues to grow. The academy concept is designed to provide a future talent pipeline for Qantas Group airlines and support General Aviation in a country that relies heavily on air transport. It also represents a commercial opportunity to create a centre of excellence to train pilots for airlines throughout the region.

The concept has been met with substantial levels of support from state governments, local councils and the private sector. (See separate release.)

Qantas has set aside a total of $20 million towards establishment of the two facilities. Both will be located in regional Australia, with cities to be announced in coming weeks. The first location will open during calendar year 2019 and the second expected to follow in 2020.

Qantas has also committed to delivering up to $3 million to regional communities as part of its drought assistance program.

 

OUTLOOK

The strength of forward bookings and continued focus on transformation provides confidence that the Group will substantially recover higher fuel costs in FY19. This is supported by capacity discipline and fundamental strengths of our dual brand strategy in the domestic market, combined with margin advantage and fleet investment in the international market.

The Group’s current operating expectations for FY19 are:

  • Total fuel bill is expected to increase to ~A$3.92 billion (up ~$690 million).
  • Inflation impact on Group expenditure (including wage growth) expected to be ~$250 million.
  • Transformation benefits are expected to be ~$400 million.
  • Net capital expenditure1 expected to be $1.0b for FY19.
  • Total Group capacity to increase by ~0–1 per cent in the first half of FY19, with Group International up by 1 per cent and Group Domestic capacity flat.
  • Net depreciation and non-cancellable aircraft operating leases expected to be ~$155 million higher than FY18.

[1] (opens in new window) BITRE Australian Domestic Best Discount Air Fare Index.

[2] (opens in new window) At June 2018 compared to June 2017. Source: RBA credit and card charges statistics.

[3] (opens in new window) At June 2018 compared to June 2017.

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

Top Copyright Photo (all others by QANTAS): QANTAS Airways Boeing 787-9 Dreamliner VH-ZNB (msn 39039) LAX (Michael B. Ing). Image: 942566.

QANTAS aircraft slide show:

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QANTAS delivers a record first half profit, 18 Airbus A321NR NEOs for Jetstar

First QANTAS Boeing 787-9, delivered on October 17, 2017

The QANTAS Group has delivered its highest-ever first half Underlying Profit Before Tax of $976 million for the six months ending December 31, 2017.

  • Underlying Profit Before Tax: $976 million (up 15%)
  • Record results for Qantas Domestic, Jetstar Group and Qantas Loyalty
  • Statutory Profit Before Tax: $857 million (up 20%)
  • Statutory Earnings Per Share: 34.0c
  • Return On Invested Capital: 20.9%
  • Record level of operating cash flow; net free cash flow of $772 million (up 2.7 times)
  • Up to $500 million shareholder return: 7 cents per share ordinary unfranked dividend, plus an on-market buyback of up to $378 million

The result surpasses the previous record of $921 million achieved in the first half of FY16 and comes despite recent increases in fuel costs and continued international capacity growth. Both Underlying and Statutory profit before tax were significantly higher (15 percent and 20 percent respectively) than the first half of FY17.

All targets of the Group’s financial framework were met, enabling QANTAS to keep rewarding shareholders, investing for customers and positioning for the future.

CEO COMMENTARY

Group CEO Alan Joyce said the record result showed Qantas’ ability to keep delivering.

“After several years of consistent performance, we now have a lot of momentum behind us. We’re vigilant about maintaining that momentum and we’re confident about the future it allows us to build.

“Today’s result comes from investing in areas that provide margin growth and a network strategy that makes sure we have the right aircraft on the right route.

“Our lounges, Frequent Flyer program and initiatives like free Wi-Fi all drive customer satisfaction, and so does the network strength across Qantas and Jetstar.

“We’re seeing continued capacity discipline in the domestic market, coupled with a product advantage that’s delivering a significant profit share to the Group.

“This is a transition year for Qantas International and it’s setting up a bright future. We have the Dreamliner joining the fleet and important network changes on flights to Europe and across the Tasman, which will unlock significant benefits from FY19.

“For international to largely hold its own ahead of those benefits flowing through, and in the face of rising fuel costs and market capacity, shows its resilience.

“QANTAS Loyalty performed very well with the Frequent Flyer program at its core, but it’s also opening up fresh revenue growth by expanding directly into areas like financial services and health insurance.

“We operate in very competitive markets right across the Group, and we’re focused on continuous improvement.

“This result includes $181 million in benefits from ongoing transformation as part of an average annual target of $400 million. Ultimately, that discipline is key to our ability to keep delivering for our customers, shareholders and people,” said Mr Joyce.

GROUP DOMESTIC

QANTAS and Jetstar’s domestic flying operations combined posted their highest ever first half Underlying EBIT of $652 million.

The result was driven by ongoing capacity discipline and growing margins of both airlines, achieved through product and network superiority.

QANTAS Domestic posted Underlying EBIT of $447 million, up 20 per cent. Unit revenue was up 8.6 per cent and load factor increased by 1.4 points to 78.7 per cent. The resources sector posted modest revenue growth for the first time since 2014. Jetstar’s domestic operations achieved a 7 per cent increase in unit revenue.

GROUP INTERNATIONAL

QANTAS and Jetstar’s international operations performed well in the face of higher fuel costs and increased competitor capacity.

Underlying EBIT for QANTAS International was lower, down 5.5 per cent to $222 million, however unit revenue increased slightly by 0.3 per cent. A capacity increase together with load factor increasing by 3.1 percentage points to 84.4 per cent lifted overall revenue by 7.3 per cent.

Jetstar’s international operations generated strong earnings, helped by the operating costs of the 787-8 but impacted by around $10 million from the Bali ash cloud disruption. Jetstar’s portfolio of airlines in Asia was profitable, driven by Japan and Singapore operations as well as a significant improvement in Jetstar Pacific’s performance as excess market capacity in Vietnam moderated.

LOYALTY

QANTAS Loyalty posted another record profit in the first half of $184 million, up 1.7 percent.

As previously flagged, the regulatory changes to interchange fees had some impact on revenue but this was offset by overall growth in other parts of the Frequent Flyer program to help deliver total revenue increase of 2.7 percent.  This included continued growth of the revised Woolworths program, new retail partners including Rockpool Dining Group, Hoyts and Uber, and growth in Qantas Cash and Qantas epiQure.

Also contributing to revenue growth were Loyalty’s new ventures, which are in-line with or outperforming their business cases. Qantas Assure had the highest rate of member growth in the health insurance sector [1] (opens in new window) and is well placed to continue this momentum with premium increases significantly below the industry average [2] (opens in new window).

QANTAS’ own Platinum credit card continues to have a rapid growth rate, with more than 1 billion points earned already, and a low fee card was introduced in December 2017 as part of the continued expansion into financial services. Overall growth of cards that earn QANTAS Points was 5.3 per cent compared with 0.05 percent growth in the rest of the market [3] (opens in new window).

QANTAS Business Rewards, which offers small business the ability to earn points on corporate expenses, continues to drive an increase in revenue from program partners and is also increasing market share for the airlines among small-to-medium enterprises.

Growth in these new ventures and the core Frequent Flyer program is expected to deliver a compound annual growth rate of 7–10 per cent for Qantas Loyalty in the five years to FY22.

FINANCIAL FRAMEWORK  

All targets of the Group’s financial framework were met or exceeded in the half.

Net debt continued to fall and remains towards the bottom of the range, at $5.1 billion. Sixty per cent of the Group fleet is unencumbered, including two new Boeing 787-9s purchased with cash. Debt maturity has been improved by an eight year, $350 million corporate debt program and short term liquidity remained strong at $2.8 billion.

Rolling 12-month return on invested capital was 20.9 per cent, with all operating segments delivering ROIC above their weighted average cost of capital. Net capital expenditure guidance for FY18 and FY19 is unchanged at a combined $3.0 billion, net of asset sales.

Operating cash flow increased by 48 per cent to reach a record $1.7 billion, providing excess capital for reinvestment and for returns to shareholders.

SHAREHOLDER RETURNS

The QANTAS Board has announced up to $500 million of capital to be returned to shareholders. This comprises an interim dividend of 7 cents per share (unfranked) to be paid on 12 April 2018 with a record date of 8 March 2018, as well as an on-market share buy-back of up to $378 million. This additional buy-back is expected to bring the total reduction of shares on issue to 24 per cent since October 2015.

INVESTING IN THE FUTURE

Jetstar Airways A320 order

Jetstar will start taking delivery of aircraft from its existing order of 99 A320 aircraft, beginning with 18 A321LR NEOs from mid-2020.

These next generation, longer range aircraft can fly routes like Melbourne and Sydney to Bali, currently operated by the Boeing 787-8 Dreamliner. The arrival of the first four long range NEOs will add capacity on these routes with potential to also free up some 787-8 flying time for use on other leisure routes such as Vietnam, China, Thailand and Hawaii.

All 18 A321LR NEOs are expected to be delivered by the end of 2022 to replace Jetstar’s oldest A320s for use on domestic and international routes, and will each deliver a fuel burn improvement of around 15 percent.

The QANTAS Group retains flexibility with the sequencing of the rest of its A320 NEO order, which is approximately an even split of 232-seat A321LR NEOs and 186-seat A320 NEOs. The order is primarily focused on aircraft replacement but with scope to allow for growth depending on market conditions.

QANTAS Group Pilot Academy

With fleet renewal and network growth, the QANTAS Group is undergoing the largest pilot recruitment and training initiative in its history.

Since 2016, the Group has hired almost 600 new pilots in Australia, with another 350 to be recruited by the end of this calendar year.

As part of creating an ongoing talent pipeline, the national carrier will establish the Qantas Group Pilot Academy in 2019. The academy will initially focus on training up to 100 new pilots per year for direct entry to the Group, but will explore the potential to become a major training centre to meet strong demand for pilots in the region. (See separate release.) It will represent an investment of up to $20 million of setup costs in FY19.

Investing in product

QANTAS has also announced additional investments in customer experience, including:

  • A complete redevelopment of its Sydney International Business Lounge, including reconfiguration of the existing floorplan to increase capacity by 30 per cent. (See separate release.)
  • An upgrade to the cabins of QantasLink’s 45 fleet of turboprop aircraft, used on regional routes. (See separate release.)
  • Continued rollout of domestic Wi-Fi at a rate of approximately one aircraft per week, with 22 Boeing 737s already internet enabled.
  • Ongoing development of Project Sunrise to achieve the goal of direct flights to London and New York from the east coast of Australia by 2022.

OUTLOOK

Looking forward, the Group expects healthy consumer demand growth consistent with an improved global outlook. The Group’s current operating expectations[4] (opens in new window) are:

  • Total QANTAS Group capacity is expected to increase by ~1% in 2H18[5] (opens in new window).
    • Group Domestic capacity expected to decrease by ~1%. Continued growth in unit revenue is expected.
    • Group International capacity expected to increase by ~2-3% compared with competitor capacity growth of ~5%[6] (opens in new window). Unit revenue growth is expected to continue.
  • FY18 fuel cost expected to be no more than $3.24b.
  • FY18 transformation benefits expected to be greater than $400million.
  • Capital expenditure net of asset sales expected to be $3.0b for FY18 and FY19 combined.

[1] (opens in new window) Source: Based on 12 months to June 2017. APRA Operations of Private Health Insurers Annual Report 2016-2017 and nib policyholder data.

[2] (opens in new window) Average Qantas Assure premium increase from 1 April 2018 is 0.48% compared with an industry average of 3.95% Source: as reported by Australian Government Department of Health; excludes the Australian Government Rebate.

[3] (opens in new window) December 2017 compared with December 2016. Source: RBA Credit and Card Charges Statistics.

[4] (opens in new window) For detailed outlook statement, please refer to Investor Presentation.

[5] (opens in new window) Compared to 2H17.

[6] (opens in new window) Compared to 2H17.

Copyright Photo: QANTAS Airways Boeing 787-9 Dreamliner VH-ZNA (msn 39038) LAX (Michael B. Ing). Image: 940396.

QANTAS Airways aircraft slide show:

 

QANTAS Group announces a pilot academy

QANTAS will establish a pilot academy capable of training up to 500 pilots a year, to help meet the increasing need for skilled aviators in one of the fastest growing global industries.

The QANTAS Group Pilot Academy is expected to open its doors to students during 2019 and is likely to be established near an existing airfield in regional Australia to provide easy access to uncongested airspace. It will represent an initial investment of up to $20 million to establish the new facility.

QANTAS Group CEO Alan Joyce said the academy would become a critical part of the national carrier’s long term talent pipeline – and an important resource for Australian aviation.

“QANTAS has a proud history of having some of the best pilots in the world and we want to make sure it stays that way. By creating our own academy, we can train the next generation of pilots to the QANTAS Group standard.

“Boeing estimates the world will need about 640,000 more pilots in the next 20 years, with 40 per cent in the Asia Pacific region. That level of demand makes the academy important not just for QANTAS but for Australian aviation more broadly so that all parts of the industry have access to qualified pilots in a country that relies so heavily on air transport.

“Over time, we see potential for the academy to become a competitive advantage for Australia in the region. It could train pilots for other airlines and grow into the largest academy of its kind in the southern hemisphere,” added Mr Joyce.

The academy will initially train around 100 pilots a year for direct entry into the Qantas Group, including Jetstar and regional carrier, QANTAS Link. Depending on demand from other parts of the aviation industry, this could grow to 500 pilots a year on a fee-for-service basis.

The typical path for most students entering the academy will be high school and university graduates with strong academic performance. After up to 18 months of classroom, simulator and real-world flight training, students would then receive further training specific to the type of aircraft they will be flying before entering service as a First Officer on turboprop aircraft, sitting next to an experienced Captain.

Mr Joyce said that addressing the chronic gender imbalance among pilots – with a global average of 97 per cent males in the profession – would be key to meeting market demand.

“If we’re leaving out almost 50 percent of the population in our search for the next generation of 640,000 pilots, we’re clearly not tapping into all of the talent that’s available. As an industry, we need to do a much better job of encouraging women to become pilots and take up what is an exciting career path,” he said.

In late 2017, QANTAS announced the Nancy Bird Walton initiative – named after the pioneering Australian aviator – to improve on its 5 per cent proportion of female pilots. It commits the QANTAS Group to a 20 percent intake of qualified women in its 2018 Future Pilot Program (which is in line with the proportion of women in aviation courses nationally) and to reach at least 40 per cent over the next decade.

In establishing the academy, QANTAS will partner with one of several existing training providers. It will also engage with Federal, State and Territory governments to discuss possible locations.

Currently, the QANTAS Group sources pilots from a mix of new graduates from existing flying schools, pilots from general aviation and the military, and from other commercial airlines. This is expected to continue in order to provide the different levels of experience needed by the national carrier. An additional program to help mentor and then recruit the ‘best and brightest’ aviation students from five Australian universities was announced last year.  The Group has more than 3,500 pilots and plans to recruit a further 350 by the end of 2018.

QANTAS first had a pilot training school in the 1920s, shortly after the airline was established. Some of Australia’s earliest aviators were trained at its facilities in Brisbane and Longreach. Today, the QANTAS Group has a series of training facilities and flight simulators around the country as part of ongoing skills development for established pilots. Aspiring pilots wishing to express interest in finding out more about the academy can visit www.qantas.com/pilotacademy

Photo: QANTAS Group.