Key points:
· Underlying Profit Before Tax: $367 million
· Statutory Profit After Tax: $206 million
· Transformation benefits: $374 million
· Comparable unit cost reduction: 4.8 per cent[1]
· Cash generated from operations: $1 billion
· Positive net free cash flow: $194 million
· Liquidity: $3.6 billion, including $2.9 billion cash
· Earnings per share: 9.2 cents
· No interim dividend
SYDNEY, 26 February 2015: Qantas today reported an Underlying Profit Before Tax of $367 million and a Statutory Profit After Tax of $206 million for the six months ended 31 December 2014.
This Underlying Profit Before Tax is Qantas’ best first-half performance since 2010 and an improvement of $619 million compared with the same period last year.
The main factors in the underlying improvement were:
· $374 million - Qantas Transformation program benefits;
· $208 million - reduced depreciation;
· $162 million - increased revenue per available seat kilometre;
· $59 million - removal of the carbon tax; and
· $33 million - lower fuel prices.
The Group achieved a 4.8 per cent reduction in comparable unit cost and a 2.1 per cent increase in revenue to $8.1 billion, driven by rapid progress with Qantas Transformation and recovering yields and loads in a stabilising environment.
The Group is now targeting $675 million of transformation benefits in financial year 2015, up from the previous target of $600 million. Combined with the $204 million in benefits realised in financial year 2014, this will result in total benefits of at least $875 million by 30 June 2015.
All operating segments of the Qantas Group were profitable in the half, at an Underlying Earnings Before Interest and Tax level.
Qantas International was profitable for the first time since the Global Financial Crisis, with Underlying EBIT of $59 million representing a turnaround of $321 million on the prior corresponding period. The business is expected to achieve its target – announced in 2011 – of a return to profit in financial year 2015.
In the domestic market, Qantas and Jetstar reported combined Underlying EBIT of close to $300 million.
Qantas CEO Alan Joyce said the result showed that the Group was executing the right plan with discipline and speed.
“The decisive factor in our best half-year result for four years was our complete focus on the Qantas Transformation program,” Mr Joyce said.
“It’s clear that without the impact of transformation, we would not be announcing a profit today.
“Our people have worked hard and made a huge contribution to bring about the change we need. They deserve great credit for this result.
“What sets this transformation apart is that we are reducing costs permanently while at the same time delivering Qantas’ best ever fleet, product and service.
“We are meeting or exceeding all our targets as we build a sustainable future for Qantas with an emphasis on growing long-term shareholder value.
“Our financial position is significantly stronger because of the actions we’ve taken, and we are giving Qantas a solid foundation for growth in earnings.”
Financial Position
Qantas is de-leveraging its balance sheet and increasing its return on invested capital.
The Group’s cash flow improved rapidly compared with the same period last year, with cash generated from operations up 44.8 per cent to $1 billion. Positive net free cash flow was $194 million.
Liquidity remains strong at $3.6 billion, comprising $2.9 billion in cash and $720 million in undrawn facilities. Approximately one third of the Group’s fleet of aircraft is debt-free and, after a period of extensive fleet renewal, the Group’s average scheduled passenger aircraft age is 7.2 years – the youngest in more than two decades.
Planned capital expenditure is unchanged at $900 million for both financial year 2015 and financial year 2016.
Brand and Customer Satisfaction
Customer satisfaction remains at high levels in all parts of the Group and has continued to set new records in some areas.
When the Qantas Transformation program was launched, the Group made a commitment to disciplined investment in aircraft, lounges, technology and service, in order to maintain a clear brand premium over the competition.
Recent initiatives for customers include the opening of new premium lounges in Los Angeles, the launch of Qantas’ new A330 product (with lie-flat beds in business), a revitalised food and beverage service for economy passengers, the staged introduction of automatic SMS check-in for domestic passengers, and expanded inflight entertainment.
Qantas has been recognised in the Roy Morgan Customer Satisfaction Awards (Domestic Airline of the Year, Domestic Business Airline of the Year), TripAdvisor Traveller’s Choice Awards (Best Airline in Australia), Skytrax World Airline Awards (Best Airline Australia / Pacific) and the Airline Ratings awards (Safest Airline, Best Lounges, Best Domestic Airline, Best Catering), among others.
Jetstar’s brand remains among the strongest in the LCC sector, having been named best low-cost carrier in Australia and Singapore and a top five low-cost carrier globally in the World Airline Awards.
Group Performance
Qantas Domestic
Qantas Domestic reported Underlying EBIT of $227 million, an improvement of $170 million compared with the same period in financial year 2014.
The business realised transformation benefits of $127 million in the first half and achieved a 2.5 per cent improvement in revenue per available seat kilometre, with a stabilising operating environment supporting yield and load recovery.
Comparable unit costs were reduced by 4.1 per cent[2] on capacity reduction of 2.4 per cent. Increased fleet utilisation will remain a focus in the second half.
Customer satisfaction was at record levels in the December quarter, reflecting ongoing investment in aircraft, lounges, product and training, including the introduction of the new A330 product for core east-west and east coast routes.
Qantas Domestic retained an 80 per cent revenue share of large accounts in the Australian corporate travel market, including 113 account renewals, 42 new accounts, 16 accounts won back from the competition, and four accounts lost.
Resources sector and government travel demand continues to be subdued in the domestic market, but demand is stronger in other business sectors, such as financial services.
Qantas International
Qantas International reported Underlying EBIT of $59 million, a turnaround of $321 million compared with the same period last year.
Of the turnaround, $159 million was attributable to cost and revenue initiatives under Qantas Transformation. A further $100 million was attributable to reduced depreciation following the non-cash writedown of the Qantas International fleet in August 2014.
Comparable unit costs were reduced by 3.8 per cent and revenue was increased by 4.8 per cent.
A significant increase in fleet utilisation enabled Qantas International to add seasonal or permanent capacity to destinations including Los Angeles, Dallas/Fort Worth, Vancouver, Santiago, Honolulu and Auckland.
The business continued to form new airline partnerships and expand existing partnerships in North America, South East Asia and Greater China, giving customers more destinations and increasing the Group’s reach in key markets.
Customer satisfaction has risen by 30 per cent since financial year 2012 and remains at near-record levels. This period has seen upgrades to the B747 and A380 fleets, network improvements, the Emirates partnership, and new lounges in Singapore, Hong Kong and Los Angeles.
Competitor capacity growth in the international market has slowed significantly from the compound annual growth rate of 7 per cent seen in the five years to financial year 2014, with two per cent growth in the first half and a small contraction forecast in the second half.
Jetstar Group
The Jetstar Group reported Underlying EBIT of $81 million, an improvement of $97 million compared with the same period last year.
Domestically, Jetstar achieved EBIT of $63 million, driven by improved yields and loads and a continued focus on management of costs and capacity.
Jetstar International achieved strong earnings of $51 million, benefitting from network changes and the introduction of the Boeing 787 Dreamliner
Dreamliners will operate all Jetstar’s long-haul flights from September 2015, delivering an improved customer experience and lower unit costs.
The Jetstar brand continues to grow in Asia, where Qantas’ investments will generate long-term returns from the world’s most important emerging aviation markets. Jetstar-branded airlines now fly to 66 destinations across 16 countries in the Asia Pacific region.
The Jetstar-branded airlines in Asia improved their performance in the first half relative to the prior corresponding period, with a $13 million reduction in Qantas’ share of losses.
Singapore-based Jetstar Asia was profitable in the second quarter, following significant capacity restructuring in the market.
Qantas Loyalty
Qantas Loyalty reported record half-year Underlying EBIT of $160 million, up 10 per cent on the prior corresponding period.
The Qantas Frequent Flyer program added more than 400,000 new members in the half to reach a total membership of 10.5 million.
Billings were up 6 per cent as Qantas Loyalty continued to diversify its customer base and revenue streams through growth ventures.
Activations of the Qantas Cash travel money and membership card were up 27 per cent from the second half of financial year 2014, with approximately $800 million loaded on the cards. The Aquire loyalty program for SMEs is also growing strongly. Over 55,000 businesses have joined Aquire and the program now has 21 partners.
Overall, gross profit from adjacent ventures – including Qantas Cash, Accumulate and Qantas Golf – was up 70 per cent in the half.
Qantas Freight
Qantas Freight reported Underlying EBIT of $54 million, an improvement of $43 million and its best first-half result since 2006.
International cargo markets continued to recover, accounting for $44 million of Underlying EBIT, with the China-US and US-Australia markets performing well. The domestic market was more challenging, in line with the mixed economic environment.
Outlook
The outlook for the Group’s operating environment in the second half of financial year 2015 has improved:
· Overall demand is stable, while demand is mixed in the Australian domestic market;
· Domestic and international market capacity is moderating; and
· Yield and load factors have stabilised and are in the early stages of recovery.
Subject to external factors, the Group’s operating expectations are as follows:
· Qantas Group capacity will increase by 1.5 to 2 per cent in the second half of financial year 2015 compared with the second half of financial year 2014;
· The Group’s full-year underlying fuel costs are expected to be no more than $4 billion at current prices;
· The Group’s full-year depreciation and amortisation expense is expected to be $1.1 billion; and
· All operating segments are expected to be profitable in financial year 2015.
No Group profit guidance can be provided at this time, due to the high degree of volatility and uncertainty in global economic conditions, fuel prices and foreign exchange rates
