Qantas Group CEO Alan Joyce, delivering loads of good news today

Qantas shareholders will get a further unfranked dividend of seven cents a share, and its passengers, a upgrade of its flagship A380 cabins, and much more.

It made an underlying Profit Before Tax of  $1,401 million (the second highest in Qantas’ history) and, as reported earlier today, will make an evaluation of new ultra-long range aircraft for Qantas International with a view to non-stop flights to London and New York City from Australia’s eastern capitals.

These are among the taking points Qantas Group CEO Alan Joyce will discuss shortly at a media conference, and subsequent analyst session in Sydney this morning.

  • Underlying Profit Before Tax: $1,401 million (second highest in Qantas’ history)
  • Statutory Profit Before Tax: $1,181 million
  • Statutory Earnings Per Share: 46c
  • Return On Invested Capital: 20.1%
  • Net free cash flow: $1,309 million
  • Up to $500 million shareholder return: 7 cents per share ordinary unfranked dividend, plus an on-market buyback of up to $373 million
  • $55 million for non-executive employee bonus
  • Upgrade of A380 cabins and Melbourne Domestic lounge announced
  • Evaluation of new ultra-long range aircraft for Qantas International

Qantas today reported an Underlying Profit Before Tax of $1,401 million and a Statutory Profit Before Tax of $1,181 million for the 12 months ended 30 June 2017.

The underlying result represents the second highest performance in Qantas’ 97 year history, down 8.6 per cent compared with last year’s record. It is slightly above the guidance range provided in early May this year, mainly due to strengthening of the Group’s domestic businesses. A drop in statutory profit before tax of $243 million reflects that the FY16 result included the gain on sale from the Sydney Domestic Terminal.

Overall, the FY17 performance shows the Qantas Group’s margin advantage over local and global competitors which has been underpinned by completion of its three year transformation program.

SUMMARY OF RESULT

All parts of the Qantas Group delivered strong returns in FY17.

In the domestic market, Qantas and Jetstar combined reached a record $865 million Underlying EBIT, making them again the two most profitable airlines in Australia with around 90 per cent of the total domestic profit pool.

Qantas International, which has faced high levels of capacity growth in the broader market, saw an improvement of conditions in the second half; it posted an Underlying EBIT of $327 million. Continued strength in its core markets helped the Jetstar Group deliver the second highest profit in its 13 years of operation.

Qantas Loyalty booked a record $369 million Underlying EBIT on a 4 per cent increase in revenue as it continued to diversify its earnings.

The Group met all the objectives of its financial framework, reporting a 12-month return on invested capital of 20.1 per cent.  Another $470 million in transformation benefits were delivered, completing the three year program and outperforming the $2 billion target by $125 million.

The Qantas Transformation Program has underpinned these results and enabled the Group to outperform its key domestic and international competitors.

This performance means Qantas is able to reward shareholders, recognise the hard work of its people and invest for customers.

CEO COMMENT

CEO Alan Joyce said the result marked completion of a turnaround plan that has repositioned Qantas as one of the most profitable airline groups in the world.

“Three years ago, we started an ambitious turnaround program to make the Qantas Group strong and profitable. We tackled some difficult structural issues, became a lot more efficient and kept improving customer service.

“Today’s announcements show this plan has well-and-truly paid off. It’s delivered $3.5 billion in cumulative underlying profit, record customer satisfaction and the opportunity for Qantas to grow.

“We operate in a very competitive environment, so continuous improvement is crucial. Being more efficient is part of our culture and we’re now targeting an average of $400 million in gross benefits a year.

“We have a plan to keep delivering sustainable returns well into the future. We’re investing in lounges, Wi-Fi and cabin upgrades; looking at new aircraft to evolve our network; and diversifying into new businesses like insurance and financial services.

“Our people remain central to our success, and that is why it is so pleasing that we are able to grant another bonus to around 25,000 non-executive employees to mark the successful completion of the turnaround program,” added Mr Joyce.

REWARDING OUR PEOPLE

In line with the successful completion of the $2 billion transformation program, non-executive Qantas Group employees will receive a bonus of $2,500 (or $2,000 for part time). This will apply to approximately 25,000 people ranging from pilots to cabin crew, engineers, ground staff and office workers.

This brings the total amount set aside for non-executive bonuses to more than $220 million since the start of the turnaround in 2014.

Major changes to A380 cabins and routes

Qantas has revealed considerably more about its plans for the future use of its 12 Airbus A380s than its rivals in their use in the Australian market, Emirates and Singapore Airlines.

A multi-million dollar upgrade will see a change in the seat mix on the super jumbos to meet increased customer demand for premium cabins on flights to the US, Europe and Asia.

Structural changes are focused on the upper deck where 30 Economy seats will be removed and some partitions and a crew workstation rearranged to use space more effectively. This allows for an additional six Business Class and 25 Premium Economy seats, increasing the overall seat count on the aircraft by one and increasing premium seating by 27 per cent.

Other key elements of the A380 refurbishment program include:

  • Replacing Business Class Skybeds with the latest version of Qantas’ Business Suites, dubbed ‘mini First Class’ by frequent flyers. Every seat gives direct aisle access and allows better use of cabin space compared with the Skybed.
  • Installing the airline’s all new Premium Economy seat in a 2-3-2 configuration. This seat is almost 10 per cent wider than the model it replaces and will debut on the Dreamliner later this year.
  • Reconfiguring the front of the A380’s upper deck to redesign the passenger lounge to provide more room for First and Business Class customers to dine and relax.
  • Enhancing First Class, which remains in its current configuration on the lower deck. Each suite will be fully refurbished, including contoured cushioning and a larger, higher resolution entertainment screen.
  • Updating Economy with new seat cushions and improved inflight entertainment.

Work on the first A380 is expected to begin in the second quarter of calendar year 2019. All 12 aircraft will be upgraded by the end of 2020. The design integration will be managed by Airbus.

Qantas Group CEO Alan Joyce said the upgrade would make sure the national carrier’s A380s retained their reputation for space and comfort on long haul flights.

“Customers love the A380. This upgrade is a major investment in putting the next generation of seats on the aircraft as well as more creature comforts to maintain its status as one of the best ways to fly,” said Mr Joyce.

“We’re seeing increased demand for Premium Economy and Business Class on the long haul routes that the A380 operates, including from people using their Qantas points to upgrade. When more travellers experience these new seats, we expect that demand will keep rising.

“Working with Airbus we’ve been able to achieve a very efficient layout on the upper deck. Using this space to increase the proportion of premium seating improves the revenue potential and the overall economics of the aircraft.

“When you combine this upgrade with the other investments we’ve been making in new aircraft and new cabins, it will give us consistency with our premium seats across the A380, A330 and incoming 787 Dreamliner,” added Mr Joyce.

Some elements of the upgrade will be rolled out later this year, including a memory foam mattress and pillow menu in First Class.

Qantas is continuing to investigate new technology to offer fast Wi-Fi on its international routes. A trial on the A380 in 2012 showed low levels of take-up due to slow connection speeds over remote areas of ocean. Fast domestic Wi-Fi  has become a reality only recently due to new technology and next generation satellites serving the Australian mainland. Qantas intends to be the first Australian airline to offer next generation Wi-Fi on international routes as it becomes available.

Qantas has also flagged its A380s will be operating more regularly on routes to Asia, with the 787 Dreamliner taking on the Melbourne-London route (via Perth) and freeing up some A380 flying time. More detail on these flying patterns will be announced shortly.

The capacity of Qantas A380s after the upgrade will be: 14 First Suites (unchanged), 70 Business Suites (up by six), 60 Premium Economy (up by 25) and 341 Economy (down by 30) for a total of 485 passengers (up by one).

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