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financial results

Aug 25, 2017

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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13 comments

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13 thoughts on “Qantas scores 2nd highest profit, announces A380 upgrades and more

  1. endeavour.paul@gmail.com

    https://www.youtube.com/watch?v=980wT3_27b4
    Qantas “challenges” Airbus and Boeing to design a plane that can fly from the Australian east coast to London direct.

    So Airbus and Boeing should go out of their way to meet this challenge with the reward being an order for maybe 10 aircraft? All designed to eat into the market share of hub airlines who order aircraft at 10 times the rate of Qantas.
    Stranger things have happened!

    1. Deano DD

      I think the order would be closer to 20
      Plus a bunch of other airlines that would also benefit from the extra distance
      Keep in mind also that these ULH aircraft would carry far fewer passengers than the a380s and 777s that hub airlines use
      Roughly 2 ULH hub busters would replace 1 hub type frame, so in theory twice the sales

      Added bonus for QF is that they could keep the aircraft twice as long due to the very low cycles for ULH frames

    2. ghostwhowalksnz

      Boeing found it didnt work so well with its 777-200LR, as the inexorable fuel price rises after it was launched, reduced orders and made them unsellable as used.. Even then it was only worthwhile for Boeing as they were produced as a short fuselage version of their heavyweight 777-300ER and 777F family.
      Good to see the business ‘suites’ having direct aisle access, as thats were the competition is going and at that price point who needs to be climbing over some like at the multiplex.
      It seems strange the new 787s will be what is now ‘old business class’ upon entry

      1. ghostwhowalksnz

        oops. The 787s are direct aisle access, just that they arent angled pods but staggered forward facing seats 1x2x1

  2. chris turnbull

    Qantas has no choice re ULR aircraft. The 747-ER’s are entirely unique but they’ll have to be replaced eventually. They need someone- anyone – to build a suitable aircraft for (say) Johannesburg to Sydney and hey non stop Brisbane to Paris ; Sydney to New York then fabulous. Something 787-10 UUULR ??

  3. Xoanon

    Good to see more premium economy seats, it’s a comfortable class on Qantas and a significant step up from economy. The only problem has been the price, up to $6000 return to London. Hopefully provide more of these seats might make them more affordable.

    1. comet

      That’s 3x the price to upgrade to premium economy.

      But they don’t give you 3x the space.

  4. comet

    Now Qantas is cashed up, another 747 refurb?

    1. Dan Dair

      “another 747 refurb”
      I wonder if QF are aiming for being the operators of the oldest airframes in Western passenger aviation ‘line’ service.???

    2. moa999

      Can’t have both comet,
      If Qantas genuinely thinks it can get an ultra long-haul 777/350 in 2022/23 – that aircraft will replace the 747ERs, then not sufficient time to payback cost of a refurb.
      If the aircraft is not available to say 2027, then maybe a refurb might be warranted – but then you have the timing, as the A380s will be getting their own refurb over 2019 and 2020, so you probably can’t start until late 2020

  5. endeavour.paul@gmail.com

    Interesting to see that Richard Goyder is joining the Board at Qantas. It appears to be the start of succession as Clifford and Joyce prepare to walk off with their millions whilst profitability is up.
    Meanwhile, in the years they have reigned over Qantas, the book value per share has fallen. Considering the lousy dividend record, the Joyce / Clifford years should be looked on as a disaster for shareholders. Instead, a couple of profitable years will see them get hefty bonuses and depart with reputations intact.

    1. Nick

      Really? Give it a rest.
      Singapore losing money, Cathay losing money, Alitalia has tanked, Air Berlin going out the door backwards, Etihad shrinking by the moment and who is that ‘magic pudding’ Virgin Australia in bed with this week? Borghetti sure knows how to spend money (can’t make it though…..)
      Remember Airline Partners Australia? If that bid (supported by previous Qantas management) had gotten up Qantas would’ve been broken up, sold off and potentially cease to exist in the aftermath of the GFC.
      Qantas has had a spectacular turnaround and produced a terrific result.
      Celebrate the good news for what it is.

      1. Dan Dair

        Nick,
        That’s pretty-much EPGM’s point made for him.
        Yes, the current profitability IS good news,
        but Clifford & Joyce will walk away with massive exit-packages on the back of the CURRENT good news;

        Whilst overall, QF’s share price has fallen under their tenure & dividends have been non-existent up to the last couple of years.

        You can’t blame the 2 for 1 disaster on world events. That was pure Virgin-bashing & it cost Qantas bucketloads of money.
        You also seem to forget that only a couple of years ago, Joyce was at the governments door with his begging-bowl out, because things were supposedly that bad.?
        & that QF wrote-off a stupendous amount of money on their overvalued ‘book-price’ of their aircraft-assets, which was about propping-up the asset-value of the company in the first-place & then removing that albatross to return to profitability.

        Meanwhile the mom-&-pop shareholders had been powerless to do anything about the lack of dividend for nearly a decade.