Bangkok--17 Feb--Thana Burin Asia Pacific
SOLID RECOVERY FROM GFC AND OTHER EVENTS,STRONG GROWTH ACROSS ALL OPERATING SEGMENTS
HIGHLIGHTS
Underlying Profit Before Tax1 of $417 million — up 56 per cent on prior corresponding period
Revenue of $7.6 billion — up 10 per cent on prior corresponding period
Operating cash flow of $743 million — up 54 per cent on prior corresponding period
Cash balance of $3.3 billion
Qantas today announced an Underlying Profit Before Tax (Underlying PBT) of $417 million for the half-year ended 31 December 2010.
The Underlying PBT result was materially stronger than for the half-year ended 31 December 2009.
Qantas Chief Executive Officer, Mr Alan Joyce, said the result built on the Qantas Group’s FY10 performance and showed it had emerged from the Global Financial Crisis in a solid position.
“The Qantas Group has delivered a strong result and is, again, one of the few airlines to remain consistently profitable and continue to hold an investment grade credit rating,” Mr Joyce said.
”With half-year underlying profit up more than 56 per cent year-on-year, all parts of the Group performed well, with Jetstar and Qantas Frequent Flyer delivering record half-year profits and Qantas Airlines’ performance significantly improving.
“Qantas and Jetstar are now the two most profitable domestic airlines in Australia, demonstrating the strength of our two brand strategy and capacity to service and grow both the business and leisure sectors. The Group’s response to events that included the A380 Rolls-Royce engine failure, and subsequent temporary grounding of the Qantas A380 fleet in November, also showed us to be flexible, adaptable and resilient.”
Mr Joyce said the Group was well positioned to capitalise on the improving global aviation environment and opportunities in both the premium and leisure sectors.
“Domestic business travel continues to recover and Qantas’ yield premium has been restored to pre-financial crisis levels. While domestic leisure market conditions continue to be highly competitive, Jetstar remains well placed as the low fare leader. While demand on key international routes continues to improve, the international environment remains challenging. We remain committed to improving the performance of Qantas’ international business,” he said.
Note:
1 Underlying PBT is the primary reporting measure used by management and the Board to assess the financial performance of the Group.
“In Asia, to which Australia’s future is clearly tied, the Group is looking for growth opportunities via Jetstar’s aggressive pan-Asian growth as well as options for Qantas to capitalise on the growing demand for premium travel in the region.
A380 Rolls-Royce Engine Incident and Fleet Grounding
Mr Joyce said the grounding of the A380 fleet in November was a setback for Qantas.
“Qantas’ response to this unprecedented event was swift and appropriate. In very challenging circumstances, and with the commitment and hard work of our people, we managed to maintain 98 per cent of our international operations. While disruptions were minimised, we regret any inconvenience customers may have experienced at the time,” Mr Joyce said.
Qantas has estimated the full-year economic impact to the business at $80 million, with $55 million in the first half and $25 million forecast in the second half. The figure does not include the cost of repair of the damaged aircraft and engines, estimated to be at least $100 million, which are all covered by insurance or by existing contractual arrangements with Rolls-Royce.
Qantas remains in discussions with Rolls-Royce in relation to a commercial settlement to compensate the airline for the economic loss incurred. While discussions continue, no agreement has yet been reached.
Segment Performance
Mr Joyce said all operating segments of the Qantas Group were profitable for the half-year ended 31 December 2010, delivering significant EBIT growth.
“Qantas Airlines produced a strong revenue performance across both its international and domestic operations, with Underlying EBIT of $165 million up 175 per cent on prior year first half. Qantas remains the best domestic airline for the business market in terms of frequency, product, service, large wide and narrow body fleets, industry-leading punctuality and an unsurpassed loyalty program. Domestic market share was maintained, as was yield premium in the corporate market. The international business remains challenging but with demand expected to strengthen in coming months.
“QantasLink also delivered a strong contribution to the Qantas Airlines result and is set to grow with the addition of a further seven new Q400 aircraft, the first of which has just entered service. The regional airline operation will also oversee the Group’s move into the Western Australian fly-in-fly-out resources air charter market through the purchase of Network Aviation.
“Qantas’ three-year transformation program, QFuture, continued to deliver sustainable margin improvements alongside an expanded suite of full service customer product and service offerings. The program delivered $173 million in benefits across a range of business areas in the half-year and is on track to achieve the FY11 target of $500 million, and $1.5 billion in benefits over three years.”
Mr Joyce said Jetstar delivered another record profit (Underlying EBIT of $143 million, up 18 per cent) and, after Qantas, was Australia’s second most profitable domestic airline. Jetstar continued to grow and maintain its low fares market leadership position in Australia and Asia — the world’s fastest growing aviation market — and grew capacity by 19 per cent across its operations compared to 1H10.
“Jetstar has been profitable every year since its launch in 2004 and, in keeping with this history, continued to expand its international and domestic networks, attracting significant growth in passenger numbers, while still reducing its unit costs. “Jetstar Asia contributed a record profit (Underlying EBIT of S$17 million) to Jetstar’s result. It has embedded the Jetstar brand in Asia across a range of key markets and, as the largest low cost carrier operating from Singapore, achieved capacity growth of 46 per cent compared to 1H10. The airline also launched A330services out of Singapore during the half, and is well positioned for future growth.
“Qantas Frequent Flyer (Underlying EBIT of $189 million) once again delivered a record result, this time a 20 per cent improvement on the comparable half-year. Program membership continued to grow — now at 7.5 million, up 12 per cent over the last 12 months. It also added new partners, including Caltex, as part of the Woolworths Group alliance, and OnePath life insurance, and launched multiple market leading credit card products.”
The result of Qantas Freight (Underlying EBIT of $41 million, up 141 per cent), confirmed the strong recovery of the international air freight market.
Investment in Fleet and Customer Initiatives
Mr Joyce said the Group remained committed to cost effective investment in customer product, service, innovation and fleet.
“Investment — $1 billion in the half-year — in our customer offering and the best, modern, next generation fuel efficient fleet remain integral to our strategy of making Qantas the best premium airline, and maintaining Jetstar’s position as the low fare leader in Australia and across Asia,” he said.
“Qantas’ international transformation continued, with the arrival of more A380s and the commencement later this year of the fleet reconfiguration will bring the B747 product to the ultra-premium A380 standard and better match travel class options to demand.
“The B787 also remains central to the Group’s international strategy and our multi-billion dollar fleet and growth plan, and the first aircraft is now expected at the end of 2012. Another key development has been the successful launch of Qantas’ faster, smarter Next Generation Checkin offering in Perth, Sydney, and Melbourne.”
Outlook
The general operating environment continues to improve. Forward bookings indicate yields in the second half of FY11 will be higher than the same period in FY10, noting that the first half is typically a stronger revenue period due to seasonal factors. The Group expects to increase capacity in the second half of FY11 by 11 per cent compared to the same period in FY10, while maintaining flexibility.
As at 14 February 2011, underlying fuel costs for the second half of FY11 are estimated to increase to around $2.0 billion due to higher forward market jet fuel prices and increased flying. Fuel surcharges, fare increases and hedging are being used to mitigate the impact of fuel price rises. However, a number of significant weather events are impacting current trading conditions, including the Queensland floods (estimated to impact second half FY11 Underlying PBT by up to $55 million) and Cyclone Yasi in North Queensland (estimated to impact second half FY11 Underlying PBT by up to $15 million).
The Qantas Group estimates the A380 disruptions will have an impact of $25 million in the second half of FY11, in addition to the $55 million in the first half of FY11. Qantas remains in discussions with Rolls-Royce in relation to compensation for the economic loss incurred. No agreement has been reached at this stage. Any compensation will be recognised in the Group’s Underlying PBT in the relevant period.
Given the first half result, Underlying PBT for FY11 is expected to be materially stronger than FY10. However, changes in fuel prices, foreign exchange rates, general trading conditions and the impact of significant weather events could rapidly impact earnings. It is therefore not possible to provide a more specific forecast at this time given the volatility and uncertainty of the aviation market.
Dividend
The Board remains committed to the resumption of dividend payments. As previously disclosed to the market, the quantum and timing of this will depend on actual and forecast trading results, market conditions, the maintenance of an investment grade credit rating and the level of capital expenditure commitments.
In the first half of financial year 2011, the operating performance of all Qantas businesses improved significantly and the Board is confident in the outlook for the company. However, significant capital investment is being undertaken, reflecting a fleet renewal to bolster the foundations for future growth. Considering this investment program alongside the preference to rely on internally generated capital and debt funding for this investment, the Board believes it is prudent not to pay a dividend at this time.
Future dividend payments will be assessed against ongoing earnings performance and capital requirements.
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