The Qantas Group Records First Full Year Statutory Profit Since FY19
In a notable turn of events, the Qantas Group has registered its first full-year statutory profit since FY19. This newfound profitability has prompted plans for employee rewards, customer-centric reinvestments, and shareholder capital returns.
Significant Rise in FY23 Profits
The Group’s financial performance for FY23 was impressive, boasting an Underlying Profit Before Tax amounting to $2.47 billion and a Statutory After Tax Profit totaling $1.74 billion. This starkly contrasts the $7 billion in cumulative statutory losses observed over the preceding three fiscal years.
Recovery Program and Increased Flying Contribute to Profit
The profit turnaround was largely due to successfully completing the Group’s $1 billion recovery program, initiated during the first year of the aforementioned losses. Additionally, a 132 percent surge in flight operations relative to FY22, coupled with robust travel demand, has led to a significant increase in revenue.
Improved Operational Performance
Over the course of the year, operational performance has seen marked improvements despite earlier challenges. For instance, Qantas registered the finest on-time performance among major domestic airlines for 11 out of 12 months, while Jetstar has managed to revert to pre-COVID operational levels. Although customer satisfaction hasn’t fully reached pre-COVID benchmarks, it has seen an enhancement in tandem with operational performance.
Efficiency and Cost-Effective Measures to Boost Financial Performance
The Group expects to enhance financial performance by normalizing international capacity and eliminating inefficiencies associated with the return to flight operations, which would exert downward pressure on fares.
Investments in Customer Experience and Fleet Expansion
The Group’s financial robustness has paved the way for sizeable investments in customer experience. This includes confirmed orders for an additional 24 widebody aircraft from Boeing and Airbus, planned for delivery from FY27 onwards as replacements for the Qantas’ A330 fleet. Qantas secured additional purchase rights for future fleet renewal and growth.
Customer Appreciation Measures
In a show of gratitude towards its loyal customers, the Group announced a major fare sale and issued over 1 billion loyalty bonus points.
QANTAS CEO COMMENTS
Qantas Group CEO Alan Joyce said:
“These results show a substantial turnaround in both our finances and service over the past year. Flight delays and cancellations have largely returned to pre-COVID levels and we’ve shifted from heavy losses to a strong profit and pipeline of investment worth billions of dollars.
“We safely flew almost 70 billion more seat kilometres and doubled the number of people we carried to 46 million compared to the year before. Travel demand is incredibly robust and we’ve taken delivery of more aircraft and opened up new routes to help meet it.
“The data shows customer satisfaction has improved significantly and we’re constantly working to deliver great travel experiences. It’s because we’re in a strong financial position that we’re able to invest in new aircraft, new destinations and new training facilities – all things that will make us better in the future.
“Our people have done a superb job under very difficult circumstances. Today’s result means more than 21,000 non-executive staff will receive up to $6,000 worth of Qantas shares as a thank you for their part in our recovery, plus another $500 staff travel credit. This is in addition to a $5,000 cash payment to eligible employees as new enterprise agreements are finalised.”
QANTAS GROUP DOMESTIC PERFORMANCE
Comprising Qantas, QantasLink, and the Jetstar brand, Group Domestic escalated its operations to a remarkable 103% of its pre-COVID volume by the close of the second half of Fiscal Year 2023. This noteworthy accomplishment was propelled by a robust demand for leisure and business travel, culminating in an impressive Underlying Earnings Before Interest and Taxes (EBIT) of $1.5 billion.
Various factors contributed to Qantas’ firm share of corporate and small business travel. Notably, the airline’s extensive network, frequent flight schedules, luxurious lounges, and a popular loyalty program, coupled with high-value inclusions such as inflight Wi-Fi, played a significant role in this achievement. Jetstar, on the other hand, continued to entice many travelers with its millions of budget-friendly fares to sought-after leisure destinations. Additionally, the substantial demand from the resource sector served as another major revenue driver.
QANTAS GROUP INTERNATIONAL AND FREIGHT PERFORMANCE
Throughout the year, the Qantas Group saw a significant boost in its operations, largely attributed to the reintroduction of seven renovated Airbus A380s and the addition of two fresh Boeing 787s and eight brand-new A321LRs to its fleet. In light of these developments, the Qantas Group International, comprising both Qantas and Jetstar, escalated its flying from a mere 54 percent of pre-COVID levels to a notable 81 percent over the given period.
This surge in flight activity, coupled with the robust demand, particularly in the premium cabins, propelled the Underlying Earnings Before Interest and Taxes (EBIT) to reach a striking $1.1 billion. Both Qantas and Jetstar enjoyed passenger loads that consistently exceeded 85 percent, indicating a strong and steady recovery in the aviation sector.
Noteworthy, too, is the substantial contribution from Qantas Freight. It remained resilient even as market yields began to stabilize. It delivered an impressive increment of approximately $150 million in structural earnings growth. This growth should persist, bolstered by the burgeoning e-commerce sector and efficiencies reaped from fleet renewal—an optimistic forecast that underlines the potential for sustained profitability in the long term.
QANTAS LOYALTY PERFORMANCE
Qantas Loyalty, a significant wing of the Qantas Group, has achieved noteworthy expansion across multiple sectors of its portfolio, culminating in a record Underlying EBIT (Earnings Before Interest and Taxes) of $451 million, indicating a robust financial performance.
In a significant uptick, the Frequent Flyer membership witnessed an increase of approximately 1 million, surging to a total of 15.2 million members. Added to this, the Qantas Business Rewards Program grew by 19 percent. Currently, this program encompasses one in five of all Australian small-to-medium enterprises (SMEs) as members who earn points, exemplifying its reach and appeal.
Moreover, there was a significant surge in the number of Qantas Points redeemed by members, reaching 126 percent of pre-COVID levels. This surge came from thousands of additional redemption seats across Qantas and its partner airlines. The growth in the hotel and holiday offerings also played a substantial role in this increase.
Setting new records, customers earned unprecedented points across financial products as credit card acquisitions and spending continued to expand. Displaying a stark contrast with the figures from FY22, Qantas Health Insurance policies saw a growth of 41 percent, while Travel Insurance policies witnessed an increase of over 60 percent.
FINANCIAL FRAMEWORK AND SHAREHOLDER RETURNS
As of the close of the fiscal year on 30th June 2023, the Qantas Group boasted liquidity assets totaling approximately $10 billion. These assets comprised $4.4 billion in readily available cash and undrawn facilities, along with $5.6 billion worth of unencumbered assets, assets that are free of any creditor claims (should the Group face financial difficulties).
The Group’s net debt experienced a significant decrease, plummeting to $2.89 billion, a figure that is considerably lower than the projected range of $3.7 billion to $4.6 billion. This figure also demonstrates a noteworthy reduction from the FY19 level of $4.7 billion. This impressive strength of the balance sheet, coupled with the cash flows from a structurally optimized business model, should be a robust foundation for future aircraft purchases and shareholder returns.
In a move signaling confidence in the Group’s financial health, the Board approved a shareholder return of up to $500 million through an on-market share buy-back. This initiative, which begins in September 2023, follows on the heels of a generous $1.0 billion return to shareholders in FY23 via share buy-backs, which were executed at an average price of $6.19 per share.
FLEET AND SUSTAINABILITY
In an exciting announcement today, the Group confirmed a substantial order for 24 widebody aircraft, 12 Boeing 787s and 12 Airbus A350s. Beginning in FY27 and spanning into the next decade, these state-of-the-art aircraft will supersede most of the current A330 fleet. Moreover, the Group has ensured future growth and adaptability by securing purchase rights that extend at least until FY37. The timeline will ultimately facilitate replacing the A380 fleet.
This strategic move guarantees delivery slots for these highly coveted widebody aircraft and locks in pricing that represents a remarkable opportunity for the Group. This order supplements the 12 specially modified A350s Qantas previously ordered for Project Sunrise flights, set to arrive in FY26.
With a high degree of flexibility, the Group’s fleet plan accommodates alterations depending on market conditions and its financial framework. This forward-thinking approach underscores the Group’s commitment to adaptability and financial stability.
As part of this new order, Qantas will partner with Airbus and Boeing to access to up to 500 million liters of Sustainable Aviation Fuel (SAF) per annum. The SAF purchase will begin in 2028 and include fuel supplied from the United States. The volume covers up to 90 percent of the SAF required to reach the Group’s 2030 interim target of 10 percent of its total fuel needs and enhances the Group’s pathway to reducing emissions.
FARES
As the FY23’s second quarter unfolded, fares rose through a combination of robust demand and industry-wide supply chain limitations.
Yet, the landscape started to shift in the second half. This was largely due to the introduction of additional capacity, easing fuel costs, and strengthening the Australian dollar. These factors collectively exerted a downward thrust on fares, which dropped by a notable 12 percent. When adjusted for inflation, domestic fares stand 4 percent higher than their pre-COVID markers. International fares rose by 10 percent.
EMPLOYEE BONUSES
Employee Contributions to Qantas Group’s Profitability Recognized
Acknowledging Qantas Group employees’ vital role in steering the company back to profitability, a substantial bonus payout of approximately $340 million has been set aside. This generous act will benefit over 21,000 staff members, including pilots, cabin crew, engineers, and head office personnel. The company first unveiled this initiative in September 2021. It rewards employees for their resilience during the COVID crisis and to further motivate the company’s recovery.
This substantial pool of funds will also provide recovery and retention bonuses. It also supports bonus schemes for managers and executives not covered by enterprise agreements.
Moreover, Qantas has enhanced staff travel benefits in the past year. The Group enabled thousands of employees and their families to take advantage of significantly discounted domestic and international fares. This move further highlights the company’s commitment to its employees, rewarding their efforts and promoting their well-being.
Breakdown of Bonus Rewards
The bonuses feature a range of rewards. For instance, employees stand to gain up to 1,000 Qantas shares worth about $6,000. On top of that, eligible employees will receive a ‘recovery boost’ of $5,000 as enterprise agreements are finalized. This brings the total bonus per person to roughly $11,000.
Additionally, all non-executive employees have received an extra $500 staff travel credit today. It supplements the previous $500 given earlier this calendar year. Collectively, these travel credits amount to $20 million.
OUTLOOK
Looking ahead to FY24, the Group is robust financially, boasting a sturdy balance sheet. A significant highlight is the $1 billion in recurring cost benefits directly resulting from its successful recovery program.
Moreover, the Group continues to enjoy favorable trading conditions. This is largely due to consumers’ persistent preference for travel, a trend that shows no signs of abating.
Key assumptions for FY24 are:
- The projected total fuel bill for the first half of FY24 is $2.6 billion.
- Group Domestic capacity should remain above pre-COVID levels throughout FY24.
- Qantas Group’s International capacity will continue to recover, on track to return to 100 percent of pre-COVID levels in 2H24.
- Qantas Loyalty is on track to deliver on its FY24 EBIT target of $500 – 600 million, six months earlier than anticipated, with an Underlying EBIT of more than $500 million expected for the calendar year 2023.
- Approximately $400 million in transitionary costs incurred in FY23 will unwind in FY24.
- Continued transformation of over $300 million in FY24; expected to offset CPI.
- Net Debt should increase in FY24. It will remain below the bottom of the target range, with that range expected to increase as invested capital rebuilds.
Just the Facts
- Underlying Profit Before Tax: $2.47 billion.
- Statutory Profit After Tax: $1.74 billion.
- Statutory earnings per share: 96 cents.
- $1 billion COVID recovery plan completed.
- On-market share buy-back of up to $500 million announced.
- Order for 12 Boeing 787s and 12 Airbus A350s announced; deal includes access to Sustainable Aviation Fuel to help meet up to 90 per cent of the Group’s interim SAF target.
- Jetstar and Qantas released more than 1 million sale fares today.
- Frequent Flyers received 1 billion bonus points as a ‘thank you.’
- ~$340 million reserved to reward more than 21,000 staff, including granting up to 1,000 Qantas shares each.