Qantas Group 1H24 Profit fuels customer investment - Travel And Tour World (2024)

Thursday, February 22, 2024

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Underlying Profit Before Tax declined by 13 percent to $1.25 billion, while Statutory Profit After Tax also saw a 13 percent decrease to $869 million. Statutory earnings per share fell by 4 percent to 52 cents. Net debt stands at $4.0 billion. Additionally, an on-market share buy-back of up to $400 million has been announced.

Fares are decreasing as capacity normalizes, with unwinding restart costs. Although there has been a significant improvement in customer satisfaction, further efforts are required. Capital expenditure for FY25 is expected to rise to between $3.7–3.9 billion. Qantas Domestic has placed orders for 8 additional A321XLRs. Qantas International Wi-Fi is set to accelerate from the end of calendar 2024. Moreover, around 24,000 employees will receive a $500 staff travel credit.

The Qantas Group achieved an Underlying Profit Before Tax of $1.25 billion in the first half of FY24, continuing its investment in customers and new aircraft. Earnings were lower compared to the same period of FY23 due to normalized fares and capacity.

Reduced revenue per available seat kilometre, impacted by lower fares and freight yields, contributed to a $600 million decline in profit. However, increased flying and unwinding of transition costs partly offset this reduction. Unit cost (excluding fuel) decreased by 5.2 percent year-on-year.

Total flying increased by 25 percent on an available seat kilometre basis, with 3.3 million more passengers carried compared to 1H23. Travel demand remains robust across all sectors, especially in leisure and approaching pre-COVID levels in business travel.

Investments in customers include revealing the interiors of new A220 aircraft, accelerated Wi-Fi rollout on international flights, and digital platform upgrades. Additionally, a double Qantas Points/Status Credits offer for Frequent Flyers has been introduced alongside regular fare sales.

The Group continues to heavily invest in recruitment and training, recognizing new aircraft as significant career opportunities driving promotions and skills development. In recognition of employees’ efforts, non-executive staff will receive a $500 travel voucher, applicable to heavily discounted standby fares available to Group employees, family, and friends.

CEO COMMENTS

Qantas Group CEO Vanessa Hudson said: “We know that millions of Australians rely on us and we’ve heard their feedback loud and clear.

“There’s a lot of work happening to lift our service levels and the early signs are really positive. Our customer satisfaction scores have bounced back strongly since December and we have more service and product improvements in the pipeline.

“Having the financial strength to keep investing is key, and that makes the strong performance that all business units had in the first half so important.

“We understand the need for affordable air travel and fares have fallen more than 10 per cent since peaking in late 2022. At the same time, we’ve seen a cost benefit from fewer cancellations and delays, and scale benefits as more international flying returns.

“Our people have been instrumental in the initial recovery we’re seeing and I thank them sincerely. The journey we’re on will take time, but the spirit they are bringing is fantastic and it’s made us optimistic about what we can achieve together.

“I want to thank our customers and our partners for their support as we keep working to make the Qantas Group an organisation that everyone is proud of. We need to deliver a service that is consistently better in order to succeed long term, and that’s what we’re focussed on,” added Ms Hudson.

GROUP DOMESTIC

In response to the ongoing recovery in business travel and strong demand in premium leisure and the resource sector, Qantas Domestic increased its flying by 5 percent in 1H24. Despite maintained market share, falling fares contributed to an 18 percent decline in Qantas Domestic’s Underlying EBIT to $641 million compared with 1H23, although this figure remains significantly above FY19 levels.

While revenue increased by approximately 3 percent due to increased flying, certain industry overheads such as airport and security charges grew above the inflation rate. Moreover, higher costs associated with enhanced customer experience investments impacted profitability. However, operational performance improvements and the unwinding of transition costs from the post-COVID restart led to additional efficiency gains.

Jetstar Domestic notably improved its performance, with less operational disruption and a 15 percent increase in flying contributing to a 35 percent rise in Underlying EBIT to $175 million.

GROUP INTERNATIONAL AND FREIGHT

Qantas International boosted its capacity by 39 percent in 1H24, with an additional A380 returning to service and a new Boeing 787 entering operation. All pre-COVID routes have been reinstated, and new routes like Perth-Paris have been introduced. Unit costs decreased as economies of scale improved through increased flying.

Jetstar’s international operations expanded by 38 percent compared to 1H23, incorporating new routes such as Melbourne-Fiji and Brisbane-Tokyo, alongside a recovery in airlines based in Japan and Singapore. Despite moderating fares, increased capacity and improved operational reliability resulted in a $150 million Underlying EBIT for Jetstar International.

While domestic freight performance remained steady, international freight saw a significant decline due to macroeconomic factors, resulting in a $200 million decrease in revenue. Nonetheless, yields remained approximately 150 percent above pre-COVID levels.

Changes in the freight market were the primary reason for a 31 percent drop in Underlying EBIT within the Qantas International (including Freight) division.

QANTAS LOYALTY

Qantas Loyalty expanded significantly during the half, reaching 15.8 million members and securing several major program partners. Booking values via Qantas Hotels and Holidays surged by about 30 percent compared to 1H23, while TripADeal bookings increased by over 60 percent.

The number of Qantas-branded home and motor insurance policies surged by 2.5 times compared to 1H23, and financial services continued to grow, with over 100,000 credit card acquisitions and a 4 percent increase in purchases on cards earning Qantas Points.

Underlying EBIT grew by 23 percent compared to 1H23, reaching $270 million. This strong performance led Loyalty to achieve its earnings target of $500 million per annum six months ahead of schedule.

The Group is finalizing improvements to the Frequent Flyer program, aiming to announce them by April, representing a significant investment for members.

FLEET AND SUSTAINABILITY UPDATE

The Group received eight new and mid-life aircraft during 1H24 as part of its fleet renewal program. Another 14 aircraft are expected in 2H24. Key updates include:

• Allocation of 8 additional A321XLRs to Qantas Domestic.
• Purchase of four additional mid-life A319s for Network Aviation.
• Manufacturing delays impacting delivery dates for certain aircraft.

Jetstar’s A321LRs achieved a 20 percent fuel burn improvement per seat, contributing to a 12 percent unit cost improvement compared to older A320s.

FINANCIAL FRAMEWORK AND SHAREHOLDER RETURNS

The Group ended the half with $9.2 billion liquidity, with net debt at the bottom of the target range ($4.0 – 5.0 billion). The Board approved a return to shareholders of up to $400 million via an on-market share buy-back, in addition to the outstanding balance from the previous buy-back.

The buy-back will commence once details and financial impacts of planned Frequent Flyer program improvements are finalized and disclosed. These changes are expected to substantially enhance member value, supporting Qantas Loyalty’s long-term growth objectives.

OUTLOOK

Strong travel demand is observed across the portfolio. Stable unit revenue is anticipated for domestic operations, while international markets are expected to continue normalizing as capacity returns. Key expectations for the remainder of FY24 include:

• Fuel cost around $5.4 billion.
• Net capital expenditure of $3.0–3.2 billion.
• Depreciation and amortization of $1.8 billion.
• Transformation initiatives targeting approximately $400 million to counteract CPI impact.
• Net debt expected to be at or below the middle of the target range by FY24 end.

QANTAS GROUP CAPACITY

Capacity is anticipated to revert to pre-COVID levels, with immediate prior year used as the baseline for reporting.

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