Qantas back in the black as transformation programme over-delivers

The Australian airline's result for the six months ending Dec. 31.

The Qantas Group, owner of Australia's largest airline, is back in the black after posting a half-year net profit of A$203 million thanks to its three-year, A$2 billion transformation programme sheeting home benefits, lower fuel prices, and better returns from its domestic business.

The Australian airline's result for the six months ending Dec. 31 is in line with the fortunes of its closest rival airlines, with both Air New Zealand and Virgin Australia posting positive half-year results this month.

Qantas's net profit of A$203 million included A$42 million of redundancies, restructuring and other costs associated with the largest business transformation programme in the airline's history. The result compares to a A$235 million half-year loss a year earlier, the company said. The airline also posted a record full-year loss of A$2.8 billion in the 2013/2014 financial year.

Underlying earnings, which exclude one-off items, came in at A$367 million, around A$17 million ahead of market expectations. Revenue was up 2.1 percent to A$8 billion on a 1 percent rise in yield and load improvement across the group. The transformation programme is delivering ahead of target with A$374 million in benefits realised in the first half and full year benefits have been raised to A$675 million, up A$600 million on the original target.

Fuels savings in the first half of A$91 million were driven both by A$33 million worth of benefit from lower jet fuel prices, combined with fuel efficiency initiatives under the transformation programme.

Group capacity was flat during the first half while demand increased by two per cent.

Qantas Domestic reporting underlying earnings before interest and tax of A$227 million, which was A$170 million better than in the prior corresponding period, with the main driver of improved earnings coming from its transformation initiatives. Qantas International had underlying Ebit of A$59 million, a A$321 million turnaround, which the company said was a major milestone after years of restructuring. The result included A$159 million of transformation benefits and five percent revenue growth on reduced capacity.

Jetstar Group had underlying Ebit of A$81 million for the first half, a A$97 million improvement on the prior corresponding period. Revenue was up seven percent on capacity growth of four percent with the continued rollout of its B787 aircraft delivering lower operating costs and cutting back capacity on domestic flights and to South East Asia.

Despite the improved result, the Qantas board has elected to not pay an interim dividend.

Qantas shares were trading at A$2.81 yesterday, up from a low of 95 Australian cents at the end of 2013.