Qantas looks to international expansion after best-ever result

The Australian airline produced record financial performances in all four divisions.

Qantas Airways is planning to step up its international expansion and reduce its domestic operations after reporting its best financial result in its 95-year history.

The June 30 year produced an underlying profit before tax of $A1.53 billion, up 57%, and a record statutory profit before tax of $A1.42 billion, up 80%.

Chief executive Alan Joyce says the airline is planning for capacity growth of 2-3% in the first half of the 2017 financial year through increased aircraft utilisation.

While group domestic capacity, which includes Qantas/Qantas Link and Jetstar, is expected to be flat to a decrease of 1%, group international capacity is expected to increase by approximately 4%.

This will include delivery starting later this year of the first of eight Boeing 787-9 Dreamliners for Qantas International. This is a switch from previous purchases of Airbus A380 superjumbos.

The earnings result is based on record performances in all four divisions – Qantas Domestic, Qantas International, the Jetstar Group and Qantas Loyalty.

Qantas will resume dividend payments (7Ac per share), reward its 25,000 non-executive employees with a one-off cash bonus totalling $A75 million and continue investment in customer service, including extending wi-fi to Qantas’ regional and international fleets.

The airline will carry out a further on-market share buy-back of up to $A366 million, subject to shareholder approval. Previous buybacks have totalled $A500 million, plus a capital return of $A505 million in 2015.

Turnaround after big loss
The huge turnaround in performance follows a record loss of $A2.8 billion in 2014 and a profit of $A557 million in 2015.

Mr Joyce says the transformation programme begun in early 2014 continues to reshape the group’s cost base and ability to generate revenue. This has produced $A1.66 billion in permanent cost and revenue benefits since then and will realise $A2.1 billion by June 2017.

“Effective fuel hedging saw the group secure a $A664 million benefit from lower global fuel prices compared with financial year 2015, passing a proportion of these savings through to air fares – which are up to 40% lower than a decade ago in the Australian market,” Qantas says in its statement.

“Transformation has made us a more agile business, created value for our shareholders and given us a platform to invest for the future,” Mr Joyce says.

“Qantas is stronger than ever but we’re also determined to keep changing and adapting so that we can succeed no matter what environment we’re in.”

Cashflow of $A2.8 billion was used for capital expenditure, shareholder distributions and debt repayments, while excess cash was used for refinancing.

Future rests on Dreamliner
Mr Joyce says the introduction of Dreamliners to the international fleet  will set new standards for the industry.

In this part of the world, the Dreamliner is used by Qantas partner American Airlines for its Los-Angeles-Auckland service, as well as rivals Air New Zealand and United Airlines.

Qantas says it’s working with designer Marc Newson and university sleep experts to design the Dreamliner interiors in economy, premium economy.

“Throughout our transformation we’ve invested in the areas that matter most to our customers,” Mr Joyce says. “We’ve renewed our aircraft, lounges, technology and the training we provide for our people.”

Qantas International has re-allocated capacity from trans-Pacific routes and the domestic market to destinations including New Zealand, Singapore, Hong Kong, Japan, the Philippines and Indonesia.

This includes an expanded partnership with American Airlines, which saw Qantas return to San Francisco and American to Sydney and Auckland.

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