Qantas FY15 Results posted

[Adrian B]

From QF News Room

Qantas News Room Page (http://www.qantasnewsroom.com.au/)

Key points:

· Underlying Profit Before Tax: $367 million

· Statutory Profit After Tax: $206 million

· Transformation benefits: $374 million

· Comparable unit cost reduction: 4.8 per cent[1]

· Cash generated from operations: $1 billion

· Positive net free cash flow: $194 million

· Liquidity: $3.6 billion, including $2.9 billion cash

· Earnings per share: 9.2 cents

· No interim dividend

SYDNEY, 26 February 2015: Qantas today reported an Underlying Profit Before Tax of $367 million and a Statutory Profit After Tax of $206 million for the six months ended 31 December 2014.

This Underlying Profit Before Tax is Qantas’ best first-half performance since 2010 and an improvement of $619 million compared with the same period last year.

The main factors in the underlying improvement were:

· $374 million - Qantas Transformation program benefits;

· $208 million - reduced depreciation;

· $162 million - increased revenue per available seat kilometre;

· $59 million - removal of the carbon tax; and

· $33 million - lower fuel prices.

[Nigel C]

After all the QF and Joyce bashing that went on last year when the $2.8B loss was posted, the silence is deafening now that there's been a profit announced.....

[Rowan McKeever]

Mmm isn't it though, Nigel.

Truth is, CEOs are often tasked with the ugly and unenviable role of making cuts and doing things the general populous don't / won't like. The good ones achieve their aims and, by yesterday's indications, it seems AJ is in this camp.

I can honestly say that, despite the 3,800 FTE cut from QF so far, the attitude and service from the onboard and ground crews has been second to none in the last 8-12 months. The old QF seems to be coming back.

Well done to AJ, and well done to his team! Sterling effort everyone :)

[Stephen Brown]

I think he got lucky with the lifting of the Carbon Tax and the reduction in fuel prices. Getting rid of the 767's without replacing them, only shuffling the deckchairs helps as well. I could have got a profit with those helpers.

Still not 100% convinced he is the best person for the position.

[Rowan McKeever]

The repeal of the Carbon Tax and fuel price reductions account for $92m. Even with the 767 retirement that wouldn't have brought them close to profit. The transformation program and book value write-downs are what got them there. Those things don't happen by luck.

[Stephen Brown]

There is a flow on effect from the Carbon Tax repeal and the fuel prices. Ticket prices go down, more people fly, revenue goes up. I just think that Qantas got into a bad place from bad decisions, then had to fight its way out.

[Daniel M]

Cooked the books for sure

[Ash W]

I think he got lucky with the lifting of the Carbon Tax and the reduction in fuel prices. Getting rid of the 767's without replacing them, only shuffling the deckchairs helps as well. I could have got a profit with those helpers.


The 767's were replaced. With more 737-800's and the return of A330's from JQ.

[Thomas Collins]

Ticket prices go down, more people fly, revenue goes up

Lower ticket prices and higher patronage does not directly translate into revenue growth, and revenue growth does not necessarily translate into margin improvements. You still need to derive a rASK / yield improvement. Diluted / discounted pricing might stimulate demand, but suffice to say; margins need to grow too to generate positive returns.

Cooked the books for sure

Sort of impossible when you are audited by one of the big three...

But of course, as you work for Virgin - you're going to say that. I guess you should really care more for the ROI Daniel. Proportionally, Virgin performed much poorly than Qantas.

[Nigel C]

Mmm isn't it though, Nigel.

Truth is, CEOs are often tasked with the ugly and unenviable role of making cuts and doing things the general populous don't / won't like. The good ones achieve their aims and, by yesterday's indications, it seems AJ is in this camp.

I can honestly say that, despite the 3,800 FTE cut from QF so far, the attitude and service from the onboard and ground crews has been second to none in the last 8-12 months. The old QF seems to be coming back.

Well done to AJ, and well done to his team! Sterling effort everyone :)

Absolutely it's deafening. Since the profit announcement there's hardly been a whimper of positive comment from any of the naysayers from 6 months ago. I'm certainly yet to hear anyone else apart from your comment here congratulating the board and hoping they'll stay on for longer.

[Brad Myer]

From a pax perspective I have only seen improvements over the last 2yrs or so...

*B744s upgraded to A380 standard interiors
*Numerous new lounges, with more to come BNE/AKL
*New A330 interiors
*New B737 interiors on the way
*New international dining and meals
*Enhanced meals and increased meal times on domestic
*More IFE movies and content

[James K]

Still glad I quit when I did just before he gave away so much to EK. I know what will happen now they have made a bit of money. Lots of dead wood that got redundancies will be back through the revolving door on higher money. Seen it heaps of times during my time there.

[Ash W]

What did they give to EK? Yeah a few routes to Europe. Hardly so much. Qantas's future is in Asia/Pacific, not Europe. There is no/little money to be made in that part of the world for an airline like Qantas.

Now they have restructured and turned the fortunes around, now is the time to be looking at expanding point to point flying in Asia.

The 787's would be ideal to start some small volume Australia-Asia flying with a cost base that would, in the past have not made it profitable. A good start would be Perth-Singapore, and then some routes into China, Korea etc and just leave Europe to the likes of SQ and the middle eastern hub carriers.

[Brad Myer]

QF have actually expanded over the last 12 months with extra LAX, SCL, HNL, ZQN and new daily BNE-NRT.

Plus added plenty of extra seasonal AKL, NRT, HKG, and now YVR.

Still strong talk of PER-SIN-PER being re added.

[James K]

PER SIN with a 738 I tink I read somewhere. That'll really take off against the SQ 772. :rolleyes:

[Ash W]

So what's the solution then? Run an A330 1/3 empty?

[JamesL]

James - QF DID propose a plan to operate the B738 to SIN but scraped it.

[Thomas Collins]

PER SIN with a 738 I think I read somewhere. That'll really take off against the SQ 772.

What is wrong with a newer B738. It has IFE, it has a nice interior. It is only a short flight. No different to flying across the country really.

It is just as competitive, and many QF FF's will be happy to be able to return to QF metal again.

And don't forget - price is also king...

[Rowan McKeever]

I agree Thomas. At just over 5 hours it's not that much further than most of the east coast to PER and a lot of flights to DRW.

For QF to fly PER-SIN it has to compete with Asian carriers which have much lower labour costs. Using a 73H, starting with a single daily return and building up over time, reduces their risk and allows them to keep the 'better' A330 product on routes where they're more competitive, i.e. domestic and Asia-ex-east-coast. And, as Thomas points out, QFFs will take the 73H just to get back on QF.

[Ash W]

The issue with competing with Asian carriers isn't so much the labor cost, but where those carriers can take them. Compared to Qantas where a PER-SIN flight can only really take people to Singapore plus a few minor codeshares or Jetstar flights.

But if we look at similar length flights in the US and Europe, where point to point flying is much more common. What do you see, yep flights 5 hours in length flying point to point being operated by 737's and A320's. With a splattering of wides bodies.

[Thomas Collins]

Not exactly correct Ash. Route Profitability includes all costs associated with operating the market. It isn't simply fare yield. Labour cost is a big factor, and disadvantage for Qantas, since Asia operates ~40% less than Australia.

Qantas is also disadvantaged by geographical region, and does not have the same hub-ans-spoke advantage of Asia / Middle East etc. That sad, Qantas has plenty of code share partners ex Asia, customers can connect too.

Buy route profitability determines viability, and all elements of operations are costed at market level, to determine overall viability of operating on a market.

[Ash W]

True, but in the specific case mentioned, it became unviable for Qantas to operate A330's PER-SIN when the onwards traffic demand ex Perth was reduced by Qantas dropping 2x A380 SIN-LHR and 1x747 SIN-FRA flights.

And even when Qantas did have that traffic SQ was still operating more flights than Qantas, due in no small part to the fact you can access the entire SQ network from SIN.

[Rowan McKeever]

Yeah, that's definitely a good point Ash. The whole situation works against QF really, which just makes the point even more so that a 73H is better than nothing for the customers (and not very different to a number of domestic sectors), and much lower risk and higher potential for QF.

[Ash W]

That's right, just now need to get into the mindset that a 737 (or A320) is not that bad, and worldwide quite normal on 5 hours flights on point to point flying. We here in Aus are for the most part very much spoilt by choice and product.

That said do think Qantas needs to up the 737 business offering a little, though down the back with AVOD in the newer aircraft, sitting 3x3 in a 737 is not too much different than sitting 3x3x3 in a 777, or 2x4x2 in an A330, and best not to mention 3x4x3 in a 777.

[Mike W]

I'm having a little trouble wearing the whole "Qantas is also disadvantaged by geographical region" piece and "The whole situation works against QF really" when Air New Zealand (even more geographically challenged and with a fifth of the population to work with) can still turn a nice profit year after year.

[Ash W]

Qantas is most certainly at a disavantage compared to the hub carriers of Asia and the middle east, no doubt about it.

But you do raise a good point re ANZ. What do they do and what do they do well? Yep they fly point to point regionally, they partner with a major Asian hub carrier and fly a few niche long haul routes. Plus they don't try and compete on unprofitable long haul routes.

What has Qantas done? Dropped routes that were for the most part directly competing with the Asian/Middle east hub carriers (FRA and halved London). Have partnered with a hub carrier (Emirates) to carry some of this traffic, but kept some niche long haul and are concentrating on regional flying.

So in many ways Qantas is trying to make itself into a larger version of Air New Zealand. Exactly what they have to do, because no point competing for limited traffic for long haul where the hub carriers have it over them.

[Thomas Collins]

Mike - Air New Zealand and Qantas are operating in very different environments. Just look at the markets operated, and the competitors / capacity on those markets, relative to population / per capita.

They are not the same, and cannot be compared, like-for-like.

[Mike W]

Not saying they should be compared like for like Thomas, just how the "woe is me" story continuously emanating from Qantas is hard to take when there is an airline nearby setting examples of how to maximise your strengths and minimise your weaknesses and not try to be a world leading international carrier (ego? A380?) and focus on what's best for the airline, shareholders, it's employees and it's customers (pretty much what Ash is getting at)

[Thomas Collins]

Qantas operates in a very competitive environment, and is very much unfairly disadvantaged. The 'open skies' environment of Australia, whilst opening up access to carriers and driving value for consumers is good for that respect, it makes it hard for Qantas. The environment is not balanced. This is clear.

For example - Qantas could not secure daily traffic rights between Singapore and Paris, in their bilateral, due to the governments of Singapore and France. Air France and Singapore airlines could operate daily. Subsequently, all the premium traffic travelled on those airlines, as those airlines could offer attractive business-centric schedules.

The route was no longer viable, and Qantas exited. This has nothing to do with Qantas trying to compete. This had everything to do with unfair advantage.

No other competitor in this country, has any bilateral restrictions, and because the are not an end-of-the-line carrier, they have the advantage of hub-and-spoke models, to filter onward / connecting traffic. They can essential do anything they like.

You need to understand the bilateral limitations with each country Qantas operates to, and how they are disadvantaged, particularly from operating into Europe. The EK deal had to happen, to ensure the internationals survivability.

Qantas has made inroads in doing its best to reduce its cost base (cASK) and improve its customer proposition, to drive consumers to the brand.

But it will continue to struggle, when competitors operate in very different environments.

Air New Zealand, whilst being an end-of-the-line carrier, still has many advantageous, not available to Qantas. It is hard to apply the same methodology.

I like AIR NZ. I think they are a great airline. But in perspective. Remember they had to be bailed out by the Government. Even with their advantages, they would have collapsed.

And I always position financial performance this way. It is not the profit in dollars that matters. It is the ROI, and that the business can meet its cost of capital. A business delivering a 3% ROI is not a well performing business. You might as well stick your money in bonds. Investors want returns, be it capital appreciation and dividends, otherwise they won't invent, and Qantas can't access capital investment, to invest in their product.

Sure, margins can improve through improvements in rASK, and cASK, and this will help, but it isn't simply a matter of jacking up fares. With the number of competitors, who aggressively price under Qantas, and do so due to either operating on lower cost bases, are willing to accept losses in one part, to be offset with strong margins in another part, or have a direct agenda, this makes it hard for Qantas.

[Ellis Taylor]

For example - Qantas could not secure daily traffic rights between Singapore and Paris, in their bilateral, due to the governments of Singapore and France. Air France and Singapore airlines could operate daily. Subsequently, all the premium traffic travelled on those airlines, as those airlines could offer attractive business-centric schedules.

Just a small clarification - this is not an issue between Singapore and France but between Australia and France as the bilateral only offers limited frequencies. Singapore grants Australian carriers unlimited 'fifth-freedom' rights, but any onward flights are governed by the bilaterals between the two countries at the start and finish of the flight.

Australia has made a push for an open skies agreement with the European Union, but that seems to have stalled with no real action in the past couple of years.

Other than that, most of your analysis is pretty much spot on.