Qantas Profit Down 87%

Travel News Asia Latest Travel News Podcasts Wednesday, 19 August 2009

Qantas today reported a profit before tax of $181 million for the full-year ended 30 June 2009, down 87% on the prior year.

Qantas Chief Executive Officer, Mr Alan Joyce, said the diversity of the group's operations had contributed to it being one of the few airline operators worldwide to produce a full-year profit, despite the impact of the global economic downturn.

"There has never been a more volatile and challenging time for the world's aviation industry. When most airlines are reporting losses, the Qantas Group is reporting a profit for the full-year," Mr Joyce said. "This has been due to our strategy built around two strong flying brands in Qantas and Jetstar, a portfolio of airline-related businesses, and an ongoing focus on managing costs and driving efficiencies."

Mr Joyce said the 2008/09 financial year was one of two contrasting halves for the Qantas Group.

"The first half of the year was characterised by a generally favourable operating environment and strong demand," he said. "During the second half, the environment deteriorated, with domestic and international competitor capacity continuing to grow and demand in key markets softening quickly as the global slowdown hit.

"This was compounded by one-off events during the year, including protracted industrial action, H1N1 influenza and the costs associated with introducing the new Qantas A380."

Key drivers of the result were:

- weaker domestic and international demand, which led to a 4.3% yield decline and a 1.1% decrease in seat factor (load) to 79.6% for the group; and

- capacity cuts of 1.9% across the group, which led to the removal of some variable operating costs as well as reduced revenue. Jetstar, however, increased capacity during the year through network growth.

The group also experienced one-off events during the year which affected the result, including:

- industrial action by the Australian Licenced Aircraft Engineers Association, with a resulting maintenance backlog, which cost an estimated $130 million in additional expenses and lost revenue;

- the impact on profitability of the Swine Flu (H1N1)virus, Qantas estimates at $45 million; and

- costs associated with the introduction of the new Qantas A380, estimated at $37 million.

Non-operating items included in the year's result were:

- aircraft write-downs and provisions of $152 million, which included plans to ground a number of wide-body aircraft;

- restructuring and redundancy expenses of $106 million as a result of capacity cuts and organisational restructuring;

- write-downs of investments and goodwill of $18 million;

- changes in Frequent Flyer accounting estimates of $164 million, of which $84 million related to the non-recurring benefit of the direct earn points conversion strategy; and

- an $86 million profit on the reverse acquisition of Jetset Travelworld Group by Qantas Holidays.

Fleet, Product and Service

"The negotiation of changes to aircraft purchases, as part of our response to the downturn, has helped preserve cash and will ensure ongoing investment in these core areas," Mr Joyce said.

"We also remain focused on a long term fleet renewal program and still have one of the largest order books for new and fuel efficient aircraft in the world. For example, we have more than 160 new aircraft on order over the next 10 years that will deliver operational cost savings and allow our airlines to grow and enter new markets.

"Having adjusted our orders earlier this year, we remain committed to the Boeing 787 program and continue to monitor developments closely."

The Qantas Group will now take four to five A330-200 aircraft, for delivery from November 2010 and to provide for growth of Jetstar's long haul international operations.


Jetstar had a record year in a deteriorating market environment, delivering improved profitability while increasing capacity by 14.4%.

"Investment in Jetstar over the next 12 months, and beyond, will be significant, with an additional seven A320 aircraft to be added to the Singapore, Australia and New Zealand flying businesses, as well as four to five additional A330-200 aircraft," Mr Joyce said.

"Jetstar Asia has made a decision to grow its capacity by 46% for Singapore services over the next 12 months," he added.

Qantas Group Plans

"Jetstar will launch five A320 services a day between Sydney and Melbourne Tullamarine on 25 October, to enhance profitability and Group market position, ensuring we are meeting the needs of different market segments," he said.

Qantas will continue to operate 32 daily flights between Sydney and Melbourne. Jetstar will also continue to fly out of Avalon, with four daily flights to Sydney (down from seven) and multiple flights to Brisbane.

Several new services are also expected to be launched by Jetstar Asia over the next week, including the first Chinese mainland route.

Q Future

A new cost reduction program, the Qantas Group calls Q Future, is targetting $1.5 billion in permanent savings over three years, starting from this year, including $500 million in 2009/10.

"Q Future will focus on Qantas' operations and improving efficiencies across a range of areas, including sales and distribution, fuel conservation, aircraft utilisation and schedule, and procurement," Mr Joyce said. "We are also keeping a close watch on oil and fuel prices. While well below the record levels seen in 2008, they remain volatile and are trending upwards. For 2010, the Qantas Group has hedged 80% of fuel costs at a worst case price of US$89 per barrel."

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