Record underlying AUD1.6 billion profit recorded in Qantas’ FY2018 earnings

Qantas has published its FY2018 results with a record underlying profit of AUD1.6 billion (USD1.18 billion), an increase of 14.5% year-on-year and 5% higher than the last record profit recorded in 2016.


Summary:

  • Qantas achieves its best ever underlying profit result in FY2018.
  • Qantas and Jetstar report their best ever domestic performance.
  • Like other airlines, the airline’s fuel bill is expected to spike by over AUD600million – but Qantas is confident it can “substantially” recover the increase. 

After booking it biggest ever loss in FY2014, Qantas has now reported a net profit for the last four financial years, two of them records, with today’s the largest in the airline’s 97 year history:

Source: CAPA – Centre for Aviation and Qantas Group reports (Qantas financial year ends in June, values shown in AUD)

Domestic market has been most profitable

While all parts of the business contributed to the result, Qantas has particularly seen a resurgence in the Australian domestic market. Qantas and Jetstar collectively achieved an underlying profit of AUD1.1 billion (USD808 million) on domestic services, a spike of 25% over 2017 and a record for both airlines. Group CEO Alan Joyce has often talked of the domestic market being worth AUD1 billion – so that doesn’t leave a lot more to share around.

The Group maintained its corporate business share, increased its share of small to medium enterprises (SMEs), and saw a continuation of growth in the resources sector that began in the first half of the year. Demand was also boosted by flows from international partner airlines on domestic services. Despite rising fares, leisure demand remains strong and Jetstar carried 24 million passengers domestically and internationally for under AUD100 (USD73.5).

International was stronger too, with Perth-London rating well

The company’s international business also performed strongly, with Qantas International delivering a 7% earnings increase of the back of a 4% jump in capacity. Average load factor rose to 84%, while Qantas identified its direct Perth-London Heathrow as the “highest rating service on our network”. The introduction of Boeing 787 equipment on other routes, gradually replacing 747s to destinations including San Francisco, New York and Hong Kong, have also been well received.

Also paying dividends for Qantas International is the fact that it has taken on additional responsibility from partner Emirates on the trans Tasman. These changes started delivering cost and revenue benefits in late FY18, which will continue through FY19 onwards. Later this year, Qantas plans to begin a much closer relationship with Air New Zealand too (Air NZ today also posted a significant profit on record income).

See related report: How has the trans Tasman aviation market evolved over the past three years?

Qantas challenged by higher fuel prices, but CEO confident on ability to recover cost

Like other airlines, Qantas faces the ever-growing challenge of higher fuel prices. The group’s fuel bill was up by almost AUD200 million (USD147 million) in FY2018, while the bill is forecast to be up another AUD690 million (USD507 million) in FY2019.

However, Mr Joyce remains confident on the company’s ability to absorb the rising fuel bill.

“We’re seeing healthy demand across key sectors matched with improving levels of capacity discipline, which is a positive sign for the year ahead, Mr Joyce said. He added: “This record result comes despite higher oil prices. We’re facing another increase to our fuel bill for FY19 and we’re confident that we will substantially recover this through a range of capacity, revenue and cost efficiency measures, in addition to our hedging program”.

Qantas to increase capacity 0-1% in H1FY2019, keep domestic capacity flat

The Group’s current operating expectations for FY2019 are:

  • Total fuel bill is expected to increase to AUD3.92 billion (up AUD690 million).
  • Inflation impact on Group expenditure (including wage growth) expected to be around AUD250 million.
  • Transformation benefits are expected to be AUD400 million.
  • Net capital expenditure expected to be AUD1 billion for FY2019.
  • Total group capacity to increase by 0-1% in the first half of FY19, with Group International up by 1% and group domestic capacity flat.
  • Net depreciation and non-cancellable aircraft operating leases expected to be AUD155 million higher than FY18.

With this outlook, it is notable that despite strong domestic market performance in FY2018, there are no plans to add more domestic capacity.

CAPA data shows Qantas’ domestic capacity has remained largely the same since 2012: