Video Analysis: Qantas releases FY2017 results, records 2nd highest underlying profit in its history

Qantas Group released its Full Year 2017 financial results today, which included information on its fleet, loyalty programme and outlook for FY2018. Qantas today reported an Underlying Profit Before Tax of AUD1401 million and a Statutory Profit Before Tax of AUD1181 million for the 12 months ended 30-Jun-2017.

The underlying result represents the second highest performance in Qantas’ 97 year history, down 8.6% compared with last year’s record. It is slightly above the guidance range provided in early May-2017, mainly due to strengthening of the Group’s domestic businesses. Blue Swan has pulled together all the key highlights from the results into an easy to read snapshot for your reference.

Qantas stated that overall, its FY2017 performance “shows the Qantas Group’s margin advantage over local and global competitors”, which “has been underpinned by completion of its three year transformation program”.

Hear from our experts: CAPA – Centre for Aviation COO Liz Pinczewski

Results:

  • Revenue: AUD16,057 million (USD12,105 million), -0.9% year-on-year;
    • Qantas domestic: AUD5632 million (USD4246 million), -1.4%;
    • Qantas international: AUD5708 million (USD4303 million), -0.8%;
    • Jetstar Group: AUD3600 million (USD2714 million), -1.0%;
    • Qantas Loyalty: AUD1505 million (USD1135 million), +3.5%;
    • Qantas Freight: AUD938 million (USD707.1 million), -4.5%;
  • Total costs: AUD14,467 million (USD10,906 million), +0.1%;
    • Fuel: AUD3039 million (USD2291 million), -6.1%;
    • Labour: AUD4033 million (USD3040 million), +4.3%;
  • Underlying EBIT: AUD1590 million (USD1199 million), -9.2%;
    • Qantas domestic: AUD645 million (USD486.3 million), +11.6%;
    • Qantas international: AUD327 million (USD246.5 million), -36.1%;
    • Qantas Freight: AUD41 million (USD30.9 million), -35.9%;
    • Jetstar Group: AUD417 million (USD314.4 million), -7.7%;
    • Qantas Loyalty: AUD369 million (USD278.2 million), +6.6%;
  • Underlying profit before tax: AUD1401 million (USD1056 million), -8.6%;
  • Net profit: AUD853 million (USD643 million), -17.1%;
  • Passenger numbers: 53.7 million, +1.9%;
  • Passenger load factor: 80.6%, +0.5ppt;
  • Revenue per ASK: AUD7.93 cents (USD6.0 cents), -1.9%;
  • Cost per ASK: AUD7.00 (USD5.3 cents), -0.7%;
  • Cost per ASK excl fuel: AUD4.99 cents (USD3.8 cents), +4.2%;
  • Total assets: AUD17,221 million (USD12,983 million);
  • Cash and cash equivalents: AUD1775 million (USD1338 million);
  • Total liabilities: AUD13,681 million (USD10,314 million).

*Based on the average conversion rate at AUD1 = USD0.753882

Qantas Airways to take eight 787-9s over next 18 months, refresh A380 fleet and update A320s

Fleet outlook:

  • Qantas International will take delivery of two Boeing 787-9s in H1FY2018, with all eight to join the fleet by H1FY2019;
  • Qantas retired one 747-400 in July-2017, with another to leave the fleet around mid-2018. A total of five older 747s will be retired to make way for the eight 787-9s. The remaining six extended range 747s are expected to remain until the early 2020s.
  • The airline’s fleet of 12 A380s will receive a significant upgrade to improve passenger comfort as well as route economics. This will include replacing ‘Skybeds’ in business class with the latest version of the business suite; increasing the size of the premium economy cabin and installing the same all new seats that will debut on the 787 at the end of 2017; and refurbishment of the economy and first class sections. work will begin in 2Q2019.
  • Three Fokker F100 aircraft joined the Qantas Domestic fleet in the H1FY2018, providing flexibility to reduce capacity but maintain frequency on resources routes; Rollout of Wi-Fi on the Qantas Domestic network (A330 and Boeing 737 aircraft) is expected to accelerate in late Sep-2017, once the current trial is complete and final regulatory approval for the new service is confirmed.
  • Jetstar added two A321s aircraft to meet demand in short-haul leisure markets. A cabin upgrade to Jetstar’s A320s during FY2018 will deliver a 3% capacity increase per aircraft with limited capital outlay.

Qantas Airways international business hit by strong competitor capacity growth in FY2017

Qantas International achieved underlying EBIT of AUD327 million (USD258 million) in FY2017, the unit’s second highest ever result. A decline of AUD185 million (-36.1% year-on-year) was largely driven by 8.5% capacity growth in the broader market, which saw a 6.5% reduction in unit revenue. These pressures moderated in H2FY2017 with the decline in unit revenue slowing to 4%. Ongoing cost control meant Qantas International’s margins, while dropping from 8.9% to 5.7%, “remain stronger than many of its competitors”. Qantas International continues to review network opportunities created by the 787’s arrival, including the ability to deploy some of its existing widebody fleet differently. Unit revenue declined by 2% in H2FY2017 on competitor capacity growth of 5%; competitor capacity growth is expected to slow to around 4% in H1FY2018. Jetstar Group reported its international routes to and from Australia also performed well.

Qantas announces USD294.5m share buy back

Qantas Airways Group announced (25-Aug-2017) it plans to conduct a further on-market buyback of up to AUD373 million (USD294.5 million) of its own shares. Once this latest buyback is completed the number of Qantas shares is expected to have been reduced by more than 20% since Oct-2015.

Qantas Freight FY2017 results down 27% on weakness in the international market due to overcapacity

Qantas Freight achieved FY2017 underlying EBIT of AUD47 million (USD37 million), down 26.6% year-on-year. The decline was due to weakness in the international market caused by increased widebody aircraft capacity. The domestic freight business was “broadly stable”. Jetstar Group reported softer “freight yields”.

Outlook for FY2018

H1FY2018:

  • Overall Group Capacity is expected to increase by around 3% in the first half;
  • Group Domestic capacity is expected to decrease by around 1% compared with the same period last year; unit revenue is expected to increase on stronger demand;
  • Group International capacity is expected to increase by around 5%, driven by previously announced new routes into growing Asian markets. Unit revenue declined by 2% in the H2FY2017 on competitor capacity growth of 5%; competitor capacity growth is expected to slow to around 4% in the first half of FY2018;

Full year FY2018 current operating expectations:

  • Given the carrier’s hedging programme, fuel costs are expected to be no more than AUD3160 million (USD2495 million) and are tracking at AUD3110 million (USD2456 million) at current forward AUD prices;
  • Net capital expenditure is expected to be AUD3 billion (USD2.4 billion) for FY2018 and FY2019 combined;
  • Impact of inflation on costs, including wage growth, is expected to be AUD250 million (USD197.5 million);
  • Gross benefits from the next wave of ongoing transformation (including cost, revenue and fuel efficiency improvements) are expected to be AUD400 million (USD316 million) p/a.