Highlights:
- Record profit before tax of AUD1,408 million
- Net profit after tax of AUD970 million
- Revenue of AUD16.2 billion
- Earnings per share of AUD50.2 cents
- Operating cashflow of AUD2.1 billion
- Final fully franked ordinary dividend of AUD17 cents per share
Qantas today announced a record profit before tax of AUD1,408 million for the full year ended 30 June 2008, a 46 per cent increase on the prior year results.
The Board declared a final fully franked ordinary dividend of 17 cents per share, taking the full year ordinary dividend to AUD35 cents per share, which represents a dividend payout of approximately 70 per cent.
The Chairman of Qantas, Mr Leigh Clifford, said following an excellent performance across all segments for the first three quarters, the business was starting to see the effects of a slowing economy and rising fuel prices.
“We have benefited from a strong revenue environment, which was supported by major investments in customer service and product. The result was further underpinned by sustained efforts to improve efficiency,” he said.
“Our results were also due to the hard work and commitment of our employees and I thank them for the contribution they made to the company’s success.
“In recognition of this contribution, the Board has approved the awarding of AUD1,000 worth of shares and a cash bonus of AUD1,000 to all eligible staff.”
Mr Clifford acknowledged the contribution Geoff Dixon had made to the Group since becoming Chief Executive Officer in 2000.
“Geoff and his senior executive team have done an outstanding job making Qantas stronger during events which have challenged the industry and changed its fundamentals,” he said.
“He has also been working closely with Chief Executive Officer Designate, Alan Joyce in the lead up to the transition at the end of November.”
The Chief Executive Officer of Qantas, Mr Geoff Dixon, said the key drivers of the results were:
- strong domestic and international demand, which led to a 1.2 per cent yield improvement and a 0.8 per cent improvement in seat factor to 80.7 per cent for the Group;
- the continued success of the Group’s two brand strategy, with Qantas Airlines delivering a 21.6 per cent increase in profitability, and continued growth by Jetstar in both international and domestic markets, leading to a profit increase of AUD37 million, or 44.7 per cent, compared to the previous year;
- improved margin management, with operating expenditure increasing only 5.6 per cent, compared to capacity growth of 4.0 per cent and CPI increases of 3.4 per cent; and
- a further AUD747 million of efficiencies under the Sustainable Future Program, which resulted in a unit cost reduction of 2.3 per cent.
Non-operating items included in this year’s result were:
- liquidated damages of AUD291 million (AUD98 million prior year) due to delays in the delivery of new aircraft;
- accelerated depreciation and asset write downs of AUD165 million, which included the retirement of a number of B747-300 and Dash 8-100 aircraft (AUD45 million prior year); and
- provision for settlements relating to freight cartel of AUD64 million (AUD47 million prior year).
The liquidated damages partially offset costs being incurred by Qantas in preparation for new aircraft deliveries, including interest foregone on aircraft progress delivery payments and buyer furnished equipment, crew training, related asset purchases (such as flight simulators) and new aircraft program costs.
The accelerated depreciation and asset write downs of AUD165 million were primarily the result of the capacity reductions recently announced, which will result in the retirement of over 20 aircraft.
Mr Dixon said a very strong revenue performance had driven the result, underpinned by continued major investment in product and service over the past five years, including:
- an average of AUD2 billion each year on new aircraft, with a further AUD35 billion of aircraft currently on order;
- around AUD120 million a year in new product, including lounges and aircraft interiors;
- an average of AUD275 million each year on staff training; and
- more than AUD300 million on engineering and maintenance facilities, with a further AUD120 million committed to upgrade engineering systems.
“Our significant investment in product and service has ensured Qantas’ customer satisfaction levels remain high,” he said.
“This has been reconfirmed by our performance in the 2008 Skytrax World Airline Awards, where Qantas was ranked the world’s number three airline, out of a field of more than 160 carriers. Qantas is one of only two carriers to have been listed in the world’s top five airlines for six consecutive years.
“Jetstar, having been named airline of the year in the low cost category in 2007, was placed third this year.
“Qantas’ new AUD10 million Customer Service Centre of Excellence will open by the end of the year, offering enhanced customer service training for 18,000 frontline staff and management.”
Mr Dixon said the Sustainable Future Program, now in its fifth year, had achieved cumulative AUD3 billion in efficiency improvements since commencement in 2002/03, with a further AUD747 million in savings achieved during the year.
“The program is critical to our strategy and to our ability to compete successfully in the international market. To this end we are targeting to achieve further cumulative savings of AUD1.5 billion by June 2010.”
Mr Dixon said the full year results for the first time included separate reporting for the Qantas Frequent Flyer (QFF) and Qantas Freight businesses as part of the Group’s business segmentation strategy.
“This is in line with our announcement last year that we would position our portfolio businesses for greater growth and diversity outside their traditional aviation areas, and provide alternative ownership options.
“Regarding the loyalty business, Qantas is well advanced in its preparations for a partial Australian IPO subject to market conditions. The Board will consider this issue further in September.”
Mr Dixon said Qantas had confronted a number of challenges in recent months, including the QF30 decompression incident.
“This serious incident, which remains the subject of official investigations, was superbly handled by the aircraft's flight and cabin crews,” he said.
“This event, coupled with the impact of the recent industrial dispute with the Australian Licensed Aircraft Engineers Association, caused significant disruption for our passengers and impacted Qantas’ financial and operating performance in recent months.
“We understand the level of scrutiny we are being subjected to at present. We will work through these issues and implement any changes that may be required, but our commitment to safety should never be questioned. Qantas has an unrivalled safety record, and safety will always remain our number one priority.”
Mr Dixon said Qantas had one of the most enviable orders of new and fuel efficient aircraft in the world which would assist in achieving fuel savings in the future of up to 20 per cent.
“While delivery of these has unfortunately been delayed due to issues with aircraft manufacturers, we are ready to take delivery of our first A380 in September and the late 2009 delivery timeframe for our first B787 Dreamliner is on track.”
In relation to the current operating environment, Mr Dixon said that Qantas, and the airline industry as a whole, was facing major challenges.
“The rapid rise in fuel costs since December last year is unprecedented and the impact has been felt across the aviation industry and the world economy.
“At current prices our fuel expense will be over AUD1.6 billion higher in 2008/09. We have hedged 81 per cent of our crude oil price exposure at a worst case all-in cost of USD118 a barrel. This cover is all in options, which will allow Qantas to benefit if prices fall,” he said.
“A large number of airlines have already announced significant financial losses, capacity reductions and job losses in the face of record high fuel prices and an economic slowdown.
“The strategies we have worked hard to implement over the past few years, including the successful two brand strategy, the segmentation of our business and the continued focus on costs through the Sustainable Future Program, have put us in a strong position to deal with the current challenges.”
Mr Dixon said Qantas had built a great deal of flexibility into its various businesses to enable it to effectively handle these challenges.
“We have reacted quickly and have already announced a number of steps to reduce costs, adjust capacity, and increase fares,” he said.
Outlook
Although fuel prices have eased over the past month, they have not declined to levels that will sustain the current level of profitability, and fuel and economic conditions continue to be uncertain. However, assuming no further deterioration in economic conditions, Qantas expects its 2008/09 profit before tax to be broadly in line with analyst consensus forecasts.
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Issued on behalf of Qantas Airways Hong Kong by Upstream Asia
For further information, please contact:
Dorothy Fung / Joyce Mok
Telephone: (852) 2973 0222
Fax: (852) 2973 6900
E-mail: dorothy.fung@upstreamasia.com / joyce.mok@upstreamasia.com