Qantas Airways Limited · ASX:QAN
Qantas Airways — FY2004 Earnings Presentation
32 slides from Qantas Airways's earnings presentation, Aug 19, 2004
Slide 1: 2003/04 Full Year Results
2003/04 Full Year Results Presentation to Investors Geoff Dixon Chief Executive Officer 19 August 2004 NOANTAS Highlights increase/ 12 months fo 12 months to (decrease) June 2004 June 2003 % Sales and operating revenue $m 11,353.7 = 11,374.9 (0.2) Expenditure $m = (10,255.5) (10,807.9} (5.1) EBIT $m
Slide 2: Strategy
Strategy e« To return the Qantas Group to a position where it generates a positive spread to its cost of capital — Secure a competitive advantage in each of our major business segments and markets, by aggressively investing in product and customer service — Grow a set of next generation flying busin
Slide 3: Strategy - Qantas International
Strategy - Qantas International e Continue to profitably grow route network — New services introduced ~ Brisbane to Los Angeles ~ Perth to Hong Kong — New services to be introduced ~ Sydney to London via Hong Kong ~ Perth to Loncon via Singapore ~ Sydney to Shanghai ~ Sydney to Mumbai hoawras Seok S
Slide 4: Strategy - Qantas International / Australian Airlines
Strategy - Qantas International e Improve overall returns — Continued investment in international product ~ Business Class Skybed ~ Introduction of A330-300 aircraft to international flying — Continued investment in service standards ~ Excellent customer satisfaction results EL PB Sy hoawras Strateg
Slide 5: Strategy - Low Cost Asian Airline
Strategy - Low Cost Asian Airline Participate in growing Intra-Asia travel market New low cost airline to be based in Singapore Qantas will contribute S$50 million for its 49.9 per cent investment On track to fly to a range of destinations within five hours of Singapore by the end of 2004 Signed ope
Slide 6: Strategy - Domestic
Strategy - Domestic « Deliver the most appropriate product, service and economics for each market segment « Maintain a combined market share in excess of 65 per cent — Estimated market share of 66.7 per cent in July — This is the most profitable course of action for our business « Continue to achiev
Slide 7: Strategy - Qantas Domestic and Jetstar
Strategy - Qantas Domestic « Continue to increase capacity on key business routes « Deliver a level of product and service targeted at the business purpose customer — Clearly differentiated product offering « Continue to achieve permanent unit cost efficiencies under the Sustainable Future Program h
Slide 8: Strategy - QantasLink and Flying Group
Strategy - QantasLink « Develop regional “feeder” markets throughout Australia — Maintain a competitive advantage ~ High frequency schedules and peak time of day service — Continue to achieve permanent unit cost efficiencies under the Sustainable Future Program ~ Replacement of Dash 8-100 aircraft w
Slide 9: Strategy - Non-Flying Businesses
Strategy - Non-Flying Businesses e« Qantas Holidays — Launched ReadyRooms — Provides year-round accommodation via gantas.com and jetstar.com - Established additional holiday tours operations in Asia ~- Feasibility studies are currently underway in relation to other potential locations e 1 bo heawras
Slide 10: Non-Flying Businesses; Sustainable Future Program
Strategy - Non-Flying Businesses e« Qantas Freight — Dedicated freighter services ~ Between Sydney, Shanghai, Singapore and Chicago ~ Considering other opportunities for dedicated freighter operations — Star Track Express ~ Outstanding record of profitable growth ~ Identify and grow synergies betwee
Slide 11: Sustainable Future Program
Sustainable Future Program e Delivering results — Net cost per ASK down 11.4 per cent, including exchange — Net cost per ASK down 5.4 per cent, excluding exchange — Continue to target a further $500 million in initiatives in both 2004/05 and 2005/06 — Target equates to a unit cost reduction of 5 per
Slide 12: Fleet Strategy
Fleet Strategy « Aircraft added to operating fleet during twelve months to June 2004 — Two B747-400ER - Three A330-300 — Three B737-800 — Seven Dash 8 hoawras Fleet Strategy « Aircraft retired during twelve months to June 2004 — Four B767-200 — One B737-400 (returned to lessor) — Four B737-300 (one
Slide 13: Capital Management
Capital Management e Maintain investment grade credit rating « Current capital expenditure forecast is $6.3 billion between 2004/05 and 2006/07 — Will maintain Group fleet age at around 10 years, weighted by seats e« Operating cashflow covered capital expenditure in 2003/04 — Aim to continue this in
Slide 14: Fuel Hedging
Fuel Hedging e 70 per cent of expected 2004/05 fuel needs hedged — Average price of US$32 per barrel (crude oil equivalent) — 100 per cent of expected needs covered until December 2004 — Proportion of expected needs covered for January - June 2005 — Will continue to take additional cover for January
Slide 15: Management Team
Management Team « Geoff Dixon under contract to continue as CEO for three years e« Peter Gregg contracted to continue as CFO e All other executive management under medium and long- term contracts of varying duration hoawras International Financial Reporting Standards e« Will commence reporting for 2
Slide 16: International Financial Reporting Standards
International Financial Reporting Standards e Implications are being identified in the following key areas — Accounting for the frequent flyer program ~ Currently apply the “incremental cost” approach ~ Considering a change in the operation of the frequent flyer program to enhance its effectiveness
Slide 17: International Financial Reporting Standards
International Financial Reporting Standards e Where changes to accounting policy are required, initial adjustment would be taken through retained earnings e« Adoption of any change in accounting policy would be announced in accordance with our continuous disclosure obligations e Further explanatory
Slide 18: Qantas Sale Act; Outlook
Qantas Sale Act e WiH continue to lobby the Federal Government over changes to the Qantas Sale Act and liberalisation e« Pace and scope of liberalisation and anti-competitive aspects of aviation need to be addressed hoawras Outlook e Rapid escalation in price of crude oil is the major factor facing
Slide 19: Outlook
Outlook e Taking these factors into account, allowing for the fact that it is still early in the financial year and provided market conditions do not deteriorate, the returns for the first six weeks of 2004/05, forward bookings and a continuation of efficiency gains, leads Qantas to believe it can i
Slide 20: Highlights
Highlights Twelve Twelve [ncrease/ months fo months fo (decrease) June 2004 June 2003 % Sales and operating revenue $m 41,353.7 11,374.99 (0.2) Expenditure $m = (10,255.5} (10,807.9} (5.1) EBIT $m 1,098.2 §67.0 93.7 Net borrowing costs $m {133.6} {64.7} 106.5 Profit Before tax $m 964.6 §02.3 92.0 Ne
Slide 21: Revenue
Revenue e Sales and operating revenue down 0.2% (up 3.8% excluding exchange) — Net passenger revenue down 0.2% (up 4.3% excluding exchange} ~ Group RPKs up 5.3% - Group yield per RPK down 6.4% (down 2.0% excluding exchange) — Net freight revenue down 8.1% (up 1.1% excluding exchange} ~- increase in
Slide 22: Expenditure
Expenditure a Manpower and staff related $bn down 2.6% $10.8bn : ; . $10.3bn wi Aircraft operating variable down 10.0 5 74% Fuel and oif down 12.0% 8.0 | Depreciation and amortisation up 12.8% 8.0 Tours and travel cost of sales up 1.2% 40 4 . . Selling and marketing 20 | down 14.7% Capacity hire dow
Slide 23: Expenditure
Expenditure — Variable aircraft operating costs down 7.4% (down 1.2% excluding exchange) - Lower engineering materials costs in line with reduced fleet age and renegotiation of engine and airframe maintenance contracts ~ Lower crew expenses reflecting a 2.4% decrease in total crew numbers ~ Savings
Slide 24: Expenditure
Expenditure — Depreciation and amortisation costs up 12.8% (up 12.8% excluding exchange) ~ Depreciation on new aircraft deliveries and modifications ~ Write down of seats being replaced through the Skybed program ~ Increase of $24.0 million due to change in residual value for widebody aircraft from
Slide 25: Expenditure
Expenditure — Capacity hire costs down 24.7% (down 18.5% excluding exchange) ~ Termination of post-Ansett short-term operating leases (2 x B767-300, 1 x B737-800, 1 x B737-300) ~ The return of 5 weteased BAe 146 aircraft to National Jet Systems — Non-cancellable operating lease rentals down 7.2% (up
Slide 26: Expenditure; International - Qantas and Australian Airlines
Expenditure — Other costs down 18.0% (down 17.5% excluding exchange) ~ Lower contract work materials costs in line with decrease in contract work revenue — Cost per ASK down 11.4% (down 5.4% excluding exchange) — Net impact of foreign exchange movements on statement of financial performance ~ Favour
Slide 27: International - Qantas Airlines and Australian Airlines
International - Qantas Airlines im $397.8m 350 4 oH 300 201.1m EBIT of $397.8m, or 36.2% of 260 $221.6m § Group EBIT 200 RPKs up 2.1% ASKs up 2.1% 480 4 4H 4H 5 100 4 $263.9m $196.7m Seat factor unchanged at 78.3% « Yield excluding exchange increased 50 by 0.4% i) 1 1 we (50) - e 2002/03 2H 2003/04
Slide 28: Domestic - Qantas, QantasLink and Jetstar
Domestic - Qantas, QantasLink and Jetstar $m 850 - $539.3m 500 + 450 | 2H EBIT of $539.3m, or 49.1% of 400 4 $215.4m Group EBIT 2H 350 4 $25.4m RPKs up 4.4% 300 ASKs up 2.6% 250 4 \ $223.0m “te Seat factor up 1.3% pts to 79.0% 200 + 4H 480 4 $323.9m Yield excluding exchange 400 - 4H decreased by 3.8
Slide 29: Domestic - QantasLink; Qantas Flight Catering
Domestic - QantasLink $m 4 $97.0m 80 2H « EBIT of $97.0m, or 8.8% of Group $44.0m EBIT 60 $57.3m « RPKs down 15.8% 2H « ASKs down 15.2%, due to wo | $19.5m 4H retirement of five BAe 146 aircraft $53.0m « Seat factor down 0.5% pts to a, nn | 4H 71.9% $37.8m « Yield excluding exchange wees increased b
Slide 30: Qantas Holidays; Other Subsidiaries and Associates
Qantas Holidays $m 80 $64.1m 80 + $43.6m « EBIT of $54.1m, or 4.9% of 0 2H Group EBIT 2H $30.1m « Reflects: 30-4 $24.3m ~ Recovery in outbound tourism following SARS and 20 4 war in lraq 1H 41H ~ Comprehensive cost saving 10 5 $19.3m $24.0m program 0 : 59] 2002/03 2003/04 a heawras Other Subsidiarie
Slide 31: Other Subsidiaries; Balance Sheet and Cashflow
Other Subsidiaries — Other remaining subsidiaries and associates Combined EBIT loss of $37.6 million, down $44.8 million Contributions from other subsidiaries, associated companies and financing vehicles that are wholly-controlied entities of Qantas 61 bh hoawras Balance Sheet and Cashflow increase/
Slide 32: Group Operational - Aircraft Fleet
Group Operational Aircraft Fleet June June increases 2004 2003 (decrease) Boeing 747-400ER 6 4 2 Boeing 747-400 24 24 - Boeing 747-300 6 6 - Boeing 767-300ER 239 29 - Boeing 767-200ER 2 6 (4) Boeing 737-800 21 18 3 Boeing 737-400 21 22 (1) Boeing 737-300 17 21 (4) Airbus A330-200 4 4 - Airbus A330-3