Qantas Airways Limited · ASX:QAN
Qantas Airways — H1 2016 Earnings Presentation
40 slides from Qantas Airways's earnings presentation, Feb 23, 2016
Slide 1: Qantas Airways Limited 1H16 Results
For personal use only Qantas Airways Limited 1H16 Results 23 February 2016 ASX: QAN US OTC: QABSY
Slide 2: A Strong Platform for Sustainable Growth
A Strong Platform for Sustainable Growth For personal use only • Delivering against Group strategy to maximise long-term shareholder value − Record first half Underlying Profit Before Tax (PBT)1 $921m, Statutory PBT $983m − All segments generating Return on Invested Capital (ROIC)2 above Cost of Cap
Slide 3: 1H16 Key Group Financial Metrics
1H16 Key Group Financial Metrics For personal use only Underlying PBT ROIC1 EPS4 Cash 22.8% $1,373m 12 month2 Operating cash flow $921m 31.9c Up $554m on 1H15 Up 22.7c on 1H15 13.1% $770m 6 month year to date3 Net free cash flow5 Unit Revenue6 Total Unit Cost7 Ex-fuel Unit Cost8 Traffic/Capacity Gro
Slide 4: 1H16 Profit Bridge
1H16 Profit Bridge For personal use only Underlying Profit Before Tax ($M) 165 115 165 47 360 921 92 448 Net revenue benefits1 $73m ▼ Cost of increased activity Fuel efficiency benefits2 $23m ▼ Indonesian volcanoes 367 Non-fuel cost reduction $165m ▲ Loyalty growth Transformation Benefits $261m ▲ Je
Slide 5: Segment Results
For personal use only Segment Results
Slide 6: Integrated Group Portfolio With Leading Market Positions
Integrated Group Portfolio With Leading Market Positions For personal use only Qantas Domestic • Largest and highest margin full-service carrier in domestic market1 1H16 Operating Segment EBIT4 • Maintaining network, frequency & product advantage for premium customer base Qantas International Qantas
Slide 7: Qantas Domestic
Qantas Domestic For personal use only • Underlying EBIT of $387m, margin1 improvement of 5.4pts 1H16 1H15 VLY %9 – Unit revenue (RASK)2 +2% in mixed market conditions Revenue $M 3,007 3,007 0.0 – Ex-fuel unit cost (CASK)3 improvement of 1% on -1% Underlying EBIT $M 387 227 70 capacity Operating Marg
Slide 8: Qantas International
Qantas International For personal use only • Underlying EBIT of $270m, margin1 improvement of 7.0pts 1H16 1H15 VLY % – Unit revenue2 growth of 3% including improved seat factor on Revenue $M 2,953 2,748 7.5 +6.5% capacity Underlying EBIT $M 270 59 >100 – Ex-fuel unit cost3 improvement of 2% Operatin
Slide 9: Jetstar Group
Jetstar Group For personal use only • Record Underlying EBIT of $262m, margin1 improvement of 9.1pts 1H16 1H15 VLY % – Domestic Australia unit revenue +10%2 driven by strong low Revenue $M 1,913 1,773 7.9 fares demand Underlying EBIT $M 262 81 >100 – Capacity growth of 4% with increased utilisation3
Slide 10: Qantas Loyalty
Qantas Loyalty For personal use only • Record Underlying EBIT1 of $176m, improvement of $16m 1H16 1H15 VLY % – 10% revenue growth; significant contribution from adjacent Revenue $M 734 669 9.7 businesses Underlying EBIT $M 176 160 10 – 5% growth in QFF2 co-branded credit cards, outpacing industry3 O
Slide 11: Qantas Freight
Qantas Freight For personal use only • Underlying EBIT of $38m, decrease of $16m 1H16 1H15 VLY % • Margin decline in challenging cargo markets Revenue $M (4.5) 525 550 – Revenue decrease of 5% Underlying EBIT $M 38 54 (30) – Conclusion of favourable Australian air Express legacy Operating Margin1 %
Slide 12: Financial Framework
For personal use only Financial Framework
Slide 13: Financial Framework Aligned with Shareholder Objectives
Financial Framework Aligned with Shareholder Objectives For personal use only 1. Maintaining an Optimal 2. ROIC > WACC 3. Disciplined Allocation Capital Structure Through the Cycle of Capital Minimise cost of capital by Deliver ROIC > 10%1 Grow invested capital with maintaining investment grade thro
Slide 14: Maintaining our Optimal Capital Structure: Credit metrics
Maintaining our Optimal Capital Structure Credit metrics above investment grade targets For personal use only FFO / net debt (S&P)1 Gross Debt / adjusted EBITDA (Moody's)2 3.0x 5.1x TARGET TARGET >45% <4x 45% 17% FY14 FY15 Indicative FY16 FcstFY16 FY14 FY15 Indicative FY16 FcstFY16 • Targeting inves
Slide 15: Minimal refinancing risk and diverse funding profile
Maintaining our Optimal Capital Structure Minimal refinancing risk and diverse funding profile For personal use only • Manageable maturities in each funding market and period – FY16 bonds ($281m) to be repaid in 4Q FY16 • Continued diversification of funding sources • No financial covenants • Explor
Slide 16: Optimal liquidity
Maintaining our Optimal Capital Structure Optimal liquidity For personal use only • Retaining strong short-term liquidity of $3.3b Total Liquidity – optimising mix – Cash of $2.3b1 – Undrawn facilities of $1b • Minimal refinancing risk and access to markets provides Unencumbered Unencumbered aircraf
Slide 17: Refinancing aircraft out of operating leases
Maintaining our Optimal Capital Structure Refinancing aircraft out of operating leases For personal use only • Refinanced 24 operating leased aircraft to unencumbered Financing Composition of Total Group Fleet3 owned aircraft1 63% – Totalled A$587m as at 31 Dec-15 narrowbody aircraft – Core narrowbo
Slide 18: Improving Return on Invested Capital
Improving Return on Invested Capital Delivering ROIC>10% through the cycle For personal use only • 12 month ROIC of 22.8%, 13.1% year to date $M 1H16 2H15 1H15 – Meeting Group target of ROIC > 10% Underlying PBT 921 608 367 • All segments continue to deliver ROIC > WACC1 Add back: Underlying net fin
Slide 19: Continued Delivery of Business Transformation
Improving Return on Invested Capital Continued Delivery of Business Transformation For personal use only $261m Transformation benefits in 1H16 $2b Qantas Transformation Pipeline • Cost Reduction1 $188m – Launch of Group procurement program ‘Spend Aware’ Development Development $>200m $>300m – Group
Slide 20: Qantas Transformation Scorecard
Improving Return on Invested Capital Qantas Transformation Scorecard only Target Progress to Date Metric Timeframe $2b gross benefits $1,359m benefits realised Accelerated FY17 use Transformation >10% Group ex-fuel expenditure reduction1 Ex-fuel expenditure reduced by 7.9%2 Benefits 5,000 FTE reduct
Slide 21: Protecting ROIC through disciplined hedging program
Improving Return on Invested Capital Protecting ROIC through disciplined hedging program For personal use only • Hedging approach protects against unfavourable Hedging & Fuel Cost Outlook1 (A$b) movements in Fuel and FX, while allowing for Inclusive of Option Premium participation to favourable pric
Slide 22: Capital Expenditure in line with FY16 guidance
Disciplined Allocation of Capital Capital Expenditure in line with FY16 guidance For personal use only • 1H16 net capital expenditure1 of $490m $M 1H16 1H15 VLY % – Investing cash flows of $603m Operating cash flows 1,373 703 95 – Less $113m reduction in lease liabilities Investing cash flows (exclu
Slide 23: Share buy-back of up to $500 million
Disciplined Allocation of Capital Share buy-back of up to $500 million For personal use only • Qantas takes a disciplined approach to continually reviewing its optimal capital structure and, where there is surplus capital, assessing how to enhance shareholder value with the appropriate mix of growth
Slide 24: Building Long-Term Shareholder Value
For personal use only Building Long-Term Shareholder Value
Slide 25: Building on the Group's Long-Term Competitive Advantages
Building on the Group’s Long-Term Competitive Advantages For personal use only Maximising Investing in Leading Growing Qantas Aligning Qantas Customer, Breakout Focus on Domestic International & Jetstar with Brand, Growth at People, Culture Position through Efficiently with Asia’s Growth Technology
Slide 26: Maximising Leading Dual Brand Domestic Position
Maximising Leading Dual Brand Domestic Position For personal use only • Dual brand coordination to continue delivering profit share above Qantas and Jetstar Operating capacity share Margin Advantage vs Competitor4 – Group domestic underlying EBIT1 of $556m in 1H16, increase of >90%2 – EBIT share ~80
Slide 27: Responding to Domestic Economy in Transition
Responding to Domestic Economy in Transition For personal use only • Group portfolio and fleet mix provide flexibility to respond to resources downturn, shift assets to growth markets Lower gauge • Capacity share on resource routes ~70%1 Aircraft aircraft into – Western Australia and Intra-Queenslan
Slide 28: Growing Qantas International Efficiently With Partnerships
Growing Qantas International Efficiently With Partnerships For personal use only 3 CORNERSTONE ALLIANCES CEMENTING QANTAS’ LONG-TERM POSITION IN US, EUROPE & CHINA • Qantas International & Qantas Domestic ROIC both benefiting from airline partnerships – Deepened alliances with China Eastern from Nov
Slide 29: Aligning Qantas with Asia's growth
Aligning Qantas with Asia’s growth For personal use only • Increased focus on Asia driving sustainable improvement in Qantas International earnings – Owning the high-yield customer base in Australia Beijing Seoul – Tokyo Flying direct to key gateway cities Shanghai – Intra-region connectivity with c
Slide 30: Aligning Jetstar with Asia's growth
Aligning Jetstar with Asia’s growth For personal use only • Leading LCC Australia-outbound to Asia and Japan/China-inbound Asia Passenger Growth – ~80% of B787 long haul capacity deployed between Australia and Asia – Dynamic network management to capture low fares demand in Asia +36%1 – Innovative p
Slide 31: Investing in Drivers of Revenue Growth
Investing in Drivers of Revenue Growth Customer, Brand, Technology & Digital For personal use only • Targeted investment in customer experience – New flagship 230 passenger lounge coming for London Heathrow – A330 and B737 cabin reconfigurations complete in FY17 – Rebuild of Qantas and Jetstar websi
Slide 32: Leveraging digital & data opportunities for break-out Loyalty growth
Investing in Drivers of Revenue Growth Leveraging digital & data opportunities for break-out Loyalty growth Leveraging digital & data opportunities for break-out Loyalty growth For personal use only Taylor Fry UNMATCHED ASSETS AND FIRST STAGE OF ADJACENT AND PORTFOLIO OF GROWTH PLAYS CAPABILITIES BR
Slide 33: People, Culture & Leadership
People, Culture & Leadership For personal use only • Group-wide commitment to driving workplace change and improved culture – Pilot recruitment to support the entry of B787-9, creating promotion opportunities – Enhanced people safety program commenced August 2015 – Leadership development program for
Slide 34: Embedding Sustainability Across Qantas Group
Embedding Sustainability Across Qantas Group For personal use only Environment • CDP1 ‘Climate Leadership Award’ to Australian company with the highest carbon disclosure score and highest quality overall disclosure • Carbon offset partnerships with Ernst and Young, Allens, Cricket Australia • 19% in
Slide 35: Outlook
For personal use only Outlook
Slide 36: Outlook – Domestic Market
Outlook – Domestic Market For personal use only • 2H16 domestic market capacity growth of ~2%1 • Qantas Group domestic 2H16 capacity growth expected to be ~2%, maintaining flexibility2 – Further contraction of Qantas Domestic seats in resources markets, growth on East Coast – Jetstar Domestic growth
Slide 37: Outlook – International Market
Outlook – International Market For personal use only • Growth in inbound visitor arrivals with lower AUD, +8.2% in 20151 – Chinese visitor arrivals +22%1, US arrivals +10%1 • 2H16 market capacity growth increasing in line with demand – 2H16 competitor growth of +9%, FY16 +5-6%2 – ~50% growth from Ch
Slide 38: Group Outlook
Group Outlook For personal use only • Current Group operating expectations: – FY16 Qantas Group capacity expected to increase by 5% from increased utilisation of existing fleet – FY16 Underlying fuel costs expected to be no more than $3.4b1, $3.3b2 at current forward AUD prices – FY16 depreciation a
Slide 39: Questions?
For personal use only Questions?
Slide 40: Disclaimer & ASIC Guidance
Disclaimer & ASIC Guidance For personal use only This Presentation has been prepared by Qantas Airways Limited (ABN 16 009 661 901) (Qantas). Summary information This Presentation contains summary information about Qantas and its subsidiaries (Qantas Group) and their activities current as at 23 Febr