Qantas Airways Limited · ASX:QAN
Qantas Airways — H1 2008 Earnings Presentation
38 slides from Qantas Airways's earnings presentation, Feb 21, 2008
Slide 1: 2007/08 Half Year Results Investor Briefing
For personal use only 2007/08 Half Year Results Investor Briefing Highlights of First Half 2008 Result • Profit before tax doubled to $905 million • Earnings per share up 102% to 31.6 cents • Group returns well above cost of capital • Interim dividend 3 cents higher at 18 cents • Net cash of $2.9 bi
Slide 2: Key Drivers; Segment Profit Before Tax
Key Drivers • Net passenger revenue up 8.4% to $6.5 billion For personal use only • Improved yields and load factors • Costs contained • $311 million of Sustainable Future Program benefits • 3.3% improvement in non-fuel unit costs, excluding one-off items 3 Segment Profit Before Tax Half-Year Half-Y
Slide 3: Strategic Priorities
Strategic Priorities (I) For personal use only • Capital Management • Further enhancing Two Brand Strategy • Expanding the Jetstar Footprint • Further leveraging the Frequent Flyer Program 5 Strategic Priorities (II) • Developing an integrated freight business • Introducing the A380 and B787 aircraf
Slide 4: Capital Management; Qantas Brands
Capital Management • Buyback 44% complete as at 1 February 2008 For personal use only • 86.1 million shares purchased for $486.5 million • Dividend growth and attractive payout ratio • First half payout ratio of 57% • Business unit separation could create further opportunities 7 Qantas Brands • Prof
Slide 5: Qantas Domestic and International Network
Qantas – Domestic Network • All but one route profitable For personal use only • Forward bookings remain strong • Market capacity to grow significantly • Product and service enhancements supporting yield • Narrowing cost gap to competition 9 Qantas – International Network • Major improvement - major
Slide 6: Qantas Regional Network; Jetstar Brands
Qantas – Regional Network • Profitable capacity growth For personal use only • Benefiting from strong resources cycle • Queensland Air Services Contracts renewed • Significant new fleet investment • Addressing pilot supply issues 11 Jetstar Brands • Profit quadrupled • Pan Asian brand • Cost leaders
Slide 7: Jetstar Short Haul and International Long Haul
Jetstar - Short Haul • Aggressive response to new competition For personal use only • Continued strong cost focus • Further enhancement of product and ancillary offerings • Fleet expansion and A321 introduction • Short haul international growth 13 Jetstar – International Long Haul • Profitable and p
Slide 8: Jetstar Asian Investments; Market Access
Jetstar - Asian Investments For personal use only • Jetstar Asia performance improving • Pacific Airlines an attractive franchise opportunity • Operations are being standardised in line with Jetstar • Growth plans linked to A320 operations and low cost Vietnam base 15 Market Access • Market liberali
Slide 9: Group Fleet Plan; Unlocking Value Of Portfolio Businesses
Group Fleet Plan Provides Improved Efficiency And Flexibility For personal use only • Excellent order book for next generation aircraft • A380 arriving August, B787 from 2009 • Aircraft will drive efficient growth • Considerable flexibility to adjust capacity growth 17 Unlocking Value Of Portfolio B
Slide 10: Internal Progress; Qantas Holidays and QBT
Internal Progress • Loyalty and Freight now separate incorporated entities For personal use only • Transfer pricing agreed • IFRIC 13 implemented • Agreed labour hire arrangements and brand licensing principles • Developed interim reporting systems and control processes 19 Qantas Holidays and QBT •
Slide 11: Transaction Structure; Qantas Frequent Flyer
Transaction Structure Pre transaction Qantas Major shareholder Public 100% 60% 40% For personal use only offer Holidays Holiday & QBT Jetset Post transaction Qantas Major shareholder Public 58% 25% 17% Jetset 100% Holiday 21 Qantas Frequent Flyer • More than 5 million members • More than 220 partner
Slide 12: A Discrete, Transparent Business
A Discrete, Transparent Business • Distinct cashflows and risk profile For personal use only • High and stable growth profile • Revenue of $399 million • 60% of revenue generated outside of core airline business • PBT of $61.9 million 23 Qantas Frequent Flyer • Complementary to, not reliant on the a
Slide 13: Qantas Freight Enterprises
Qantas Freight Enterprises • Profit before tax of $53.3m, down $2.3m For personal use only • Cargo profit before tax of $40m, up $2.4m • Express Freight profit before tax of $14.7m, down $3.6m • Star Track Express addressing fleet and servicing cost pressures • Australian Air Express one-off costs t
Slide 14: Fleet Ownership; Sustainable Future Program
Fleet Ownership • Market reevaluating infrastructure funds For personal use only • Will only pursue transaction if it generates substantial shareholder value • Strong fleet order book and flexibility • Will establish standalone fleet leasing vehicle within Group • Will be well positioned to particip
Slide 15: Program Will Be Extended; People
Program Will Be Extended For personal use only • Ongoing challenges require additional savings • Another $1.5 billion over next two years • Focus on margin leadership, efficient growth, business transformation 29 People • Industrial agreements renewed with 40% of workforce • AIPA Short Haul Pilots •
Slide 16: Other Emerging Businesses; Outlook
Other Emerging Businesses • Malaysia Airlines’ MAS Aerospace Engineering joint venture For personal use only • Part of Asia Pacific growth strategy • Create world class, cost competitive MRO • Target Asia Pacific MRO opportunities - $US15 billion market by 2016 • Qantas Group Flight Training • Inves
Slide 17: Supplementary Information: Group Highlights
For personal use only 2007/08 Half-Year Results Supplementary Information Group Highlights Half-Year Half-Year Variance Variance Ended Ended Fav/(Unfav) Fav/(Unfav) 31 Dec 07 31 Dec 06 % Revenue $m 8,126 7,635 491 6.4 Operating Expenditure $m 7,276 7,063 213 3.0 EBIT $m 883 472 411 87.2 Profit befor
Slide 18: Revenue
Revenue $bn Net passenger revenue 10.0 6.4% $8.13 up 8.4% For personal use only $7.63 Net freight revenue 8.0 down 0.8% 6.0 Tours and travel revenue up 0.2% 4.0 Contract work revenue up 5.2% 2.0 Revenue from other sources down 3.9% 0.0 Dec 07 Dec 08 6.3% RPKs (m) 49,160 52,261 Note: All revenue move
Slide 19: Revenue; Expenditure
Revenue – Net freight revenue down 0.8% For personal use only – Impacted by unfavourable currency exchange movements – Tours and travel revenue in line with prior half year – Other income down 3.9% – $98 million in liquidated damages received in the comparative half year – Offset by activity related
Slide 20: Expenditure
Expenditure − Operating expenditure up 3.0% For personal use only − Manpower and staff related costs up 1.9% – Includes restructuring costs of $16 million under the Sustainable Future Program (SFP) – Increase in wages of 3% under EBAs – Partially offset by SFP Benefits – Group ASKs up 3.9% – Variabl
Slide 21: Expenditure
Expenditure – Property costs up 3.7% – Price increases and additional charges attributable to Hangar 96 in For personal use only Sydney (due to A380 modifications) – Extensive upgrade and expansion of domestic and international Qantas lounges, particularly premium lounges – Computer and communicatio
Slide 22: Expenditure; Group Unit Cost and SFP Performance
Expenditure – Depreciation and amortisation costs up 8.3% For personal use only – Accelerated depreciation of $50 million against finance leased B747-400 aircraft – Net finance costs down by 200.0% – Higher interest received and additional capitalised interest on aircraft progress payments – Net FX
Slide 23: Yield; Segment Profit Before Tax
Yield – Total yield (Qantas, QantasLink and Jetstar) excluding exchange for the current period increased by 4.3% when compared with the same period last For personal use only year – Total domestic yield (Qantas, QantasLink and Jetstar) excluding exchange for the current period increased by 1.8% when
Slide 24: Qantas Flying Operations; Jetstar Brands
Qantas Flying Operations PBT $ million • Includes Network costs and Qantaslink and excludes Freight, Loyalty and Corporate segments For personal use only 1,000 830 • PBT up $428m or 106.3% to $830m 800 • Passenger Revenue up $250m or 4.8% 600 • RPKs up 0.3% 402 400 • ASKs down 2.6% • Seat factor up
Slide 25: Freight Enterprises; Loyalty
Freight Enterprises – Qantas Freight Enterprises incorporated 11 December 2007 For personal use only – QFE reported PBT of $53 million for half-year end 31 December 2007, includes share of net profit of associates and jointly controlled entities – New QFE corporate head office established to support
Slide 26: Corporate Cost Centre; Holidays/Catering
Corporate Cost Centre – Corporate Centre includes the central costs essential for maintaining For personal use only governance, minimising risk and optimising performance of the Qantas Group portfolio businesses – 1H08 includes Freight Cartel provision of $64 million (1H07: Nil) – Includes SFP and c
Slide 27: Equity Accounted Investments; Balance Sheet and Cash Flow
Equity Accounted Investments Contribution to Net Profit Half-Year Half-Year Ended Ended Variance 31 Dec 07 31 Dec 06 For personal use only $m $m $m Australian Air Express 6.7 8.7 (2.0) Star Track Express 6.8 9.6 (2.8) Air Pacific 4.5 0.1 4.4 Jetstar Asia / Orangestar - (4.4) 4.4 Jet Turbine Services
Slide 28: Aircraft In Service; Share Buy-Back Status
Aircraft In Service Aircraft Type 30/06/2007 In (Out) 31/12/2007 Qantas B747-300 4 4 B747-400 24 24 For personal use only B747-400ER 6 6 B767-300ER 29 29 B737-300 6 (1) 5 B737-400 21 21 B737-800NG 33 33 A330-300 10 10 Total Mainline Fleet 133 - (1) 132 Jetstar A320-200 24 2 26 A330-200 4 3 7 QantasL
Slide 29: How a Loyalty Program Works
For personal use only Supplementary Information – Loyalty How a Loyalty Program Works Earning Loyalty Points: • Member interacts with program partner (eg. Airline, Credit Card or Retailer) • Program partner rewards loyalty by purchasing points from loyalty program • Member earns points Redeeming Loy
Slide 30: Simplified Economic Model of Frequent Flyer program
Simplified Economic Model of Frequent Flyer program Point Point Time: Life of a QFF point Earned typically 2.2 years Redeemed by Member by Member For personal use only • Points Earned • Points Redeemed from Point Activity • Points Pool Grows • Points Added to Points Pool Points Pool • Positive Worki
Slide 31: Member Driven Growth; Partner Driven Growth
Member Driven Growth • More ways to redeem points for rewards – access to more air rewards For personal use only – access to merchandise and voucher rewards • More opportunities to earn points – grow the coalition of partners – ability to earn double/triple points – greater share of consumer spend c
Slide 32: Exclusive Loyalty Program for Qantas Group
Exclusive Loyalty Program for Qantas Group For personal use only • Mutual exclusivity with Qantas and Jetstar • Sharing of member database • Brand licensing arrangements • Commercial arrangements for purchase of airline inventory and Frequent Flyer points Value Creation for Qantas Success of loyalty
Slide 33: Loyalty – Financial Performance
Loyalty – Financial Performance Segment Result A$M • Includes Points Related Revenue of $391m 1H07 (2) 1H08 as well as fees and ancillary revenue For personal use only Income Statement – breakage rate estimated below 10% Total Segment Revenue 388 399 (recognised in revenue on redemption) EBITDA/EBIT
Slide 34: Explanation of Terms in Loyalty
Explanation of Terms in Loyalty Segment Result • Gross Billings: Proceeds from the sale of Frequent Flyer points. • Points Related Revenue: Gross Billings are deferred and recognised together with redemption costs, when points are redeemed. Points related revenue includes a component of breakage, re
Slide 35: Qantas Freight Enterprises (QFE)
Qantas Freight Enterprises (QFE) • International air cargo handling Cargo Terminals • Based in SYD, MEL, PER, BNE, LAX For personal use only • Qantas International and Jetstar International belly space 1 Cargo Cargo Linehaul • 3 wet leased B747-400 freighter aircraft servicing major international tr
Slide 36: Cargo - QF and JQ belly space
Cargo - QF and JQ belly space Contractual arrangements QFE Cargo has rights to utilise the belly space of all QF and JQ international and domestic services For personal use only – International • QF belly space - exclusive 10 year term with 2 x 5 year options – Revenue is shared to ensure QFE maximi
Slide 37: Star Track Express
Star Track Express Star Track Express is a leading Australian road-based time definite express provider jointly owned by Qantas and Australia Post “The World’s Smartest Delivery System” • Star Track Express specialises in business-to-business express freight solutions, serving over 12,000 customers
Slide 38: Proportionately consolidated HY2008 summary
Proportionately consolidated HY2008 summary Equity Proportional accounting consolidation method method Explanation of proportionate (Proforma) consolidation adjustments For personal use only Dec-06 Dec-07 % Dec-06 Dec-07 % change change Revenue 576.4 587.4 2% 848.0 870.6 3% Subtract share of after t