Qantas Airways Limited · ASX:QAN
Qantas Airways — H1 2005/06 Earnings Presentation
45 slides from Qantas Airways's earnings presentation, Feb 16, 2006
Slide 1: 2005/06 Half Year Results
2005/06 Half Year Results Presentation to Investors 16 February 2006 hoanras
Slide 2: Group Highlights
Group Highlights Increase/ 6 months to 6monthsto (Decrease) Dec 2005 Dec 2004 % Sales and operating revenue $m 6,846.8 6,308.1 8.5 Expenditure $m (6,335.8) (5,716.7) 10.8 EBIT $m 511.0 591.4 (13.6) Net borrowing costs $m (27.5) (90.8) (69.7) Profit before tax $m 483.5 500.6 (3.4) Net profit after ta
Slide 3: Group Strategy
Group Strategy e To return the Qantas Group to a position where it generates a positive spread to its cost of capital by — Developing our flying portfolio to provide the most competitive business models in all major markets and segments — Extending reforms to achieve permanent unit cost reductions a
Slide 4: Qantas
Qantas « Creditable performance — Despite cost and competitive pressures e Managing capacity to match demand — Driving revenue, efficiency improvements e New services to strengthen international network — Channelling growth towards profitable, growing and developing markets b oawras -o
Slide 5: Qantas
Qantas e Consolidating position on premium domestic routes — Maintaining yield premium and improving efficiency — Group domestic share above 65% e Further reductions in cost of sale e Improving corporate dealing model e Investment in customer service — A380, end-to-end customer experience b oawras
Slide 6: QantasLink
QantasLink e Strong turboprop performance — Queensland, Canberra « B717s replacing BAe146s e Bombardier Q400s will drive growth — Meet Queensland demand — Cascade to other markets b oawras
Slide 7: Australian Airlines
Australian Airlines e Loss driven by difficult trading conditions — Japan, Sabah, Bali e Airline has delivered on original mandate — But market dynamics have changed e Reviewing best fit within Group flying portfolio b oawras -° 2a
Slide 8: Jetstar
Jetstar e Strong contribution in high growth phase — 46% increase in capacity in December half e Maintaining competitive cost position e ‘Free sale’ codeshare yielding positive results e Improving Group position in high growth leisure markets b oawras
Slide 9: Jetstar
Jetstar e Preparations advanced for long haul international launch — Strengthen footprint, initially in Asia Pacific — Then longer haul markets in Europe and the US e Initial fleet of four A330-200s, moving to six e Significant cost advantage over competitors b oawras
Slide 10: Jetstar Asia
Jetstar Asia e Challenging first 12 months e« Consolidation has improved outlook e Integration within Jetstar Group e Strong platform to build network in the region — New joint ventures b oawras
Slide 11: Fleet
Fleet e Aircraft added to service during first half — 2B737-800s — 2A330-300s — 8A320s e Aircraft to be added during second half — 4B737-800s — 1A330-300 — 6A320s — 5 Bombardier Q400s b oawras
Slide 12: Fleet
Fleet e A380 deliveries to commence April 2007 e Committed to minimum 65, up to 115 B787s — Engine Request For Proposal to be issued shortly e Evaluating options for B747-400 replacements — Locked in pricing on A380, B787 options/rights , — Monitoring ultra-long range developments — Next generation
Slide 13: Sustainable Future Program
Sustainable Future Program Benefit Benefit Benefit Target for 3 Year Achieved in Achieved in Achieved in 2005/06 Cumulative $ million 2003/04____ 2004/05 __ Dec half 05 Total Labour productivity 156 150 73 138 444 Fleet simplification, product initiatives and_overheads 211 279 92 282 772 Distributio
Slide 14: Sustainable Future
Sustainable Future e On track to meet targets: — Original $1.5 billion over three years to June 2006 — Extended $3 billion over five years to June 2008 — $1 billion of remaining target identified e Realigning cost base to meet new conditions — Meet investment commitments — Achieve profit projections
Slide 15: Qantas Engineering
Qantas Engineering e Close to making decision e Either extensive restructuring in Australia or outsource large parts offshore e Targeting 15-20% cost and efficiency improvement b oawras
Slide 16: Government
Government e Awaiting outcome of review of aviation industry policy e Seeking balanced, considered approach to future liberalisation — That reflects uneven playing field e Clarity on policy settings so we can take strategic decisions b oawras
Slide 17: Business Reorganisation
Business Reorganisation e Streamlining organisational and executive structure Smaller top team with broader responsibilities Aligned to business focus Greater segment freedom to pursue independent strategies Increased accountability e Promote strategic coordination and collaboration — Network value
Slide 18: Freight Operations
Freight Operations e Solid performance from StarTrack Express e AaE impacted by higher maintenance costs e Qantas to establish freighter operation — Wet-lease B737-300s to AaE e Excellent assets with strong market positions — Evaluating options to develop portfolio b oawras
Slide 19: Qantas Holidays
Qantas Holidays e Profitability impacted by difficult trading conditions — Unbundcling, migration to on-line — Competitive pressures — Stronger $A e Successful launch of ReadyRooms 365 e Reviewing options to reposition towards higher growth segments b oawras
Slide 20: Catering
Catering e Improved contribution driven by efficiency programs e Strategic Review well advanced — Indiscussions to sell all or part of business — Alternatively, will restructure extensively b oawras
Slide 21: Capital Management
Capital Management e Major focus in driving shareholder value e Increased dividend to 11 cents, fully franked — Reflects confidence in ability to drive improved profitability and fund future growth and investment e Net cash up $300 million to $2.2 billion at Dec 2005 — Operating cashflows reflect re
Slide 22: Outlook
Outlook e While further reforms in the business are underway, and coupled with the high fuel price, we do not expect to achieve the same level of profitability in the current financial year that we did in 2004/05 b oawras
Slide 23: 2005/06 Interim Results Supplementary Information
2005/06 Interim Results Supplementary Information hoanTas
Slide 24: Highlights
Highlights Sixmonths to Six months to Increase/ December December (decrease) 2005 2004 * % Sales and Operating Revenue $m 6,846.8 6,308.1 8.5 Expenditure $m (6,335.8) (5,716.7) 10.8 EBIT $m 511.0 591.4 (13.6) Net borrowing costs $m (27.5) (90.8) (69.7) Profit before tax $m 483.5 500.6 (3.4) Net Prof
Slide 25: Revenue
Revenue $bn 8.0 7.0 6.0 5.0 4.0 3.0 5 2.0 4 0.0 Dec 2004 toanwTas $6.8bn Dec 2005 Net passenger revenue up 10.1% Net freight revenue up 27.0% Tours and travel revenue down 3.1% Contract work revenue up 3.7% Revenue from other sources down 7.7% Note: All revenue movements include the impact of foreig
Slide 26: Revenue
Revenue e Sales and operating revenue up 8.5% (up 10.0% excluding exchange) — Net passenger revenue up 10.1% (up 11.7% excluding exchange) — Group RPKs up 4.3% — Group yield up 7.1% (excluding exchange) — Net freight revenue up 27.0% (31.1% excluding exchange) — Additional wet-lease freighter revenu
Slide 27: Revenue
Revenue — Tours and travel revenue down 3.1% (down 3.2% excluding exchange) — Decline in passenger numbers due to Bali bombings in October 2005 — Contract work revenue up 3.7% (up 3.7% excluding exchange) — Increase in work performed by Qantas Defence Services — Revenue from other sources down 7.7%
Slide 28: Expenditure
Expenditure $bn 8.0 7 6.0 40 5 20 4 0.0 - Dec 2004 toanwTas $6.3bn Dec 2005 Note: All expenditure movements include the impact of foreign exchange [= Manpower and staff related costs up 3.2% | Selling and marketing down 16.6% Fuel and oil up 58.0% | Aircraft operating variable costs up 7.8% Computer
Slide 29: Expenditure
Expenditure « Expenditure excluding net borrowing costs up 10.8% (up 13.0% excluding exchange) — Manpower and staff related costs up 3.2% (up 3.4% excluding exchange) Includes redundancy costs under the Sustainable Future Program (SFP) Group ASKs up 2.9% Increase in wages of 3% under current EBAs Pa
Slide 30: Expenditure
Expenditure — Aircraft operating variable costs up 7.8% (up 9.3% excluding exchange) — Higher airport fees and en-route charges associated with an increase in domestic departures — Increased engine maintenance including the establishment of Sydney Centre of Excellence — Fuel and oil costs up 58.0% (
Slide 31: Expenditure
Expenditure — Depreciation and amortisation costs down 3.0% (down 3.0% excluding exchange) toanwTas New aircraft between July and December 2004 (4 x A330-300, 3 x B737- 800) New aircraft between July and December 2005 (2 x A330-300) Aircraft retired since June 2004 (2 x B767-200, 4 x B737-300) Compa
Slide 32: Expenditure
Expenditure — Tours and travel cost of sales down 1.4% (down 1.7% excluding exchange) — Compares with a 3.2% decrease (3.2% decrease excluding exchange) in tours and travel sales — Selling and marketing costs down 16.6% (down 14.8% excluding exchange) — Lower advertising due to cost of “I Still Call
Slide 33: Expenditure
Expenditure — Capacity hire costs up 21.6% (up 24.8% excluding exchange) — Increased B747 freighter aircraft wet-lease costs — Partially offset by reduced Qantas mainline leased in capacity and return of four AWAS B737-300 aircraft between September 2004 and March 2005 — Non-cancellable operating le
Slide 34: Expenditure
Expenditure — Property costs up 6.2% (up 6.5% excluding exchange) — Increased rents at domestic airport terminals — Increased general property contract maintenance including baggage and conveyor belt maintenance. — Computer and communications down 10.1% (down 9.0% excluding exchange) — Lower project
Slide 35: Expenditure
Expenditure — Other costs down 13.7% (up 6.3% excluding exchange) Largely gains from derivative instruments under A-IFRS Lower insurance premiums from successful renegotiations — Net borrowing costs up 69.7% (up 67.5% excluding exchange) Due to higher cash balance and lower debt Interest rate gains
Slide 36: Expenditure
Expenditure — Net expenditure per ASK excluding fuel and SFP costs improved by 5.7% (improved by 3.9% excluding exchange) — Net impact of foreign exchange movements on statement of financial performance — Favourable variance of $36.3 million when compared to the comparative half-year 14 ‘gions a toa
Slide 37: Qantas Mainline
Qantas Mainline 500. $467.9m ¢ EBIT of $404.4m, or 79.1% of cc Group EBIT e RPKs up 2.0% e ASKs up 0.1% « Seat factor up 1.4% pts to 78.4% e Yield excluding exchange increased by 8.0% a 15 Dec 2004 Dec 2005 ~ toanwTas
Slide 38: Jetstar
Jetstar Sm EBIT Dec 2004 Dec 2005 toanwTas EBIT of $27.7m, or 5.4% of Group EBIT RPKs up 51.8% ASKs up 46.0% Seat factor up 2.9% pts to 75.7% Yield excluding exchange decreased by 5.6% i. 16 iy
Slide 39: QantasLink
QantasLink $29.2m Dec 2004 toanwTas EBIT $35.8m Dec 2005 EBIT of $35.8m, or 7.0% of Group EBIT RPKs up 5.2% ASKs up 10.4% Seat factor down 4.7% pts to 69.7% Yield excluding exchange increased by 7.7% . 17 ‘gions
Slide 40: Australian Airlines
Australian Airlines 10 4 $8.5m Dec 2004 toanwTas EBIT $(6.9)m Dec 2005 EBIT loss of $6.9m RPKs down 7.2% ASKs down 1.9% Seat factor down 3.9% pts to 68.1%. Yield excluding exchange increased by 5.8% 80 18 pe
Slide 41: Yields
Yields - Total Domestic yield* (Qantas, QantasLink and Jetstar domestic operations) excluding exchange for the financial year to December 2005 increased by 5.5 per cent when compared with the same period last year - Total International yield* (Qantas, Australian Airlines and Jetstar Trans-Tasman ope
Slide 42: Other Subsidiary Businesses
Other Subsidiary Businesses EBIT December December Increase/ 2005 2004” (decrease) $m $m $m Qantas Flight Catering 16.1 12.0 41 Qantas Holidays 18.4 27.1 (8.7) Qantas Defence Services 41 4.0 0.1 Share of net profits of Associates and JVs 6.8 11.6 (4.8) Other Subs & Eliminations 46 12.1 (7.5) Total P
Slide 43: Equity Accounted Investments
Equity Accounted Investments Contribution to Net Profit December December Increase/ 2005 2004* (decrease) Australian Air Express 5.6 11.0 (5.4) Star Track Express 9.7 8.3 1.4 Air Pacific 2.4 2.8 (0.4) Jetstar Asia / Orangestar (12.2) (9.7) (2.5) Jet Turbine Services (2.3) (1.9) (0.4) Thai Air Cargo
Slide 44: Balance Sheet and Cashflow
Balance Sheet and Cashflow December December Increase/ 2005 2004 (decrease) % Capital Expenditure $m 820.0 1,199.0 (31.6) Operating cashflow $m 985.5 1,090.9 (9.7) Net Debt $m 2,457.7 3,655.1 (32.8) Total Equity $m 6,070.9 5,529.8 9.8 Leverage* % 43:57 47:53 (4)pts * Includes off balance sheet debt
Slide 45: Group Operational Aircraft Fleet
Group Operational Aircraft Fleet toanwTas Aircraft Type 30/06/2005 | 1HO06 In |1H06 (Out)| Transfers | 31/12/2005 Qantas B747-300 6 6 B747-400 24 24 B747-400ER 6 6 B767-300ER 17 17 B767-336ER 7 7 B737-300 2 (2) - B737-300JC 9 9 B737-400 241 21 B737-800NG 27 2 29 A330-200 4 4 A330-300 7 2 9 TOTAL MAI