Qantas Airways Limited · ASX:QAN
Qantas Airways — Investor Day (May 2015)
152 slides from Qantas Airways's investor day presentation, May 12, 2015
Slide 1: Qantas Investor Day
Qantas Investor Day 12 May 2015
Slide 2: Morning Session
Morning Session A Strong Platform for Sustainable Growth Alan Joyce - Group Chief Executive Officer The Financial Framework for a Stronger Qantas Group Tino La Spina - Group Chief Financial Officer Brand as a Competitive Advantage Olivia Wirth - Group Executive Brand, Marketing & Corporate Affairs Q
Slide 3: Session 2
Session 2 Leveraging Customer Insights, the Next Wave of Transformation Rob Marcolina - Group Executive Strategy, Transformation & IT Continuing to Win in a Shifting Domestic Market Andrew David - Chief Executive Officer Qantas Domestic John Gissing - Group Executive Associated Airlines & Services M
Slide 4: Afternoon Session
Afternoon Session NPS in Action - Live Panel Olivia Wirth - Group Executive Brand, Marketing & Corporate Affairs A Platform for Innovation-Led Growth Lesley Grant - Chief Executive Officer Qantas Loyalty Transforming Freight to Optimise Group Outcomes Alison Webster - Executive Manager Freight Build
Slide 5: A Strong Platform for Sustainable Growth
A Strong Platform for Sustainable Growth Alan Joyce
Slide 6: The Qantas Group in global context
GROUP OVERVIEW The Qantas Group in global context Global industrial output, trade & business confidence improving • Regional divergence persists • 2015 forecast for strongest global passenger growth since 20101 • Highest passenger growth remains on routes to or within Asia1 Australia domestic demand
Slide 7: The Qantas Group in global context
GROUP OVERVIEW The Qantas Group in global context North America Global Airline Profit1 in 2015 & Middle East 2015 profit $13.2b 20-Year Passenger2 Forecasts 2015 Profit $1.6b Passenger Growth Passenger Growth +3.3% +4.9% Total Passengers in Europe Total Passengers in 2034: 1.4b 2015 Profit $4.0b 203
Slide 8: The Qantas Group in global context
GROUP OVERVIEW The Qantas Group in global context Qantas Group positioned to outperform in international market • Adding dual brand services between Australia and Asia • Increasing intra-Asia presence with Jetstar Group airlines • More Qantas International capacity deployed to strong North America r
Slide 9: Qantas Group strategy
GROUP OVERVIEW Qantas Group strategy Integrated portfolio enables Group resilience through external volatility SAFETY IS ALWAYS OUR FIRST PRIORITY Deliver sustainable returns to shareholders Always First Choice For Customers Build on leading domestic position Establish strong international dual Stre
Slide 10: Creating long-term shareholder value
GROUP OVERVIEW Creating long-term shareholder value Delivering ROIC > WACC1 through the cycle Target: Deliver Return on Invested Capital (ROIC) > 10%2 by: Building on the Group’s long-term competitive advantages − Integrated portfolio with leading market positions − Dual brand strategy − Customer fo
Slide 11: Building on the Group's long-term competitive advantages
GROUP OVERVIEW Building on the Group’s long-term competitive advantages An integrated portfolio with leading market positions ROIC > WACC Qantas Domestic IN FY151 • Leading position, highest margin carrier in attractive domestic market Qantas International • Reshaped cost base and network, sustainab
Slide 12: Building on the Group's long-term competitive advantages
GROUP OVERVIEW Building on the Group’s long-term competitive advantages Dual brand strategy at the core of Group success Dual Brand Guiding Principles (Domestic) 1H15 Domestic Results1 • Hold a superior competitive position • Maximise Group profitability • Leverage distinct role of brands to target
Slide 13: Building on the Group's long-term competitive advantages
GROUP OVERVIEW Building on the Group’s long-term competitive advantages ‘Customer First’ commitment drives brand strength & yield premiums 70% of Australians prefer to fly with Qantas Group brands • Investment in growth, product & innovation for domestic travel1 • Strong and reinforcing portfolio of
Slide 14: Continued delivery of business transformation
GROUP OVERVIEW Continued delivery of business transformation Rapid progress towards our targets $2B BENEFITS REALISED BY FY171 >$1B DEBT REDUCTION BY FY153 • All targets to date met or exceeded • $1b debt reduction on track >$875m realised by FY15 • Credit profile to reach target two years ahead o
Slide 15: Continued delivery of business transformation
GROUP OVERVIEW Continued delivery of business transformation Rapid progress towards our targets Transformation Progress in 18 Months Strategic outcomes by FY17: • Qantas Domestic1 cost gap to close to <5%, revenue Development Development >$500m premium held >15% Development Development $600m $900m $
Slide 16: Disciplined approach to capital and growth
GROUP OVERVIEW Disciplined approach to capital and growth Shareholder returns, investing in the future • The Group will remain disciplined with capital allocation, delivering sustainable returns to shareholders alongside investment in growth, by maintaining its optimal capital structure • Investment
Slide 17: Engaging our people
GROUP OVERVIEW Engaging our people A leadership team with diverse backgrounds and industry expertise Alan Joyce Andrew David Gareth Evans Andrew Finch John Gissing Lesley Grant Group Chief Executive Chief Executive Officer Chief Executive Officer Qantas General Counsel & Group Executive Associated C
Slide 18: Engaging our people
GROUP OVERVIEW Engaging our people Collaborative approach to business transformation Working collaboratively between businesses • Employee engagement maintained at 75%1 • Strong outcome amid accelerated business Front-line leadership, open transformation of past two years communication • Positive in
Slide 19: Engaging our people
GROUP OVERVIEW Engaging our people Supporting sustainable business transformation Stable industrial relations climate • 36 enterprise agreements negotiated since November 2011 • Ensuring workplace agreements do not constrain business or productivity Building a more competitive wages position • 13 ag
Slide 20: Delivering on all strategic priorities for ROIC > WACC through the cycle
GROUP OVERVIEW Delivering on all strategic priorities for ROIC > WACC through the cycle Financial Performance People Customer Sustainable growth in Engaged people Record advocacy earnings driven by Deep management Leveraging insights Transformation talent 20
Slide 21: The Financial Framework for a Stronger Qantas Group
The Financial Framework for a Stronger Qantas Group Tino La Spina
Slide 22: Financial Framework
Financial Framework Noawras Spirit of Australia
Slide 23: Qantas' targets aligned with shareholder objectives
FINANCE Qantas’ targets aligned with shareholder objectives Maintain total shareholder returns in top quartile of ASX100 & global airlines 1. Maintaining an Optimal 2. ROIC > WACC 3. Disciplined Allocation Capital Structure Through the Cycle of Capital Mix of debt and equity that ROIC EBIT2 divided
Slide 24: Maintaining an optimal capital structure
FINANCE Maintaining an optimal capital structure Maximising shareholder value by minimising cost of capital Optimal Capital Structure Financial Leverage and WACC • Mix of debt and equity that minimises WACC • Consistent with credit metrics between BBB- and BBB WACC (pre-tax) • With $1b debt reductio
Slide 25: Return on invested capital
FINANCE Return on invested capital Targeting returns above cost of capital through the cycle MOVING TO ROIC AS THE GROUP’S PRIMARY FINANCIAL RETURN MEASURE FROM FY15 ROIC is the primary financial return measure, used in conjunction Statutory Measure ROIC Measure with strategic measures as part of a
Slide 26: Disciplined allocation of capital
FINANCE Disciplined allocation of capital Capital allocation framework maximises shareholder value Capital Allocation Priorities Maintaining optimal capital structure determines: BB BBB- BBB BBB+ • Capital allocation Metrics Metrics Metrics Metrics − Strengthen balance sheet Capital Greater returns
Slide 27: Disciplined allocation of capital
FINANCE Disciplined allocation of capital Capital Allocation Framework in Practice MAINTAINING OPTIMAL CAPITAL STRUCTURE PROVIDES FOR SHAREHOLDER RETURNS & REINVESTMENT Strengthen Balance Sheet Returns To Shareholders Reinvestment • Required if capital structure • Base plans when in optimal • High h
Slide 28: Financial Outlook
Financial Outlook Noawras Spirit of Australia
Slide 29: A highly cash generative business
FINANCE Finance outlook A highly cash generative business Sustainable Free Cash Flow1 Generation Average Fleet Age2 $M 3,500 14 Sustainable returns to Operating cash flows depressed post- Accelerated business More resilient Group, 3,000 shareholders in stable GFC at same time as major re-fleeting tr
Slide 30: Momentum of earnings being driven by controllable levers
FINANCE Finance outlook Momentum of earnings being driven by controllable levers • Maintainable earnings growth led by delivery of $2b Qantas Transformation program • Group well positioned to capitalise on return to more favourable operating environment CONTROLLABLE LEVERS DRIVING MOMENTUM EXTERNAL
Slide 31: Preserving diverse debt book
FINANCE Finance outlook Preserving diverse debt book Retained access to diverse funding sources while achieving Diverse Debt Book Structure at end of FY151 significant debt reduction Unsecured Bank Markets Funding sources Operating Leases2 • Capital markets Certainty over Unsecured • Secured & uns
Slide 32: Minimal refinancing risk
FINANCE Finance outlook Minimal refinancing risk Debt Maturity Profile as at 30 June 20151 ($m) Weighted Avg Debt Maturity Prepayments ~5yrs • Across funding markets 400 300 281 2502 250 Refinancing • Extending tenor 432 433 445 460 490 428 425 414 399 111 Scheduled Repayments • Debt retirement FY16
Slide 33: Robust liquidity
FINANCE Finance outlook Robust liquidity Composition of Unencumbered Fleet1 Significant pool of unencumbered aircraft • Additional source of liquidity ~40% of total group fleet is unencumbered (up from ~30% since FY12) • Allows active portfolio optimisation Turbo Prop 24% Managing liquidity more eff
Slide 34: Fuel hedging update
FINANCE Finance outlook Fuel hedging update Hedging & Fuel Cost Outlook1 ($b) Inclusive of Option Premium • Protect against unfavourable movements in Fuel and $4.50b FX, while not locking in a competitive disadvantage • Rolling two-year horizon considered the optimal term for these financial risk ma
Slide 35: Capital allocation considerations beyond FY15
FINANCE Finance outlook Capital allocation considerations beyond FY15 • Expecting return to optimum capital structure by 30 June 2015 • Sustainably Free Cash Flow positive • Well placed for Board to consider shareholder returns • Extent and timing of shareholder returns dependent on prevailing opera
Slide 36: Brand as a Competitive Advantage
Brand as a Competitive Advantage Olivia Wirth
Slide 37: Group multi-brand structure
BRAND AND CUSTOMER Group multi-brand structure Targeted to diverse customer segments and marketplace Australia & New Zealand Singapore Vietnam Japan Hong Kong1 Premium business and Price sensitive segment 10.7 million Members leisure travel segment 37 1. Jetstar Hong Kong operations subject to regul
Slide 38: Placing the customer at the centre of our thinking
BRAND AND CUSTOMER Placing the customer at the centre of our thinking Investing and focusing on our customers ICONIC BRAND RETAIL DIGITAL LOYALTY CHANNELS DATA EXPERIENCE UTILISATION SPONSORHIP PRODUCT 38
Slide 39: Net Promoter Score global benchmarking
BRAND AND CUSTOMER Net Promoter Score global benchmarking Methodology What is NPS? Record results for Operational NPSfor Customer Satisfaction Record results • NPS or Net Promoter Score is a global DETRACTORS PASSIVES PROMOTERS brand benchmarking model of customer advocacy • It is embedded into the
Slide 40: Voice of the customer
BRAND AND CUSTOMER Voice of the customer Utilisation of NPS benchmarking and methodology Strategic QUARTERLY • Understand market view and relative market share • Competitive benchmarking • Drivers of strategic NPS • Share of Wallet MONTHLY PURPOSE: For investment and strategic Touchpoint Airport, Lo
Slide 41: Investment has led to market recognition and customer advocacy
BRAND AND CUSTOMER Investment has led to market recognition and customer advocacy ‘Qantas did, not just said’ Investment in product and people • Extend leadership position with award- winning lounges • Enhance Qantas on-board product through A330 and B737 refurbishments and improved inflight enterta
Slide 42: New brand campaign
BRAND AND CUSTOMER New brand campaign Reconnecting with Australians Successfully rebuilding an emotional connection • New ‘Feels like Home’ brand campaign launched in November 2014 • Customer insights led proposition to re-connect emotionally with Australians • 2 minute TVC1 has had over 1.5m views
Slide 43: New brand campaign: Welcome home
BRAND AND CUSTOMER New brand campaign: Welcome home 43
Slide 44: Jetstar brand consistency
BRAND AND CUSTOMER Jetstar brand consistency Maintaining our leadership LCC position 140 million passengers in a decade • An Australian brand leading the way across Asia-Pacific • The market leader on price competitiveness • Brand strength across all markets served in Asia Pacific - 70 destinations,
Slide 45: Digital Transformation - over a million fans and followers
BRAND AND CUSTOMER Digital Transformation - over a million fans and followers New direct channels to market ~45% of Group marketing spend now through digital • Qantas.com - Australia’s No. 1 travel website1 channels • 630,000 Fans on Facebook • 270,000 Followers on Twitter • 80,000 Followers on Inst
Slide 46: Qantas Airways: brand & image
BRAND AND CUSTOMER Qantas Airways: brand & image Flyer attitudes and perceptions in 2015 YTD1 Premium Domestic Airline Committed to Delivering Best Service & Products Perceptions at the Perceptions at the highest level SERVICE +8% highest level ever seen +15% ever seen regarding Qantas’ IMAGE regard
Slide 47: Strong improvement across domestic and international
BRAND AND CUSTOMER Strong improvement across domestic and international DOMESTIC INTERNATIONAL Provides Exceptional Customer Service Perceived Best Domestic Airline 2015 YTD Customer perceptions of Qantas 2015 YTD1 International providing exceptional For Business Travel +14% pts 60% point On 20082 c
Slide 48: Jetstar customer satisfaction and advocacy
BRAND AND CUSTOMER Jetstar customer satisfaction and advocacy Relevant and measurable for low-cost as well Jetstar leads on “has low-priced fares” perceptions Jetstar the clear leader in Strategic NPS for LCCs 44 32 +23pts Lead Jetstar Competitor Average Jetstar Tiger January to March 20151 May 2013
Slide 49: Leveraging Customer Insights: The Next Wave of Transformation
Leveraging Customer Insights The Next Wave of Transformation Rob Marcolina
Slide 50: The basis of airline competition has expanded over time
STRATEGY & TRANSFORMATION The basis of airline competition has expanded over time Changing Nature of Airline Competition Customer Partnerships • Insights Product • Global alliances • Technology enabled Operations • Seats • Joint ventures • Loyalty • Aircraft • Lounges • Virtual airlines • Personalis
Slide 51: We have a rich and deep source of customer insights
STRATEGY & TRANSFORMATION We have a rich and deep source of customer insights OUR CUSTOMER INSIGHTS ARE A KEY COMPETITIVE ADVANTAGE Flying behaviour 50m+ passengers annually across Group of our customers Frequent Flyer 10.7m members profiles and behaviour Panel of ~25k Frequent Flyers Customer NPS1
Slide 52: Customer insights are key in making dual brand network decisions
STRATEGY & TRANSFORMATION Customer insights are key in making dual brand network decisions • Optimising our dual brand network requires consideration Dual Brand: Route Decisions across multiple dimensions: Informed by Customer Insights – market demand and capacity – financial implications – competit
Slide 53: Customer data facilitates seamless disruption management
STRATEGY & TRANSFORMATION Customer data facilitates seamless disruption management Managing disrupted flights operationally Disruption Management: Insights Aid • Minimising disruptions for more valuable customers is key to Operations and the Customer Journey decision-making when managing flight disr
Slide 54: Customer insights enable Group innovation and service excellence
STRATEGY & TRANSFORMATION Customer insights enable Group innovation and service excellence • Auto check-in on mobile: industry-leading; drives customer advocacy; reduces footprint at major airports • RedApp: provides customer history and information directly to cabin crew and ground staff on iPads •
Slide 55: Ultimately supporting key strategic objectives for the Group
STRATEGY & TRANSFORMATION Ultimately supporting key strategic objectives for the Group SAFETY IS ALWAYS OUR FIRST PRIORITY Deliver sustainable returns to shareholders Customer Always First Choice For Customers Build on leading domestic position Establish strong international dual Strengthen and grow
Slide 56: Transformation
Transformation Noawras Spirit of Australia
Slide 57: Qantas Group Transformation principles
STRATEGY & TRANSFORMATION Qantas Group Transformation principles Set the bar high (targets and timeline) Focus on the ‘how’ versus the ‘what’ Link to the bottom line Centralise program management Embed a cost-conscious culture Bring our people along the journey Improve customer proposition 57
Slide 58: Transformation targets and results thus far
STRATEGY & TRANSFORMATION Transformation targets and results thus far Target $2 billion 5,000 FTEs by FY17 gross benefits $500-600 million of $2 billion 2,200 4,0003 5,000 Result Will exceed (~$350m)3 over 18 target of 1,800 ($500m+) months $875 million1 to end benefits 1,000 FY15 by FY15 Exited Act
Slide 59: The Transformation journey
STRATEGY & TRANSFORMATION The Transformation journey Right sizing Productivity Consolidation Technology Supplier First 18 months of transformation • Consolidation: non-operational staff reduction; B747 base closure; new line maintenance model; centralised office campus Benefits realised • Productivi
Slide 60: Case example: Transforming Engineering
STRATEGY & TRANSFORMATION Case example: Transforming Engineering • Right-sizing organisation Engineering: Consolidating Processes – Executive redundancy program – Support services redundancy program – Engineering services rationalised – B747 base closure Base Maintenance • Consolidation – Component
Slide 61: Case example: Transforming Q Catering
STRATEGY & TRANSFORMATION Case example: Transforming Q Catering • Before Transformation, Q Catering had a >10% unit cost gap to Q Catering: Increasing Customer Satisfaction on-shore competitors While Reducing Cost • Significant changes are being made to close the cost gap – Matching labour supply to
Slide 62: Case example: Transforming procurement and spend
STRATEGY & TRANSFORMATION Case example: Transforming procurement and spend • Spend Aware program will drive sustainable procurement Spend Aware Program: Sustainable Cost Reductions cost reductions across the Group, with ~$2bn spend in-scope • Key objective is to transform our supplier approach – Imp
Slide 63: Customer focused approach during Transformation
STRATEGY & TRANSFORMATION Customer focused approach during Transformation Unique and market-leading outcome: Commitment to customer as a key Improving customer benefits through Conscious choice principle of Transformation Transformation Deliberate Decision-making ensures impacts are decision-making
Slide 64: Transformation summary
STRATEGY & TRANSFORMATION Transformation summary 1. We’ve been bold in setting targets and we are on track to achieve 2. Our initiatives are driving sustainable change 3. Our customer experience has improved and we expect this to continue going forward 64
Slide 65: Continuing to Win in a Shifting Domestic Market
Continuing to Win in a Shifting Domestic Market Andrew David
Slide 66: Established competitive advantages in highly attractive domestic Australian market
QANTAS DOMESTIC Established competitive advantages in highly attractive domestic Australian market • Largest carrier with 42% market share1 – Full-service, regional, charter – Frequency and network advantage – Corporate account outperformance • Iconic brand relevant to premium segment • Leading cust
Slide 67: Rapid and strategic response to competitive shifts in market
QANTAS DOMESTIC Rapid and strategic response to competitive shifts in market Market Revenue Recovery with • Domestic market pressures: FY12-FY14 20% Capacity Moderation ─ Competitor reposition into Qantas core segment 15% ─ Capacity growth ahead of demand 10% ─ Corporate yields under pressure 5% ─ R
Slide 68: Return to stable domestic market
QANTAS DOMESTIC Return to stable domestic market Qantas Domestic expanding margin advantage in a stable market Expanding Margin Advantage: • Stable market conditions Unit Revenue and Unit Cost Profile FY15 market capacity growth down1 QF RASK3 Demand and supply more balanced Improved passenger
Slide 69: How Qantas Domestic will continue to win
QANTAS DOMESTIC How Qantas Domestic will continue to win Clear strategic priorities aligned with dual brand strategy TARGETING BUSINESS AND PREMIUM LEISURE CUSTOMERS WHO VALUE THE FULL SERVICE EXPERIENCE STRATEGIC PRIORITIES Delivering customer experiences that earn a revenue premium Recognised for
Slide 70: Customer experiences that earn a revenue premium
QANTAS DOMESTIC Customer experiences that earn a revenue premium Targeted investment, innovation driving customer advocacy Service Leadership and Training Record Operational NPS • Reach across all frontline people • Driver of advocacy and airline choice Result in FY153 Airport Transformation >60% •
Slide 71: Customer experiences that earn a revenue premium
QANTAS DOMESTIC Customer experiences that earn a revenue premium Partnering with the high value corporate segment Corporate Segment Recovering with Improving management of customer relationships Qantas Domestic Holding Steady Share2 • Becoming the ‘trusted advisor’ for our corporates 10% • Clearly a
Slide 72: Corporate customer feedback
QANTAS DOMESTIC Corporate customer feedback Value beyond price “Qantas’ pricing was not the cheapest, however, the superior network, strength of Qantas Loyalty proposition (including Chairman’s Lounge) and “Network proposition, with particular focus on the Qantas technology were key.” East Coast, th
Slide 73: Structural advantages in customer reach
QANTAS DOMESTIC Structural advantages in customer reach Insights and loyalty offering underpin revenue premium and share of wallet Unrivalled Customer Reach in Australian Market • Customer insights through advanced segmentation model linked to Frequent Flyer member behaviour • Unparalleled ability t
Slide 74: Recognised for operational excellence
QANTAS DOMESTIC Recognised for operational excellence Premium on-time performance, reducing customer disruption Focus on Premium Level Punctuality +7% Consistent premium level on-time performance OTP1(%) 87 85 • Balanced approach delivering against customer, 81 82 operational and efficiency targets
Slide 75: Delivering at the right cost through Qantas Transformation
QANTAS DOMESTIC Delivering at the right cost through Qantas Transformation Visible pipeline to continue reducing costs, increasing utilisation FY14 FY15 FY16-17 Fleet • Exit of B737-400 • Exit of B767 • B737-800 reconfigurations Renewal & • 5 x additional 2-class B717 • Induction of A330s Simplifica
Slide 76: Case study: delivering 35 minute turns
QANTAS DOMESTIC Delivering at the right cost through Qantas Transformation Case study : delivering 35 minute turns Increased utilisation through reduced turn times • Dual door boarding FY14 • Improved cabin baggage management >45mins • Operating and capital efficiency benefits Introduction of 35 min
Slide 77: Case study: direct distribution
QANTAS DOMESTIC Delivering at the right cost through Qantas Transformation Case study: direct distribution Sales and customer management is changing • Customers moving to and preferring online and mobile interactions for bookings • Contact centres still essential as touchpoint for premium customer s
Slide 78: Our people and culture make the difference
QANTAS DOMESTIC Our people and culture make the difference Investment in Communicate Commitment to capability to genuinely and the development provide great frequently of our people leadership Focus Ensure everyone unwaveringly on Unlock passion for steps up and takes the safety of our the brand res
Slide 79: Scorecard
QANTAS DOMESTIC Scorecard Strategic priorities are being delivered PROGRESS TO DATE DELIVERING CUSTOMER FY15 RASK advantage to competitor maintained above 15%1 EXPERIENCES THAT EARN A NPS at record levels with > 15 point average margin to competitor2 REVENUE PREMIUM Corporate revenue share out
Slide 80: Responding to a Shifting Demand Profile
Responding to a Shifting Demand Profile John Gissing
Slide 81: Australia's most extensive regional & charter network
REGIONAL & CHARTER Australia’s most extensive regional & charter network • Largest regional footprint & frequency advantage • Only regional network in all states and territories • Increased share of charter market • Seamless connectivity to Domestic and International network • Spread of gauges to in
Slide 82: Fleet flexibility enabled rapid response to shifting demand profile
REGIONAL & CHARTER Fleet flexibility enabled rapid response to shifting demand profile As resources boom took off… Intra WA Flying Mix including Charters1 ASKs • Up-gauged B717 to B737 on RPT 4,500 • Acquired Network Aviation for charter 4,000 12% 15% JQ A320 • Expanded network to Pilbara & WA coast
Slide 83: Case study: Consolidating turboprop operations
REGIONAL & CHARTER Qantas Transformation Case study: Consolidating turboprop operations • Consolidation of bases - Cairns now all Q400 with greater flexibility; Adelaide all Q300 with increased scale; subscale Perth base closed • Increasing utilisation to free up four Q300 aircraft for sale or alter
Slide 84: Case study: Transforming profitability of thin domestic routes
REGIONAL & CHARTER Qantas Transformation Case study: Transforming profitability of thin domestic routes Transform Thin Domestic Route Profitability1 Canberra and Hobart markets loss-making (EBIT/ASK) Canberra • Removed B737: ‘right aircraft, right route’ Hobart Replaced with lower capital value B717
Slide 85: Maximising Jetstar's Position in Australia & NZ
Maximising Jetstar’s Position in Australia & NZ The Roadmap to Success in Asia Jayne Hrdlicka
Slide 86: The Jetstar Group model
JETSTAR GROUP The Jetstar Group model Cost • Robust, proprietary Jetstar LCC model discipline • Delivers both customer service and low cost Ancillary Network innovation strength • Over ten years of experience delivering safe Jetstar operations built on 90+ years of Qantas Group safety practices Pan-
Slide 87: Strong, independent Jetstar-branded airlines
JETSTAR GROUP Strong, independent Jetstar-branded airlines • Commercial and operational decisions driven Jetstar Jetstar by local CEO and board Australia Japan • The right local, strategic shareholders for each market Jetstar Jetstar Jetstar International1 Group Asia • Combination of Jetstar and loc
Slide 88: ~80% of invested capital is in Australia and NZ
JETSTAR GROUP ~80% of invested capital is in Australia and NZ Share of Total Invested Capital • Portfolio of growth opportunities with the potential for higher risk adjusted Investments in returns over time Asian businesses • Selective, strategic investments in the right markets with the right partn
Slide 89: Cost discipline: Jetstar in Australia
JETSTAR GROUP Cost discipline: Jetstar in Australia Lowest cost airline in Australia Controllable Unit Cost Reduction3 • 4x larger domestic scale versus competitor LCC1, driving narrowbody unit cost advantage CAGR • Relentless, multi-year focus on cost leadership -2.1% • Lowest Seat Cost program con
Slide 90: Network strength: Jetstar in Australia
JETSTAR GROUP Network strength: Jetstar in Australia • Jetstar Australia has built a substantial network advantage over other domestic LCC – Frequency advantage in every Australian domestic port we serve1 – Three times more flights from the top five Australian domestic leisure ports2 – Disciplined f
Slide 91: Jetstar in Australia
JETSTAR GROUP Jetstar in Australia Jetstar benefits from competitor reposition to full service model Domestic Australia Market (Illustrative) • Flexible customer offering with fully unbundled fares • Strong off-peak RASK growth Full service Qantas demand Differentiated customer proposition Virgin •
Slide 92: Network strength: Jetstar International
JETSTAR GROUP Network strength: Jetstar International Strong performance of Jetstar International in FY15 • Fleet transition from A330s to B787s • Strengthening distribution inbound-AU1 (e.g. Japan) • New routes launched (e.g. OOL-ZQN/WLG/NAN2) • Market has grown into prior year capacity additions W
Slide 93: Customer advocacy: Jetstar in New Zealand
JETSTAR GROUP Customer advocacy: Jetstar in New Zealand Jetstar pioneered low fares and built a strong brand in the New Zealand aviation market • LCC competition has changed the way New Zealanders travel • Educating customers on how we keep fares low has built trust and loyalty Profitable operations
Slide 94: Pan-Asia footprint: Jetstar in Asia
JETSTAR GROUP Pan-Asia footprint: Jetstar in Asia Strong, independent airlines in key Asia Pacific markets Asia-Pacific Aviation Market2 GDP per capita (USD) • High GDP1 per capita and/or GDP per capita growth 0 25,000 50,000 75,000 0% • Low to medium LCC penetration Taiwan JAPAN HK “under-penetrate
Slide 95: Jetstar in Japan
JETSTAR GROUP Jetstar in Japan • Jetstar Japan has consolidated its position as the Strengthening Jetstar Japan performance leading Japanese LCC with 20 aircraft1 – ~60% domestic LCC market share2 34% increase in capacity4 – Fourth largest Japanese airline by PAX3 8% improvement in RASK5 – Narita an
Slide 96: Jetstar Group: Ancillary innovation
JETSTAR GROUP Jetstar Group: Ancillary innovation Total ancillary revenue continues to grow Ancillary Revenue Performance3 Versus Other LCCs • Ancillary revenue up 6%; ancillary EBIT margin up 5%1 31.7 31.8 30.6 • Ancillary revenue/passenger is flat due to changing consumer behaviour easyJet 24.1 $2
Slide 97: Areas of focus across each business
JETSTAR GROUP Areas of focus across each business Safety & compliance Cost discipline Customer advocacy People engagement • Grow profitability off strong foundations • Drive utilisation • Leverage dual brand with QAD Jetstar Jetstar • Grow revenue as new routes mature Australia Japan • Share IP1 and
Slide 98: A Platform for Innovation-Led Growth
A Platform for Innovation-Led Growth Lesley Grant
Slide 99: Qantas Loyalty: A platform for innovation led growth
QANTAS LOYALTY Qantas Loyalty: A platform for innovation led growth Qantas Loyalty will continue to innovate and diversify for stable, non-cyclical earnings growth We will leverage our market leading coalition loyalty programs and deep customer insights to achieve this objective 99
Slide 100: Continuous innovation since launching Qantas Frequent Flyer
QANTAS LOYALTY Continuous innovation since launching Qantas Frequent Flyer 10.71 9.4 10.1 8.6 7.9 7.1 5.8 4.9 5.3 3.9 2.6 MEMBERS (M) 1987 2001 2004 2007 2008 2009 2010 2011 2012 2013 2014 2015 Platinum Revised tiers Improved One Q Cash segmentation HOTELS Points Plus Pay 100 1. As at April 2015.
Slide 101: Built mutually reinforcing businesses and communities
QANTAS LOYALTY Built mutually reinforcing businesses and communities COALITION LOYALTY Australia’s leading consumer and SME coalition loyalty programs – multi-partner, common currency CORE INNOVATIONS BREAK-OUT GROWTH Adjacent businesses Disruption led and communities to innovation to diversify reve
Slide 102: Track record of growth and consistent cash flow contribution
QANTAS LOYALTY Track record of growth and consistent cash flow contribution Loyalty Underlying EBIT1 ($m) Consistently delivered growth and targeted continued double digit Underlying EBIT 286 growth 260 14% CAGR 231 Underpinned by QFF billings, underlying 202 system growth and program enhancemen
Slide 103: Market leading assets and capabilities
QANTAS LOYALTY Market leading assets and capabilities QFF PROGRAM Award winning Product innovation e.g., Qantas Cash 2 1 Reinforcing communities e.g., Qantas epiQure, Qantas Golf DATA ANALYTICS 27 years of demographic and behavioural data Analytics capability, strengthened by Taylor Fry BR
Slide 104: Delivers significant value for the airline
QANTAS LOYALTY Delivers significant value for the airline AIRLINE REVENUE PREMIUM Increased share of wallet and market share Yield premium MARKETING EFFICIENCIES Improved targeting, segmentation Differentiated incentives Insight driven campaigns OPERATIONAL EFFICIENCIES QFF represents la
Slide 105: Continuous innovation and disruption led growth
QANTAS LOYALTY Continuous innovation and disruption led growth Taylor Fry DELIVERED NOW NEXT Core innovations Continued core innovation, together Disruptive innovation Reinforcing communities with innovation led growth ‒ Entering new verticals with Red Planet, first disruptive break-out in
Slide 106: Red Planet: New digital marketing business
QANTAS LOYALTY Red Planet: New digital marketing business Delivering media, analytics and research services Integrated media, analytics and research services Directly and individually targets customers leveraging the unique strengths of Qantas Loyalty − Unparalleled reach in market − Rich propri
Slide 107: Today's standard practice
QANTAS LOYALTY Today’s standard practice Shortcomings Significant inaccuracy in reaching target audience No ability to run true multi-channel coordinated messaging No ability to employ robust measurement techniques to measure campaign effectiveness 107
Slide 108: Red Planet: a new approach
QANTAS LOYALTY Red Planet: a new approach Benefits Efficient: ability to reach target audience and supress advertising to non-target Effective: ability to run true multi-channel coordinated messaging Measureable: ability to employ robust measurement techniques 108
Slide 109: Red Planet: The consumer difference
QANTAS LOYALTY Red Planet: The consumer difference Consumer A Consumer B Upcoming travel in Searched for flights Australia to WA and are from the East Coast; or In the top 3 deciles of our WA travel prediction model and are from the East Coast Red Planet targeted advertising based on direct Ot
Slide 110: Red Planet: Delivering value for both Qantas and external clients
QANTAS LOYALTY Red Planet: Delivering value for both Qantas and external clients ~4x more effective than other typically used social media targeting methods Source: Qantas Loyalty analysis Source: Qantas Loyalty analysis 110 *Sales life for high value targeted campaign based on individual campaign r
Slide 111: Next: Accelerating disruption led innovation
QANTAS LOYALTY Next: Accelerating disruption led innovation Taylor Fry DELIVERED NOW NEXT Core innovations Innovation led growth: core and Disruptive innovation Reinforcing communities break-out ‒ Entering new verticals with Red Planet innovative, digitally led, customer Unmatched assets
Slide 112: Qantas Loyalty Scorecard
QANTAS LOYALTY Qantas Loyalty Scorecard OBJECTIVE PROGRESS TO DATE CONSISTENT AND DIVERSIFIED Achieve double digit Underlying EBIT growth 1H15 EBIT $160m, 10% increase year on year EARNINGS GROWTH Diversify earnings Aquire, Red Planet, Qantas Golf launched; Taylor Fry acquired Grow QFF member ba
Slide 113: Transforming Freight to Optimise Group Outcomes
Transforming Freight to Optimise Group Outcomes Alison Webster
Slide 114: Qantas Freight
QANTAS FREIGHT Qantas Freight Transforming to optimise profit outcomes for Qantas Group Unrivalled network and Directly service Market belly space of the Q-GO product range service frequency to, from 50 international and Qantas Group and operate offers 10 time and service and around Australia 80 dom
Slide 115: Providing a convenient and seamless customer experience
QANTAS FREIGHT Providing a convenient and seamless customer experience Belly Freighters Terminals Trucks Sale of belly capacity on behalf Stand alone Domestic and On-airport handling facilities at Wholly-owned interstate of the Qantas Group International freighter Qantas-operated terminals trucking
Slide 116: Strategic priorities
QANTAS INTERNATIONAL Strategic priorities Continuing to transform to optimise EBIT outcomes for Qantas Group Addressing our competitive challenges Leveraging our competitive advantages Australia is not an Competing in a Broadest domestic Seamless customer international Freight hub commoditised netwo
Slide 117: Transformation at Qantas Freight
QANTAS FREIGHT Transformation at Qantas Freight Case study: supply chain automation Simplifying the End-to-End Air Linehaul Multi-year supply chain improvement program to improve Experience for Customers the customer experience • Express check self-service kiosks • Tracking technology rollout, inclu
Slide 118: Sustainable performance in changing landscape
QANTAS FREIGHT Sustainable performance in changing landscape Qantas Freight Underlying EBIT • Outstanding 1H15 financial performance 80 H2 H1 • Competitive headwinds in FY16 60 Freight EBIT $m – Aggressive competitor activity in flat domestic market 40 • Strategy in place to maintain profit performa
Slide 119: Building a Resilient and Sustainable Qantas International
Building a Resilient and Sustainable Qantas International Gareth Evans
Slide 120: Building a resilient and sustainable business
QANTAS INTERNATIONAL Building a resilient and sustainable business Positioned for future growth 1 Unwavering commitment to meeting our customers’ needs 2 A fit and competitive business through Transformation Build a sustainable long-term competitive advantage from our 3 home market 4 Generating ROIC
Slide 121: International operating environment
QANTAS INTERNATIONAL International operating environment Impacted by GFC fallout and high AUD, now benefiting from Transformation 2005 – 2008: Strong Australian economic 2009 – 2014: GFC fallout, rising fuel prices and FY15: Transformation-led recovery growth and lower AUD surging AUD • Strong deman
Slide 122: Building a fit and competitive Qantas International
QANTAS INTERNATIONAL Building a fit and competitive Qantas International Significant transformation achieved to date FY11 • Exit loss making routes – BKK1 and HKG2 to LHR3 HISTORIC STRUCTURAL CHALLENGES ADDRESSED FOR • Launch to American Airways Hub – DFW4 LONG TERM SUSTAINABILITY • Launch to LAN Hu
Slide 123: Strategic priorities
QANTAS INTERNATIONAL Strategic priorities Delivering a fit and competitive business to leverage growth opportunities Addressing our competitive challenges Leveraging our competitive advantages Reshaping our cost Owning the Overcoming Providing connections base through Qantas high-yield customer netw
Slide 124: Reshaping our cost base through Qantas Transformation
QANTAS INTERNATIONAL Reshaping our cost base through Qantas Transformation Unit Cost Improvement Non-fuel unit cost improved by 15%1 since FY12 15%1 • Legacy cost base issues largely addressed • Reconfigurations delivering improved economics Non-Fuel • Cost base becoming more competitive versus peer
Slide 125: Case study: Utilisation
QANTAS INTERNATIONAL Reshaping our cost base through Qantas Transformation Case study: Utilisation INCREASED UTILISATION HAS CREATED ADDITIONAL FLYING OPPORTUNITIES – ADDITIONAL REVENUE AT REDUCED UNIT COST FY15 Utilisation1 1. Improved network efficiency Avg. Hours /Day % Change to FY122 – Retimed
Slide 126: Case study: Emirates partnership
QANTAS INTERNATIONAL Overcoming network gaps Case study: Emirates partnership Premier one-stop customer proposition to Europe, Middle East & Africa • 98 weekly Qantas and Emirates flights from Australia • More than 70 Qantas codeshare destinations • Replaced multi-partner, 5 codeshare destination of
Slide 127: Case study: rebuilding a profitable Asia network offering
QANTAS INTERNATIONAL Overcoming network gaps Case study: rebuilding a profitable Asia network offering SIGNIFICANT IMPROVEMENT IN ASIA REGION EBIT: $300m TURNAROUND SINCE FY121 Emirates partnership facilitated increased focus on Asia 11 codeshare destinations via • Dedicated capacity increase of 45%
Slide 128: Strategic priorities
QANTAS INTERNATIONAL Strategic priorities Delivering a fit and competitive business to leverage growth opportunities Addressing our competitive challenges Leveraging our competitive advantages Reshaping our cost Owning the Overcoming Providing connections base through Qantas high-yield customer netw
Slide 129: Owning the high-yield customer
QANTAS INTERNATIONAL Owning the high-yield customer A world-renowned customer experience • Continual investment in the customer experience alongside business transformation Operational NPS Improvement − World’s best lounges (Sydney, Singapore, Hong Kong, Los Angeles) +11% pts − A330 Business Class S
Slide 130: Owning the high-yield customer
QANTAS INTERNATIONAL Owning the high-yield customer Our people are core to delivering a memorable and outstanding experience Our ‘One Service Team’ Culture Supported and Recognised by Our Investment in Training On the Ground In the Lounge In the Air 130
Slide 131: Owning the high-yield customer
QANTAS INTERNATIONAL Owning the high-yield customer Investment in revenue management Forecast RASK improvement greater than 5% in FY151 FY15 Unit Revenue Above FY12 Levels1 • Fare families incentivise trade-up, align with partners >5% • Improved pricing to respond to customer demand • Better capacit
Slide 132: Providing connections to the world
QANTAS INTERNATIONAL Providing connections to the world Most convenient and direct Network and schedule are paramount for premium Qantas and Partners Serve the Top 10 Australian international flyers Corporate Destinations1 • Particularly important to corporate customers Served by Qantas • Demand for
Slide 133: Continuing partnership strength
QANTAS INTERNATIONAL Continuing partnership strength A truly global customer proposition Partnership reach brings participation in large and Flying Direct to Key Gateways, Providing Global growing traffic flows Connectivity With Codeshare Partners • >1,200 destinations with partner airlines Partners
Slide 134: Macro environment enhances competitive position
QANTAS INTERNATIONAL Marco environment enhances competitive position AUD/USD return to long-run range AUD CLOSER TO PARITY AUD IN LONG-RUN HISTORICAL RANGE • Competitor yield from POS AU1 enhanced • Competitor yield from POS AU contracts • Capacity expansion above demand • Capacity growth moderate •
Slide 135: Looking to the Future
QANTAS INTERNATIONAL Looking to the Future Earn the right to grow and invest STRICT PARAMETERS FOR REINVESTMENT BASED ON SUSTAINABLE RETURNS • $1b debt pay down by end FY15 Group Financial Priorities • Capital management objectives • All Transformation targets met Sustainable and Resilient Business
Slide 136: Building a resilient and sustainable business
QANTAS INTERNATIONAL Building a resilient and sustainable business Positioned for future growth 1 Unwavering commitment to meeting our customers’ needs 2 A fit and competitive business through Transformation Build a sustainable long-term competitive advantage from our 3 home market 4 Generating ROIC
Slide 137: CEO Summary
CEO Summary Alan Joyce Noawras Spirit of Australia
Slide 138: Looking to the Future
CEO SUMMARY Looking to the Future A more resilient Qantas Group, positioned to outperform • Delivering all Qantas Transformation targets • Building on long-term competitive advantages • Lessening volatility and cyclicality in portfolio • Disciplined approach to capital and growth • ROIC embedded as
Slide 139: A strong foundation for sustainable growth
CEO SUMMARY A strong foundation for sustainable growth Ingrained safety culture from 94 years of experience Investing in our customers and engaging our people to remain first choice in every market we serve Unrivalled dual brand strength and leading market position in domestic Australia Innovative L
Slide 140: Appendix
Appendix Noawras Spirit of Australia
Slide 141: Group Scorecard
GROUP OVERVIEW Group Scorecard Strategic priorities are being delivered OBJECTIVE PROGRESS TO DATE Profit share > market share 1H15 Group profitability share ~80% or more versus market share ~63%1 LEADING DOMESTIC Most profitable full service / LCC airlines Both airlines more profitable2 than comp
Slide 142: ROIC framework
FINANCE ROIC framework Invested Capital ROIC EBIT Hurdle rate Balance sheet: Income Statement: Weighted Average Cost of Capital Reported balances for: (WACC): Underlying EBIT • Receivables • Payables Components: • Inventories Off balance sheet adjustments: • Cost of debt (long term view based on • O
Slide 143: Scorecard: Jetstar priorities being delivered
JETSTAR GROUP Scorecard: Jetstar priorities being delivered PROGRESS TO DATE SAFETY & COMPLIANCE Developed best practice Safety & Operational standards LEADERSHIP Solid relationship with all national regulators Ongoing, year-on-year reduction in controllable unit cost reduction1 SUSTAINED PR
Slide 144: Australia's leading loyalty program
QANTAS LOYALTY Australia’s leading loyalty program Exclusive access to Classic Flight Rewards and Points Plus Pay – Flights to 1000+ destinations Analytics Qantas Store with over 3,000 products Marketing 7.8 million valid email addresses 15+ segmentation models 7.2 million members receive
Slide 145: Highly attractive business model
QANTAS LOYALTY Highly attractive business model Business model is based on two key activities: Attractive financial features of business model 1 Issuing Qantas Points (cash in) Highly cash generative ‒ Cash received upfront when Qantas Points issued $$ ‒ Earn interest on negative working capital p
Slide 146: Multiplier effect and favourable correlation with inflation
QANTAS LOYALTY Multiplier effect and favourable correlation with inflation Number of members Level of members’ expenditure Number of loyalty participants Use of loyalty affiliated payment (e.g. Earn partners) methods ... and spending more More people participating ... and engaging with loyalty progr
Slide 147: Overview of cash flow and accounting treatment
QANTAS LOYALTY Overview of cash flow and accounting treatment Points Earned Life of a Point Points Redeemed for Award; or Points Flow by Spending ~2 years Points Expire (Breakage)1 Gross Billings Redemption Gross Billings Cost Cash Flow Cash Interest Breakage Redemption Income Marketing Marketing Re
Slide 148: Description of key accounting items
QANTAS LOYALTY Description of key accounting items Marketing Revenue — Comprised of two components, Marketing Services Revenue and Breakage (see below), and is recognised at the time Qantas Points are issued to Earn Partners — Measured as the difference between Gross Billings received and the Fair V
Slide 149: Contributes high value to Qantas Group
QANTAS LOYALTY Contributes high value to Qantas Group 1 1 (Canada segment only) Primary airline affiliation Global alliance affiliation oneworld Alliance Star Alliance oneworld Alliance None Current membership base 10.7m2 >5m 13.8m 10.3m Implied population 45.4% 14% 6.8%3 5.1%3 penetration FY14A B
Slide 150: Other Information
QANTAS LOYALTY Other Information Qantas Cash — On track to have $1bn loaded by 30 June 2015 Qantas Online Mall — 29 partners as at 28 April 2015 Qantas Store — 3000+ products in the Qantas Store Qantas epiQure — 70% year on year order growth in March 2015 — ~40% member growth in the 12 months to Mar
Slide 151: Scorecard
QANTAS INTERNATIONAL Scorecard Strategic priorities are being delivered PROGRESS TO DATE Qantas International Transformation on track to deliver >$800m in benefits by FY17 Non-fuel unit cost improved by 15%1 since FY12 OPERATIONAL EXCELLENCE Aircraft utilisation increase of 5% in FY15 2– further
Slide 152: Disclaimer & ASIC Guidance
Disclaimer & ASIC Guidance 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 12 May 2015. The information