Qantas Airways Limited · ASX:QAN
Qantas Airways — H1 2003/04 Earnings Presentation
28 slides from Qantas Airways's earnings presentation, Feb 19, 2004
Slide 1: 2003/04 Interim Results
2003/04 Interim Results Presentation to Investors 19 February 2004 Highlights Six months to Six months to Increase/ December December (decrease) 2003 2002 % ~~ Sales and operating revenue” $m 5,807.8 6,069.6 (44) Expenditure” $m (5,200.3) (5,532.8) (6.0) ~~~ EBIT | ©. i; 1-9) 12.400 Net borrowing co
Slide 2: Strategy
Strategy « 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 selectively investing in product and creating a superior customer experience - Grow a set of next ge
Slide 3: Strategy - Qantas Airlines International
Strategy - Qantas Airlines International « Improve overall returns - Develop relationships with major carriers in our destinations ~ British Airways, American Airlines, Japan Airlines, South African Airways — Develop frequency Addition of three direct flights per week to United States from June 2004
Slide 4: Strategy - Qantas International and Australian Airlines
Strategy - Qantas Airlines International « Improve overall returns - Continued investment in international product ~ Six three class B747-400 aircraft fitted with Skybed ~ All three class B747-400 aircraft due to be fitted with Skybed by December 2004 ~ Evaluating the introduction of on-demand infli
Slide 5: Strategy - Australian Airlines and Qantas Domestic
Strategy - Australian Airlines « Continue to profitably grow route network — Will operate 96 flights per week to 12 destinations in six countries from May 2004 2 vA bheawras Strategy - Qantas Airlines Domestic « Retain customer loyaity — Differentiate product offering ~ Offer a two-class full servic
Slide 6: Strategy - QantasLink and Jetstar
Strategy - QantasLink « Operates around 2,000 flights per week serving 48 ports throughout regional Australia « Achieve permanent unit cost efficiencies under the Sustainable Future Program - Rationalisation of turboprop fleet to one aircraft type ~ Fleet of 33 Dash 8 aircraft ~ Dash 8 is ideally su
Slide 7: Strategy - Jetstar and Flying Services
Strategy - Jetstar « Compete profitably in price sensitive leisure segment of market — Will announce route and fare structure next week « Jetstar, Qantas and QantasLink will have a combined market share of around 65 per cent — Given Virgin Blue’s, other carriers’ and our capacity plans over the next
Slide 8: Strategy - Flying Services and Associated Businesses
Strategy - Flying Services and Associated Businesses « Qantas Freight — Joint venture with Australia Post to acquire Startrack Express ~ Inline with strategy of growing flying-related businesses ~ Along with Qantas Freight and Australian air Express, provides the Qantas Group with a comprehensive ex
Slide 9: Company Reorganisation
Company Reorganisation e Previously announced changes are being progressed successfully across the Group Currently in a transition period Ten businesses are developing detailed implementation plans Immediate priorities are to further refine existing: Service Level Commitments Key Performance Indicat
Slide 10: Sustainable Future Program
Sustainable Future Program Achieved in — Targeted for Total to be Balance to be six months to sixmonthsto achieved for achieved December June tweive months following June $ milfion 2003 2004 to June 2004 2004 Labour productivity 73 76 149 236 Fleet simplification, product initiatives and overheads 1
Slide 11: Sustainable Future Program
Sustainable Future Program « Examples of initiatives delivered/to be delivered by June 2004 — Fleet simplification ~ Domestic performance for on-time arrivals of 90 per cent during January — Distribution initiatives ~ Higher on-line sales — Now around 30 per cent of domestic sales and 9 per cent of
Slide 12: Sustainable Future Program
Sustainable Future Program « Examples of other initiatives — Invest in technology — Move from a fixed to a variable cost base where appropriate ~ Previously announced increase in permanent part time, casual and labour hire employees from 15 per cent to 25 per cent ~ Consider outsourcing or disposal
Slide 13: Fleet Strategy
Fleet Strategy « Aircraft to be delivered during remainder of 2003/04 year — One A330-300 — Two A320-200 (to be obtained under operating lease from SALE) - Two Dash 8-Q300 « Aircraft to be retired during remainder of 2003/04 year - Two B767-200 — Two Dash 8-100 heawras Fleet Issues « Appropriateness
Slide 14: Capital Management
Capital Management « Maintain investment grade credit rating « Planned capital expenditure will be funded from operating cashflows and debt - Current forecast is $7 billion between 2003/04 and 2005/06, including 20 A320s — Gearing will be maintained within target range of 50 - 60 per cent — No plans
Slide 15: Outlook
Outlook « We must continue to reduce our costs and gain greater efficiencies « We have established an integrated transport company that has considerable strength in key areas « We are confident of the industry’s growth prospects and believe Qantas is well placed to participate profitably in this gro
Slide 16: 2003/04 Interim Results Supplementary Information
2003/04 Interim Results Supplementary Information Highlights Six months to Six months to —_Increase/ December December (decrease) 2003 2002 % ~~ Sales and operating revenue” $m 5,807.8 6,069.6 (4.4) Expenditure” $m (5,200.3) (5,532.8) {6.0) ~ EBIT | ©. i; 1-9) 12.400 Net borrowing costs $m (71.2) (2
Slide 17: Revenue
Revenue $bn Pd Net passenger revenue 70 7 $6.1bn $5.8bn down 4.8% 60 | gE Net freight revenue 50 4 down 13.8% 40 1 ag Tours and travel sales 3.0 4 down 8.7% 20 4 yj Contract work revenue 10 | | down 10.6% oo J Revenue from other Dec 2002 Dec 2003 sources up 24.2% heawras Revenue « Sales and operatin
Slide 18: Revenue and Expenditure
Revenue — Tours and travel sales down 8.7% (down 3.1% excluding exchange) ~ Effect of SARS and the war in Iraq during first quarter — Contract work revenue down 10.6% (down 10.2% excluding exchange) ~ Decrease in work performed by Qantas Defence Services during the period, due to cessation of B707 m
Slide 19: Expenditure
Expenditure « Expenditure excluding net borrowing costs down 6.0% (1.1% excluding exchange) — Manpower and staff related costs down 2.5% (down 2.0% excluding exchange) ~ Group ASKs down 0.5% ~ Average FTEs down 3.5% ~ Partially offset by a 3% increase in wage rates under current EBAs and bracket cre
Slide 20: Expenditure
Expenditure — Fuel and oil costs down 20.3% (down 6.0% excluding exchange) ~ Increase of $31.0 million due to 7.5% increase in USD fuel prices ~ Decrease of $46.9 million due to hedging benefits ~ Decrease of $32.4 million due to reduced activity and more fuel efficient new aircraft ~ Decrease of $1
Slide 21: Expenditure
Expenditure — Tours and travel cost of sales down 10.6% (up 0.2% excluding exchange) ~ Compares with a 8.7% decrease (down 3.1% excluding exchange) in tour and travel sales —- Selling and marketing costs down 12.9% (down 8.2% excluding exchange ~ International RPKs down 5.8% ~ Continued migration of
Slide 22: Expenditure
Expenditure — Property costs up 5.8% (up 7.5% excluding exchange) ~ Increased rent and facility costs generally ~ Use of T2 in Sydney from September 2002 — Computer and communications up 1.7% (up 11.9% excluding exchange) ~ Increased spend on eQ and Jetsmart (an Engineering Technical Operations and
Slide 23: Qantas and Australian Airlines International
Qantas and Australian Airlines International - $m 300 5 $261.4m 250 4 EBIT of $200.1m, or 33.3% of Group $200.1m EBIT 200 4 RPKs down 1.5% 150 4 ASKs down 0.1% 400 Seat factor down 1.1% pts to 79.3% Yield excluding exchange decreased 50 | by 0.2% 0 45 Dec 2002 Dec 2003 yy heawras International - Qan
Slide 24: International - Australian Airlines; Domestic - Qantas and QantasLink
International - Australian Airlines $m 3, $3.4m EBIT of $3.4m, of 0.6% of Group EBIT RPKs up 250.4% ASKs up 251.0% 6 Seat factor down 0.1% pts to 69.3% Yield excluding exchange decreased $(2.8)m by 6.4% Dec 2002 Dec 2003 os (5) - 47 heawras Domestic - Qantas and QantasLink $m 350 $323.8m 300 4 EBIT
Slide 25: Domestic - Qantas Airlines and QantasLink
Domestic - Qantas Airlines $m 300 4 $270.9m 250 4 EBIT of $270.9m, or 45.0% of Group EBIT 200 | $160.1m RPKs up 2.2% 150 | ASKs up 0.2% 400 Seat factor up 1.6% pts to 81.4% Yield excluding exchange decreased so J by 2.2% te 0 4g Dec 2002 Dec 2003 yy heawras Domestic - QantasLink $m 60 5 $53.0m 504 E
Slide 26: Qantas Flight Catering and Qantas Holidays
Qantas Flight Catering $m 505 $48.6m 40 + $36.6m « EBIT of $46.6m, or 7.7% of Group EBIT 30 4 « Reflects: ~ Increase in revenue from 20 4 external airline customers ~ Comprehensive cost saving 10 | program oA 0 51 Dec 2002 Dec 2003 vA heawras Qantas Holidays $m 30 5 $24.0m « EBIT of $24.0m, or 4.0%
Slide 27: Other Subsidiaries and Associates
Other Subsidiaries and Associates — Australian Air Express: ~ EBIT of $6.2 million, down $1.5 million ~ Effect of a negotiated increase in the rates paid for freight capacity leased from Qantas —- Qantas Defence Services: ~ EBIT of $3.2 million, down $0.9 million ~ Reflects cessation of 8707 mainten
Slide 28: Balance Sheet and Cashflow
Balance Sheet and Cashflow Increase/ December December (decrease) 2003 2002 % Capital expenditure $m 1,104.6 2,000.5 (44.8) Capitalised interest $m 24.2 49.3 (50.9) Operating cashflow $m 966.6 909.1 6.3 Net debt * $m 5,599.4 4,599.8 21.7 Total equity ** $m §,587.6 5,135.9 8.8 Leverage * % 50 47 3 In