Qantas Airways Limited · ASX:QAN
Qantas Airways — FY2007 Earnings Presentation
26 slides from Qantas Airways's earnings presentation, Aug 16, 2007
Slide 1: 2006/07 Full Year Results Investor Presentation
For personal use only 2006/07 Full Year Results Investor Presentation August 16 2007 Record Result • Moved on successfully following bid • Profit before tax + 53.8% to $1,032 million • Group returning above Cost of Capital 2
Slide 2: Key Drivers and Strategic Priorities
Key Drivers • Net passenger revenue + 13.4% For personal use only • Strong performance from both flying brands • Improved yield and load on 3.4% capacity growth • Underlying unit cost improvement of 1.9% • Net cash position +16% to more than $3.3 billion 3 Strategic Priorities • Capital Management •
Slide 3: Capital Management and Dividend Policy
Capital Management • Stronger cash position due to better operating environment For personal use only • Continue to target an investment grade credit rating • Three capital management strategies – Dividend policy – On-market share buy-back – Portfolio restructuring 5 Dividend Policy • Full year divi
Slide 4: On-Market Buy-Back and Investment Grade Credit Rating
On-Market Buy-Back • Will return over $1 billion to shareholders For personal use only • Efficient means of returning capital • Improve return on equity and EPS for shareholders • Improve overall cost of capital for Qantas 7 Investment Grade Credit Rating • Access to capital markets • Low cost unsec
Slide 5: Qantas Group Airlines and Competitive Challenges
Qantas Group Airlines • Two brand strategy highly successful For personal use only • Considerable benefits to both Qantas and Jetstar • Both now heavily dependent on each other • Strategy enables better response to competitive challenges • Group has 67% of domestic market and highly competitive posi
Slide 6: Qantas and Qantas Domestic
Qantas • Major investment in premium brand, product and service For personal use only • Over 5,000 domestic, regional and international services a week • Growth to continue over next five years • Continuing to improve cost and efficiency 11 Qantas - Domestic • Market share on key routes >60% • Yield
Slide 7: Qantas Regionals and International
Qantas - Regionals • Demand very strong For personal use only • Nearly 2,000 services a week and growing capacity • Most efficient aircraft for the markets • Important feed to domestic and international network 13 Qantas - International • Demand robust from nearly all points of sale (except Japan) •
Slide 8: Jetstar and Jetstar Domestic
Jetstar • Only low cost carrier profitable since start-up For personal use only • 1,300 domestic, international and intra-Asian flights a week • Growth to continue - 10 times launch size by 2010/11 • Enables Group to cover all flying segments profitably • World’s Best Low Cost Airline - Skytrax 15 J
Slide 9: Jetstar International and Asian Investments
Jetstar - International • Eight destinations by September 2007 For personal use only • Targeting leisure/unprofitable Qantas operations • Two-class product proving successful • Operating profit in first year 17 Asian Investments • Jetstar Asia • Pacific Airlines • Pan-Asian opportunity 18
Slide 10: Fleet and Cost and Efficiencies
Fleet • Major fleet renewal program to support growth of flying businesses For personal use only • Investment since 1999/2000 in new, fuel efficient aircraft • Major orders for B787 and A380 aircraft at good prices • Largest B787 order and second largest A380 order 19 Cost and Efficiencies • Cost pr
Slide 11: Unlocking Value and Fleet Ownership
Unlocking Value • Complete segmentation of portfolio businesses over next 18-24 months For personal use only • Separate teams working through options for each business • Overriding principles are: – Transparency of each business – Retention of effective control of key businesses – Preservation of Gr
Slide 12: Fleet Ownership Alternatives and Benefits
Fleet Ownership • Alternatives include: – Sale and leasebacks For personal use only – Refinancing existing fleet – Joint venture with existing lessor – IPO/demerger of a Qantas vehicle • Decision likely in early 2008 23 Fleet Ownership • Operational flexibility • Manage residual value risk • Long-te
Slide 13: Qantas Frequent Flyer Program
Qantas Frequent Flyer Program • Work on transforming QFFP well underway For personal use only • New structure in place with segment reporting in 2007/08 • Also launching significant Program enhancements from second half 2007/08 • Also considering partnership/ownership alternatives 25 Qantas Frequent
Slide 14: IFRIC and Freight Enterprises
IFRIC 13 • Early adopt IFRIC 13 - Customer Loyalty Programs from 1 July 2007 For personal use only • Fundamental change to ‘earned point’ accounting • Move from incremental cost provisioning to ‘fair value’ • $370 million (tax effected) reduction in opening retained earnings at 1 July 2007 27 Freigh
Slide 15: Freight Enterprises and Qantas Holidays
Freight Enterprises • Separation and transparency of assets – Air Cargo For personal use only – Australia – Asia • Organic growth and acquisitions/partnerships to build scale • Acquisitions must satisfy two criteria: – Strategic fit – Right price 29 Qantas Holidays • Established new inbound business
Slide 16: Outlook
Outlook For personal use only • The first six weeks of 2007/08 have been very strong for all our flying businesses and forward bookings are equally buoyant through to the end of the calendar year. As a result, and subject to no major deterioration in market conditions, we are expecting another good
Slide 17: Supplementary Information: Highlights
For personal use only 2006/07 Full Year Results Supplementary Information Thursday 16 August 2007 Highlights Increase/ Year Ended Year Ended (decrease) 30 June 2007 30 June 2006 % Sales and other income $m 15,166 13,661 11.0 Expenditure $m (14,119) (12,935) 9.2 EBIT $m 1,047 726 44.3 Net finance cos
Slide 18: Revenue
Revenue $bn Net passenger revenue For personal use only $15.2bn 16.0 up 13.4% $13.7bn 14.0 Net freight revenue up 1.7% 12.0 Tours and travel 10.0 revenue up 6.7% 8.0 Contract work revenue 6.0 down 7.4% 4.0 Revenue from other sources up 6.4% 2.0 0.0 Note: All revenue movements include the impact of f
Slide 19: Revenue and Expenditure
Revenue – Tours and travel revenue up 6.7% For personal use only – Contract work revenue down 7.4% – Decline in third-party ground handling and catering revenue – Other income up 6.4% – Profit on sale of Air New Zealand shares 5 Expenditure Manpower and staff related costs up 0.4% $bn Selling and ma
Slide 20: Expenditure
Expenditure • Expenditure excluding net finance costs up 9.2% – Manpower and staff related costs up 0.4% For personal use only – Includes increased restructuring costs of $45 million under the Sustainable Future Program (SFP) – Group ASKs up 3.4% – Increase in wages of 3% under current EBAs – Partia
Slide 21: Expenditure: Depreciation, Tours and Travel, Selling
Expenditure – Depreciation and amortisation costs up 9.0% For personal use only – New aircraft in 1H07 (3 x Q400) – $45 million from a change in accounting policy on aircraft modifications – $59 million in additional depreciation on capitalised maintenance costs as required under A-IFRS 9 Expenditur
Slide 22: Expenditure: Capacity Hire, Leases, Property
Expenditure – Capacity hire costs down 18.0% For personal use only – Due to a move to a free sale codeshare agreement with Air Pacific and Air Vanuatu – Non-cancellable operating lease rentals up 16.8% – Reflecting the full year impact of 15 Jetstar A320-200 leases acquired in 2005/06 and the 9 B738
Slide 23: Expenditure: Other Costs and Unit Costs
Expenditure – Other costs up 49.6% For personal use only – Includes the unfavourable impact of $54 million from the accounting recognition of open hedging instruments (hedge ineffectiveness) as required under A-IFRS, compared to a favourable impact of $27 million in the comparative results. – Includ
Slide 24: Qantas Brands and Jetstar Brands
Qantas Brands $m PBT $m 800 For personal use only • PBT of $773m, or 74.9% of Group PBT 600 • RPKs up 2.9% 400 • ASKs down 1.4% • Seat factor up 3.4% pts to 80.6% 200 • Yield increased by 8.4% 0 June 2006 June 2007 15 Jetstar Brands PBT $m 120 $m • PBT of $87m, or 8.5% of Group $87m PBT 100 80 • RPK
Slide 25: Portfolio Businesses and Equity Accounted Investments
Portfolio Businesses Year Ended Year Ended Increase/ 30 June 2007 30 June 2006 (decrease) For personal use only $m $m $m Qantas Flight Catering 33 37 (4) Qantas Holidays 47 45 2 Qantas Defence Services 17 9 8 Share of net profits of Associates and JVs 47 39 8 Other Subs & Eliminations 28 (11) 39 Tot
Slide 26: Balance Sheet and Cashflow; Aircraft in Service
Balance Sheet and Cashflow Year Ended Year Ended Increase/ 30 June 2007 30 June 2006 (decrease) % For personal use only Capital Expenditure $m 1,236 1,527 (19.1) Operating cashflow $m 2,353 2,026 16.2 Increase/ June 2007 June 2006 (decrease) % Net Debt 1 $m 3,976 4,961 (19.9) Total Equity $m 6,195 6