Qantas Airways Limited · ASX:QAN
Qantas Airways — H1 FY2020 Earnings Presentation
58 slides from Qantas Airways's earnings presentation, Feb 20, 2020
Slide 1: Qantas Group HY20 Investor Presentations
20 February 2020 ASX Market Announcements Office Australian Securities Exchange Limited Lodged electronically via ASX Online Qantas Group HY20 Investor Presentations Qantas Airways Limited attaches the following documents: • Qantas Group HY20 Investor Presentation; and • Qantas Group HY20 Investor P
Slide 2: Qantas Airways Limited 1H20 Results
Qantas Airways Limited 1H20 Results 20 February 2020 ASX: QAN US OTC: QABSY
Slide 3: 1H20 highlights
1H20 highlights Strong result in mixed demand conditions • First half Underlying Profit Before Tax (PBT)1 $771m, Statutory PBT $648m, Statutory EPS 28.8 cps • Continued strong Group Return on Invested Capital (ROIC) of 19.6%2; all segments delivering ROIC > WACC3 • Record Qantas Loyalty earnings4, r
Slide 4: Integrated portfolio provides a stable earnings base
Integrated portfolio provides a stable earnings base Dual Brand Domestic strategy at the core of the Group’s Operating Segment EBIT5 portfolio strength. Two largest1 outbound airlines in Australia $1.2b Group Domestic2 Underlying EBIT of $645m, resilient $ performance in mixed demand conditions and
Slide 5: Maximising leading dual brand domestic position
Maximising leading dual brand domestic position Group Domestic EBIT5 ($M) 14.4% Operating margin1 at Qantas Domestic in 1H20 16.3% Operating margin1 at Jetstar Domestic in 1H20 556 522 653 692 645 1H16 1H17 1H18 1H19 1H20 >WACC ROIC2 > WACC for Qantas Domestic and Jetstar Domestic business Domestic
Slide 6: Group International leveraging sustainable competitive advantage and home based strength
Group International leveraging sustainable competitive advantage and home based strength Airline Group Operating Margin 6 >WACC Qantas International rolling 12 month ROIC1 9.9% Japan Airlines 10.9% 8.7% Qantas Group >WACC Jetstar International2 rolling 12 month ROIC1 9.2% 6.6% Singapore Airlines 6.5
Slide 7: Diversification and growth at Qantas Loyalty
Diversification and growth at Qantas Loyalty Qantas Frequent Flyer Members (M) $196m Record1 first half Underlying EBIT, result up 12% 13.2 12.6 12.0 11.6 11.2 +5.4% Qantas Frequent Flyer member growth to 13.2 million 10.5 9.7 9.0 8.3 Increase2 in points earned in 1H20 across Coalition Partners incl
Slide 8: 1H20 key Group financial metrics
1H20 key Group financial metrics Profit metrics Balance Sheet metrics Traffic statistics $771m 19.6% > WACC5 +2.8% Underlying PBT1, down2 0.5% Rolling 12 month Underlying ROIC% Unit Revenue7 $648m 17.6% > WACC5 +3.2% Statutory PBT, down2 6.2% Rolling 12 month Statutory ROIC% Total Unit Cost8 34.3c $
Slide 9: Unit Cost breakdown
Unit Cost breakdown 1H19 Group Unit Cost 1H20 VLY %3 (Restated) Total Unit Cost1 8.18 7.93 (3.2) Excluding: Fuel (2.57) (2.55) Change in FX rates – 0.07 Impact of changes in the discount rate and other actuarial assumptions (0.02) (0.02) Share of net profit/(loss) of investments accounted for under
Slide 10: 1H20 profit bridge
1H20 profit bridge 84 Transformation 167 costs, discretionary 125 bonuses and FX movements other 775 (3) 771 (AASB 16 and IFRIC (15) Fair Value hedging (12) Ticketed Passenger agenda decision Transformation Revenue2 transition) (51) 196 (125) 113 costs, discretionary 47 (123) bonuses and 691 Depreci
Slide 11: Items not included in Underlying PBT
Items not included in Underlying PBT 1H19 $M 1H20 Comments (Restated) 2 Redundancies, restructuring, 787-9 introduction, accelerated Transformation costs 117 104 depreciation on 747s and A320s, and other costs which form part of the transformation program Discretionary bonuses to non-executive emplo
Slide 12: Operating cash flow trend
Operating cash flow trend Rolling 12 Months Statutory EBITDA ($M)1 First Half Operating Cash Flow ($M) 3,245 3,415 1,734 2,677 2,937 1,435 1,475 1,173 A B 12 months 12 months 12 months 12 months 1H17 1H18 1H192 1H20 to Dec 16 to Dec 17 to Dec 18 to Dec 19 • Stable Statutory EBITDA1; Quality of earni
Slide 13: Segment Results
w 108 Segment Results
Slide 14: Qantas Domestic
Qantas Domestic • First half Underlying EBIT down1 2.7% 1H19 1H20 VLY %7 (Restated) • Unit Revenue up 0.9% despite mixed demand environment and flat market capacity settings Revenue $M 3,218 3,230 (0.4) — Modest recovery in demand in second quarter Underlying EBIT $M 465 478 (2.7) — Continued leader
Slide 15: Qantas International
Qantas International • Improved earnings1, despite ~$65m impact from Hong Kong and freight markets 1H19 1H20 VLY %3 (Restated) • Strong Unit Revenue growth1 of 6.0%, Revenue $M 3,843 3,693 +4.1 — Supported by competitor capacity contraction of 1.9%2 Underlying EBIT $M 122 119 +2.5 • ROIC > WACC • Ne
Slide 16: Project Sunrise update
Project Sunrise update • Long term strategic competitive advantage • Airbus A350–1000 selected as preferred aircraft (no orders placed) • Completed design of cabin configuration • Three research flights completed in 1H20; emissions fully offset — Findings have generated data that can be applied acro
Slide 17: Jetstar Group
Jetstar Group • Strong International and Ancillary revenue1 growth offset by weaker domestic 1H19 1H20 VLY %8 leisure demand, FX and Protected Industrial Action (Restated) — International2 performance underpinned by 4% capacity growth Revenue1 $M 2,120 2,048 +3.5 — Ancillary revenue1 per passenger u
Slide 18: Qantas Loyalty
Qantas Loyalty • Record first half Underlying EBIT result up1 12% 1H19 1H20 VLY %6 (Restated) – Maintaining 2H19 double digit EBIT growth momentum Revenue $M 872 809 +7.8 • Program overhaul announced in June 2019 underpinning strong uplift in member engagement, with record points earned and redeemed
Slide 19: Financial Framework
w 108 Financial Framework
Slide 20: Financial Framework is a proven success and will continue to guide our capital decisions
Financial Framework is a proven success and will continue to guide our capital decisions 1 2 3 Maintaining an optimal capital structure ROIC > WACC2 Disciplined allocation of capital through the cycle Minimise cost of capital by targeting Grow invested capital with disciplined a net debt range of $5
Slide 21: Maintaining an optimal capital structure
Maintaining an optimal capital structure Debt maturity profile as at 31 December 2019 ($M)1 Optimal capital structure $M 1,800 • Net debt2 at $5.3b, lower end of the target range — Provides significant financial flexibility 1,600 Strong liquidity 1,400 • Maximum maturity tower <30% of FY19 Debt stru
Slide 22: Delivering ROIC >10% through the cycle
Delivering ROIC >10% through the cycle • At current pricing and before capacity reductions, FY20 fuel cost is FY20 Fuel Cost Outlook (A$B) expected to be ~A$3.85b1 3.85 3.85 — Expected fuel cost is 100% hedged for the remainder of FY20 3.23 3.04 3.23 — An average of ~45% participation2 to declines i
Slide 23: Delivering ROIC >10% through the cycle
Delivering ROIC >10% through the cycle Transformation status Achieved $188m Transformation benefits in 1H201 with benefits skewed to 2H20 Fleet and Network Digital $113m cost • Additional three 787-9 • Personalisation helping to drive revenue and margin advantage benefits Dreamliners, retirement of
Slide 24: Disciplined capital allocation
Disciplined capital allocation Disciplined capital expenditure • Net capital expenditure1 of $1.3b in 1H20 — Three 787-9 Dreamliners delivered — Reconfiguration and refresh programs for A380 and Turboprop aircraft — Singapore Lounge upgrades completed — Continued investment in Transformation • FY20
Slide 25: Disciplined capital allocation
Disciplined capital allocation Shareholder distributions Shares on Issue (M) • Distributed 13 cents per share final dividend, fully franked totalling ~33% reduction 2 $204m in 1H20 • Completed off-market share buy-back of $443m in 1H20 2,196 2,062 1,919 1,832 1,808 1,745 1,684 1,626 1,571 1,491 1,46
Slide 26: Outlook
w 108 Outlook
Slide 27: Domestic demand environment update
Domestic demand environment update Current Domestic operating environment Domestic mitigation strategies • Coronavirus outbreak has dampened the modest • Reduce1 2H20 capacity by ~2.3% (ex WA) recovery in demand seen in 2Q20 and forward intake softness1 is evident — Primarily impacting services betw
Slide 28: International demand environment update
International demand environment update Current International operating environment International mitigation strategies • The impact1 of Coronavirus is unfolding • No change to UK network2; USA network expanding2, launched new BNE–SFO, BNE-ORD routes and the outlook is uncertain and continuing to ex
Slide 29: Outlook
Outlook FY20 outlook Group capacity outlook Through mitigants such as capacity cuts and the anticipated benefit from recent material • Group Domestic capacity expected to decrease5 falls in fuel costs, the Group expects the net negative impact of Coronavirus to be between by 2.3% in 2H20 $100-150m E
Slide 30: Q&A
w 108 Q5A
Slide 31: Disclaimer & ASIC Guidance
Disclaimer & ASIC Guidance This Presentation has been prepared by Qantas Airways Limited (ABN 16 009 661 901) (Qantas). Summary information This Presentation contains summary information about Qantas and its subsidiaries (Qantas Group) and their activities current as at 20 February 2020, unless othe
Slide 32: Qantas Airways Limited 1H20 Results Supplementary Presentation
Qantas Airways Limited 1H20 Results Supplementary Presentation 20 February 2020 ASX: QAN US OTC: QABSY
Slide 33: Group Performance
QANTAS Group Performance
Slide 34: 1H20 key Group financial metrics
1H20 key Group financial metrics 1H19 1H20 VLY % 11 Comments (Restated)10 Underlying Profit Before Tax1 ($M) 771 775 (0.5) Strong result despite significant headwinds Underlying Earnings per Share2 (c) 34.3 31.3 9.6 Accretive benefit of share buy-backs 1H19 included $88m benefit of gain on the sale
Slide 35: Underlying Income Statement summary
Underlying Income Statement summary 1H19 $M 1H20 VLY % 3 Comments (Restated)2 Group Unit Revenue increase of 2.8%, strong ancillary revenue Net passenger revenue 8,305 8,027 3.5 growth Net freight revenue 496 525 (5.5) Weak global demand for freight forwarding due to trade wars Other revenue 663 654
Slide 36: Reconciliation to Underlying PBT
Reconciliation to Underlying PBT $M 1H20 1H19 (Restated)2 Statutory Other items not Underlying1 Statutory Other items not Underlying1 included in included in Underlying PBT Underlying PBT Net passenger revenue 8,305 – 8,305 8,027 – 8,027 Net freight revenue 496 – 496 525 – 525 Other revenue 663 – 66
Slide 37: Revenue detail
Revenue detail Net passenger revenue up 3% • Group Unit Revenue increased 2.8% – Group Domestic1 Unit Revenue increased 0.5% Revenue ($B) – Group International2 Unit Revenue increased 4.8% • Group capacity flat, disciplined capacity management in high fuel environment 9.2 3% 9.5 • Net Revenue transf
Slide 38: Expenditure detail
Expenditure detail Fuel up 1% • Impact of low AUD Expenditure 1 ($B) • Lower USD jet fuel prices • Offset by fuel efficiency initiatives and lower activity related consumption 8.3 3% 8.6 Manpower and staff-related flat • Increased flying and non-flying activity • Offset by reduction following sale o
Slide 39: Cash flow
Cash flow $M 1H20 1H19 VLY % 3 • Stable Statutory EBITDA4 trend; Quality of earnings remains (Restated)2 strong Operating cash flows 1,475 1,435 2.8 • Operating cash flow variance to 1H19 related to timing Investing cash flows (excluding aircraft differences (1,262) (1,036) (22) operating lease refi
Slide 40: Invested Capital calculation
Invested Capital calculation $M Dec 19 Dec 183 • Increase in provisions primarily due to impact of declining discount rates Receivables (current and non-current) 1,084 1,063 • Increase in revenue received in advance due to increases in Inventories 379 367 the value of forward bookings and unredeemed
Slide 41: ROIC calculation
ROIC calculation $M 12 mths to Dec 19 12 mths to Dec 18 Underlying PBT1 1,322 1,381 Add back: Underlying net finance costs 270 236 Add back: Non-cancellable aircraft operating lease rentals1 – 131 Add back: Lease depreciation under AASB 16 370 179 Less: Notional depreciation2 (109) (117) Less: Cash
Slide 42: Net debt target range
Net debt target range • Net debt target range = 2.0x – 2.5x ROIC EBITDAR where EBITDAR achieves a fixed 10% ROIC • At current average Invested Capital of $8.4b, optimal net debt range is $5.1b to $6.3b • Targeting net debt to be within the range on a forward looking basis $b Invested Capital 8.4 Ave
Slide 43: Net debt
Net debt $M 1H20 FY19 VLY $M5 • Borrowings of $425m from $A Medium-Term Note (Restated)4 • Repayment of $189m secured amortising debt Current interest-bearing liabilities on 619 610 (9) balance sheet • Reduction in cash at end of period includes three 787-9 Non-current interest-bearing liabilities o
Slide 44: Net debt movement
Net debt movement 1H19 • The Financial Framework considers aircraft leases as part of $M 1H20 (Restated)1 net debt Opening Net Debt (30 June) (4,710) (4,903) — Aircraft leases are recognised in net debt at fair value Net cash from operating activities 1,475 1,435 — Principal portions of rentals are
Slide 45: Impact of AASB 16 adoption from 1 July 2019
Impact of AASB 16 adoption from 1 July 2019 The main changes from existing accounting standards to the new requirements under AASB 16 are The adoption of AASB 16 in 1H20 using the full retrospective approach required restatement of the 1H19 and FY19 result for comparative purposes. There is a net Ch
Slide 46: Impact of AASB 16 on financial statement presentation
Impact of AASB 16 on financial statement presentation The adoption of AASB 16 has a number of impacts on financial statement metrics with general impacts outlined below. New Metric Lease Comments standard Statutory EBIT Higher EBIT under AASB 16 as Interest on Leases excluded Income Statement Varies
Slide 47: AASB 16 and IFRIC fair value hedge restatement impact – Income Statement
AASB 16 and IFRIC fair value hedge restatement impact – Income Statement $M 1H19 FY19 6 months ended AASB 16 IFRIC Fair 6 months 12 months ended AASB 16 IFRIC Fair 12 months 31 Dec 2018 Remeasurements Value Hedges ended 31 Dec 30 Jun 2019 Remeasurements Value Hedges ended 30 Jun (Reported) 2018 (Rep
Slide 48: Impact of AASB 16 adoption from 1 July 2019
Impact of AASB 16 adoption from 1 July 2019 Impact on Underlying PBT Impact on items outside Underlying PBT Decrease in ‘Non-cancellable aircraft lease rentals’ and ‘Operating Net gain on disposal of catering business – Applying AASB 16 to the expenses’ – Operating lease payments for aircraft, prope
Slide 49: Group Operational Information
Group Operational Information
Slide 50: Fleet strategic priorities
Fleet strategic priorities Qantas Group fleet strategy Current priorities Renewal • Grow 787-9 Dreamliner fleet to 14 aircraft Right aircraft • All 747s retired by end of 2020 Right route • Ordered 18 x A321LR NEOs to replace A320 aircraft and provide flexibility • Now have options for up to 36 x A3
Slide 51: Fleet as at 31 December 2019
Fleet as at 31 December 2019 Aircraft Type 1H20 FY19 Change • Group fleet8 of 316 aircraft as at 31 December 2019. A380-800 12 12 – Movements in 1H20 include: 747-4001 – 1 (1) 747-400ER 6 6 – — Three 787-9 additions A330-200 18 18 – — One 747-400 disposal A330-300 10 10 – 737-800NG 75 75 – — Five Q3
Slide 52: The Qantas fleet is 'fit for purpose'
The Qantas fleet is ‘fit for purpose’ Adopting next generation Evaluating future Exit fading technology1 Mainstream fleet (fit for purpose)2 technology3 technology4 Replace aircraft Maintain aircraft life and keep product relevant Select right aircraft and build scale quickly Identify technology tha
Slide 53: Supplementary Segment Information
Supplementary Segment Information
Slide 54: Jetstar Group
Jetstar Group 6 5 Business Ownership1 Launch Aircraft2 ❶Jetstar Australia 100% 2004 52 x A320s/A321s ❷Jetstar International 100% 2006 11 x 787-8s ❸Jetstar New Zealand3 100% 2009 7 x A320s ❹Jetstar Asia (Singapore) 49% 2004 18 x A320s 4 2 ❺Jetstar Japan 33% 2012 25 x A320s ❻Jetstar Pacific (Vietnam)4
Slide 55: Jetstar in Asia
Jetstar in Asia1 • Adapting the Jetstar network in Asia to take advantage of changing market conditions – Jetstar commenced first LCC service directly linking Australia and South Korea with strong early demand2. Funded by withdrawal of Zhengzhou, China Charter – Jetstar Asia announced launch3 of ser
Slide 56: Diversification and growth at Qantas Loyalty
Diversification and growth at Qantas Loyalty One of the world’s most diverse airline loyalty programs • 5% growth1 in QFF membership; 26% growth in QBR2 membership with >280,000 SME members3 • >550 Coalition Partners4; 18 new QBR partners onboarded • BP partnership launched 1 February; first phase r
Slide 57: Glossary
Glossary Available Seat Kilometres (ASK) – Total number of seats available for passengers, Net Working capital – Net total of the following items disclosed in the Group’s Consolidated multiplied by the number of kilometres flown Balance Sheet: receivables, inventories and other assets reduced by pay
Slide 58: 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 20 February 2020, unless othe