Qantas Airways Limited · ASX:QAN
Qantas Airways — FY2015 Earnings Presentation
45 slides from Qantas Airways's earnings presentation, Aug 20, 2015
Slide 1: Qantas Airways Limited FY15 Results
Qantas Airways Limited FY15 Results 20 August 2015 ASX: QAN US OTC: QABSY
Slide 2: A Strong Platform For Sustainable Growth
A Strong Platform For Sustainable Growth • Delivering on our commitments for $1.6b earnings1 turnaround in FY15 – Qantas Transformation driving permanent shift in cost base and competitive position – Optimal capital structure restored, >$1b debt reduction completed – Strengthened superior dual brand
Slide 3: Robust Financial Results Driven by Transformation
Robust Financial Results Driven by Transformation KEY GROUP FINANCIAL METRICS FY15 FY14 VLY%5 Underlying PBT1 ($M) 975 (646) >100 Statutory profit after tax ($M) 560 (2,843) >100 Statutory earnings per share (c) 25.4 (128.5) >100 ROIC (%) 16 (1.5) >100 Revenue ($M) 15,816 15,352 3.0 Transformation b
Slide 4: FY15 Result Key Drivers
FY15 Result Key Drivers Underlying Profit Before Tax ($M) 182 (204) Transformation Benefits 975 136 (52) 20 ❶Revenue benefits $182m1 Net CPI4 Net Other ❷Fuel benefits $136m2 financing ❸Non-fuel expenditure benefits $576m costs RASK 576 excl FX3 182 FY14 Transformation 136 191 Underlying PBT 461 FY15
Slide 5: Returning Surplus Capital To Shareholders
Returning Surplus Capital To Shareholders • Having returned to optimal capital structure, surplus capital is proposed to be returned to shareholders • $505m capital return proposed – 23c per share capital return combined with share consolidation1 – Equitable method to return cash to all shareholders
Slide 6: FY15 Segment Results
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Slide 7: All Business Units Performing Strongly
All Business Units Performing Strongly • All operating segments achieved ROIC>WACC Underlying EBIT ($M) • Qantas International Underlying EBIT1 improved $764m vs FY14 Qantas Qantas Jetstar Qantas Qantas Domestic International Group Loyalty Freight • Qantas Domestic Underlying EBIT improved $450m vs
Slide 8: Robust Qantas Domestic Result
Robust Qantas Domestic Result • Underlying EBIT of $480m FY15 FY14 VLY % – Transformation benefits of $302m Revenue $M 5,828 5,848 (0.3) – RASK1 improvement of 4.5% with yield and load recovery Underlying EBIT $M 480 30 >100 – Total revenue impacted by sale of QDS2 ASKs M 36,638 37,824 (3.1) – Maint
Slide 9: Qantas Domestic Areas of Focus for FY16
Qantas Domestic Areas of Focus for FY16 • Maintain RASK advantage to competitor above 15%1 Delivering Customer Experiences that • Continue network enhancements, e.g. SYD– MCY and MEL– OOL2 Earn a Revenue • New PER3 lounge opening August 2015, BNE4 lounge construction starts 1H16 Premium • Investment
Slide 10: Successful Turnaround of Qantas International
Successful Turnaround of Qantas International • Turnaround of $764m for Underlying EBIT of $267m FY15 FY14 VLY % – Transformation benefits of $408m Revenue $M 5,467 5,297 3.2 11 – 6% RASK1 growth on load and yield strength Underlying EBIT $M 267 (497) >100 – $195m reduction in depreciation from FY14
Slide 11: Qantas International Areas of Focus for FY16
Qantas International Areas of Focus for FY16 • Improve on average NPS1 achieved in FY15 • International A330 cabin reconfigurations (10) completed Owning the High Yield Customer • Ongoing investment in service and leadership training for our people • Leveraging technology with new PROS revenue manag
Slide 12: Record Result for Jetstar Group
Record Result for Jetstar Group • Record Underlying EBIT of $230m Jetstar Group FY15 FY14 VLY % • Significant improvement across Jetstar Group with continued cost transformation and revenue recovery Revenue $M 3,464 3,222 7.5 – Group controllable unit cost improvement of 2%1 Underlying EBIT $M 230 (
Slide 13: Jetstar Group Areas of Focus for FY16
Jetstar Group Areas of Focus for FY16 Safety & compliance Cost discipline Customer advocacy People engagement • Leverage dual brand with Qantas Domestic Jetstar Australia • Continued focus on customer innovation • Grow through increased utilisation • Maintain network advantage on core routes Jetstar
Slide 14: Record Result for Qantas Loyalty
Record Result for Qantas Loyalty • Record Underlying EBIT1 of $315m FY15 FY14 VLY % • Billings2 up 5%, external billings up 7% Underlying EBIT $M 315 286 10 – 33 new Coalition Loyalty partners3 Billings $M 1,369 1,306 4.8 – 5% growth in QFF direct earn consumer credit card accounts (outperforming in
Slide 15: Qantas Loyalty Areas of Focus for FY16
Qantas Loyalty Areas of Focus for FY16 • Sustainable billings growth across all partner segments (including airlines, financial services and retail) Consistent and Goals • Earnings diversification with growth of ‘Core Innovations’1 and break-out Diversified initiatives; leverage Taylor Fry investmen
Slide 16: Record Result for Qantas Freight
Record Result for Qantas Freight • Record Underlying EBIT of $114m1 FY15 FY14 VLY % – Transformation benefits of $38m achieved across fleet and ground operations Revenue $M 1,067 1,084 (1.6) – Improved customer experience Underlying EBIT $M 114 24 >100 – Yield2 reductions offset by higher loads Capa
Slide 17: Group Financial Framework and FY15 Result
Group Financial Framework and FY15 Result
Slide 18: Financial Framework Aligned with Shareholder Objectives
Financial Framework Aligned with Shareholder Objectives Enhancing long-term shareholder value 1. Maintaining an Optimal 2. ROIC > WACC 3. Disciplined Allocation Capital Structure Through the Cycle of Capital Target: grow Invested Capital Target: minimise WACC Target: ROIC > 10%1 with disciplined inv
Slide 19: Maintaining an Optimal Capital Structure
Maintaining an Optimal Capital Structure Achieved >$1b debt reduction target • Net debt reduced by $1.1b1 since FY13 – Return to optimal capital structure – leverage metrics above target range (BBB-/Baa3 to BBB/Baa2) resulting in surplus capital – Debt levels to be aligned with respect to optimal ca
Slide 20: Maintaining an Optimal Capital Structure
Maintaining an Optimal Capital Structure Extended debt maturity profile • Minimised refinancing risk • Retained access to diverse funding sources – Extended tenor – Increased certainty over funding availability – Weighted average debt maturity ~5 years – Flexibility for future funding requirements –
Slide 21: Maintaining an Optimal Capital Structure
Maintaining an Optimal Capital Structure Robust liquidity • Liquidity pool enhanced Undrawn Facilities2 ($M) Average maturity – Cash $2.9b1 ~3.5 years – >$1b undrawn facilities, increased by $410m2 Average maturity – ~40% of Group fleet now unencumbered3 ~2 years Increased by net 20 aircraft over
Slide 22: Improving Return on Invested Capital
Improving Return on Invested Capital Delivering ROIC>WACC through the cycle $M FY15 FY14 • Group ROIC of 16% Underlying PBT 975 (646) Add back: Underlying net finance costs 258 206 – Meeting Group target of ROIC > 10% Add back: Non-cancellable aircraft 495 520 • All operating segments delivered ROIC
Slide 23: Disciplined Allocation of Capital
Disciplined Allocation of Capital Growing invested capital for sustainable earnings growth FY15 net capital expenditure1 $944m in line with guidance Debt Reduction • Net capex and lease investment in line with $0.7b guidance2 $1.1b Operating • Group average fleet age maintained at young 7.7 years3 C
Slide 24: Disciplined Allocation of Capital
Disciplined Allocation of Capital Returning surplus capital to shareholders • Qantas will continue to review its optimal capital structure and, where there is surplus capital, assess how to enhance shareholder value with the appropriate mix of growth and shareholder distributions – Base plans incorp
Slide 25: Hedging Update
Hedging Update Benefit of lower fuel prices protected Hedging & Fuel Cost Outlook1 (A$b) Inclusive of Option Premium A$4.50b • Hedging approach protects against unfavourable movements in Fuel and FX, while allowing for Reflecting FY16 consumption participation to favourable price movements A$3.90b A
Slide 26: Reversion of Sydney Terminal 3 Lease
Reversion of Sydney Terminal 3 Lease Long-term certainty , positive strategic and financial outcome • Commercial agreement reached with Sydney Airport delivers long-term certainty over future operations in Sydney domestic Terminal 3 • Reversion of T3 lease to Sydney Airport from 1 September 2015 – 3
Slide 27: Strategy Update and Outlook
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Slide 28: Continued Delivery of Business Transformation
Continued Delivery of Business Transformation Realising benefits ahead of targets $894M TRANSFORMATION BENEFITS REALISED IN FY15 Cost Reduction2 $712m • Non-operational staff reduction Maintaining Cost Commitment: • Fuel burn efficiency program • Ex-fuel expenditure reduced by 6 per • B747 base clos
Slide 29: Continued Delivery of Business Transformation
Continued Delivery of Business Transformation TARGET: $450M BENEFITS TO BE REALISED IN FY16 $2b Qantas Transformation Pipeline Consolidation • Contact centres Development phase $>300m Productivity Development phase • Catering centres $900m • Jetstar's Lowest Seat Cost program Implementation phase •
Slide 30: Continued Delivery of Business Transformation
Continued Delivery of Business Transformation Improving long-term competitive position Unit Cost Gap to Domestic Strategic outcomes by FY17: Competitor2 • Group ex-fuel expenditure reduced by >10%1 • Qantas Domestic unit cost gap2 to close to <5% • Qantas International unit cost comparable to compet
Slide 31: Continued Delivery of Business Transformation
Continued Delivery of Business Transformation Delivering against a balanced scorecard Target Progress to Date Metric Timeframe $2b gross benefits $1,098m benefits realised Accelerated FY17 Transformation >10% ex-fuel expenditure reduction1 Ex-fuel expenditure reduced by 6%2 Benefits 5,000 FTE reduct
Slide 32: Customer Focus Driving Brand Strength and Yield Premium
Customer Focus Driving Brand Strength and Yield Premium Australia’s Preferred Airlines With Strong Brand Image Domestic Safety Reputation 72% Domestic preference remains strong, 94% An overwhelming 94% of Australian with 72% of Australian flyers preferring flyers agree Qantas is a really safe to fly
Slide 33: Building on the Group's Long-term Competitive Advantages
Building on the Group’s Long-term Competitive Advantages Dual brand strategy at core of Group success • Group-focused decision making embedded FY15 Domestic Results1 • Customer insights informing ongoing dual brand network refinement • Completed review of 120+ domestic routes in May 2015, resulting
Slide 34: Disciplined Investment To Enhance Long-term Shareholder Value
Disciplined Investment To Enhance Long-term Shareholder Value 1. Building on the Group’s competitive advantages Integrated portfolio of premier brands Superior domestic market position Global network reach Customer experience and insights 2. Positioning the Group to succeed in growth markets
Slide 35: Building a resilient and sustainable Qantas International
Building a resilient and sustainable Qantas International Strict parameters for reinvestment met 1. Group financial priorities achieved >$1b debt reduction completed Recommencement of shareholder distributions 2. Resilient and sustainable Qantas International Major restructure since FY12 with
Slide 36: Building a resilient and sustainable Qantas International
Building a resilient and sustainable Qantas International Flexibility in Group fleet planning • Maximum fleet plan flexibility maintained with B787-9 order B787-9 Order, Option and Purchase Right Timing – 8 x B787-9 deliveries from 1H FY18 Firm Purchase 5 x B787-9 options exercised Timing deliveri
Slide 37: Building a resilient and sustainable Qantas International
Building a resilient and sustainable Qantas International B787-9 aircraft overcome the tyranny of distance More direct flights on ultra-efficient B787-9 deliver Increased Direct Range of B787-91 superior network and competitive cost base (Range shown from East Coast Australia) • 4 x B787-9 to arrive
Slide 38: Engaging Our People
Engaging Our People Driving workplace change and improved culture • Employee engagement maintained at 75% in 20151 ─ Strong outcome amid accelerated business transformation of last two years • Commitment to driving workplace change and improved culture ─ Three-year program focused on continuous impr
Slide 39: Embedding Sustainability and Resilience Across Qantas Group
Embedding Sustainability and Resilience Across Qantas Group Sustainability priorities 1. Formation of Sustainability and Resilience Committee (SRC) Employees Senior representative covering all material issues 2. Creating value by recognising and responding to risks and Shareholders Community oppor
Slide 40: Outlook – Domestic Market Conditions
Outlook – Domestic Market Conditions • FY15 market capacity contraction of 1.4% Total Market Domestic Capacity Growth2 • Demand profile remains mixed in 1H16 16.0% Market Growth Average Market Growth – Resources sector continuing to soften in WA, QLD, 12.0% planning for further demand decline FY13 A
Slide 41: Outlook – International Market Conditions
Outlook – International Market Conditions FY15 International Capacity Growth3 • Economic factors including lower AUD, excess market capacity have led to moderating competitor growth compared to FY14 +9.5%1 Competitor – Full service international carriers adopting more Growth +1% seasonal approach to
Slide 42: Outlook
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 • Mitigating external risk through robust hedging program, cap
Slide 43: Outlook
Outlook • Current Group operating expectations: – Qantas Group capacity expected to increase by 3-4% in 1H16 compared to 1H15 – Group Domestic capacity expected to increase by 0-1% in 1H16 compared to 1H15 – International capacity increase driven by utilisation, new route launches, B787-8 transition
Slide 44: 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 August 2015. The informati
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