Qantas Airways Limited · ASX:QAN
Qantas Airways — H1 2023 Earnings Presentation
60 slides from Qantas Airways's earnings presentation, Feb 23, 2023
Slide 1: Qantas Group HY23 Investor Presentations ASX cover letter
23 February 2023 ASX Market Announcements Office Australian Securities Exchange Limited Lodged electronically via ASX Online Qantas Group HY23 Investor Presentations Qantas Airways Limited attaches the following documents: • Qantas Group HY23 Investor Presentation; and • Qantas Group HY23 Investor P
Slide 2: 1H23 Results Presentation
1 H 2 3 R E S U LT S P R E S E N TAT I O N Qantas Airways Limited 23 February 2023 ASX: QAN US OTC: QABSY
Slide 3: Disclaimer
Disclaimer 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 related bodies corporate (Qantas Group) and their activities current as at 23 February 2023, unless otherwis
Slide 4: Result highlights
Result highlights Restoring operational performance, investing for Record 1H23 profit result, with strong demand our customers, rewarding our people and building offsetting fuel cost increases $1,428m long-term shareholder value Record 1H23 Underlying • Record 1H Qantas Domestic, Qantas Internationa
Slide 5: Three-Year COVID Recovery Plan on track for completion as fleet investment accelerates
Three-Year COVID Recovery Plan on track for completion as fleet investment accelerates Financial COVID Recovery Plan Accelerating investment cycle in next generation fleet Refer to Three-year Recovery Plan on slide 10 of the Supplementary Presentation • Delivered $1b cost benefit program1 • Entering
Slide 6: Structurally uplifted portfolio earnings demonstrated by the Group's 1H23 performance
Structurally uplifted portfolio earnings demonstrated by the Group’s 1H23 performance • Proven dual brand strategy at the core of Group’s portfolio strength Domestic • Leadership positions in corporate, SME1, premium leisure and price-sensitive leisure segments Operating Segment EBIT ($B) • Leading
Slide 7: Industry challenges expected to persist into calendar year 2023
Industry challenges expected to persist into calendar year 2023 Fleet delivery and supply chain delays Labour availability and training Elevated fuel and interest rates • Design certification and supply chain • Australian labour market supply • Elevated fuel costs including record production constra
Slide 8: Strong demand for travel to continue into calendar year 2023
Strong demand for travel to continue into calendar year 2023 1 Intent to travel remains significantly above pre-COVID levels1 QFF net spend intentions in the next 6 months4 2x more plan to fly domestically in the next 12 months International travel 33% Domestic travel 31% +60% plan to fly internatio
Slide 9: Qantas Domestic operations stabilised and positioned to unwind inefficiencies
Qantas Domestic operations stabilised and positioned to unwind inefficiencies Operational reliability Aircraft utilisation rates6 Pre- Jul Aug Sep Oct Nov Dec Jan COVID 22 22 22 22 22 22 23 Avg.1 100% On time (OTP2) 74 75 81 81 52 67 69 71 departures (%) % of pre- Vs main 11 COVID7 competitor3 9 6 7
Slide 10: The Group is strongly positioned across key international markets
The Group is strongly positioned across key international markets Projected total international market capacity Group International capacity outlook by market ASKs % FY19: Competitor market capacity1 % share of FY19 2H23 FY24 Qantas Group International capacity Market Group International Group capac
Slide 11: Value in travel remains a priority
Value in travel remains a priority >1 million 2 million ~3 million Qantas Domestic: Total Jetstar Domestic: Total Total flights redeemed using 1H23 passengers flown with fares1 passengers flown with fares1 Qantas Points in 1H233 below $200 in 1H23 below $100 in 1H23 1 in 4 2.4 million 30-45% Qantas
Slide 12: Investing for our customers
Investing for our customers Qantas maintains clear points-of-difference as a premium, full-service carrier Lounge • $100m investment over the next 3 years on lounges with ~10 new or refurbished lounges including Adelaide, Auckland, Hobart, Hong Kong, London First, Melbourne International Business an
Slide 13: Valuing our planet
ESG1: Qantas Group’s progress in our sustainability priorities Our priorities Our 1H23 actions • Jetstar Australia and New Zealand’s narrow body fleet renewal with 4 x A321LRs Emissions targets: delivered, with reduced fuel burn emissions by >15%5 Building sound • Reduce net emissions by • Launched
Slide 14: Investing in our people and communities
ESG1: Investing in our people and communities Our priorities Our 1H23 actions • Staff travel enhancements, including 25% flight discount and 20% Qantas Hotels discount Support our people to • Targeted “Your Say” surveys launched in February 2023 to measure engagement, inclusion and wellbeing feel sa
Slide 15: Financial Performance
FINANCIAL PERFORMANCE QANTAS GROUP
Slide 16: 1H23 Key Group financial metrics
1H23 Key Group financial metrics Profit Metrics Balance Sheet and Cash Flow metrics Key statistics (vs 1H22) $1,428m $2,811m +310% +566% ASKs7 RPKs8 Underlying profit before tax1 Operating cash flow +55% (41)% (45)% $1,001m $738m Unit Total Unit Unit Cost (ex-fuel Statutory profit after tax Net Capi
Slide 17: 1H23 Profit bridge compared to 1H22
1H23 Profit bridge compared to 1H22 1H22 1H23 ASKs1 (m) 13,506 +310% 55,438 (110) 86 Selling & Marketing $ (262) m Capacity Hire $ (115) m (1,861) Computer & Communication $ (61) m Property $ (6) m Other $ (62) m Other Expense Increase $ (506) m (757) (1,068) 6,859 (506) 1,428 4 26 32 (1,277) 1H22 N
Slide 18: Segment Results
SEGMENT RESULTS QANTAS GROUP
Slide 19: Qantas Domestic
Qantas Domestic 1H23 1H22 Change Record earnings driven by premium leisure demand • Record Underlying EBIT of $785m delivered in 1H23 Revenue $M 3,634 1,127 +222% • 1H23 RASK5 +25% vs 1H19 Underlying EBIT $M 785 (613) >100% • Strengthened share positions in core target markets Operating Margin1 % 21
Slide 20: Qantas International (including Freight)
Qantas International (including Freight) 1H23 1H22 Change Qantas International returns to profitability • International passenger business returns to profitability as return of long-haul fleet Revenue $M 3,802 1,317 +189% continues Underlying EBIT $M 464 (238) >100% • Record international RASK4 acro
Slide 21: Jetstar Group
Jetstar Group 1H23 1H22 Change Jetstar’s Australian domestic network delivered $130m Underlying EBIT • Operating Margin increased from 1Q23 to 2Q23; further improvement expected as supply chain Revenue1 $M 2,096 394 +432% driven operational issues are resolved, reducing temporary costs Underlying EB
Slide 22: Qantas Loyalty
Qantas Loyalty 1H23 1H22 Change Strong travel recovery underpinning uplift in member engagement, with points earned and redeemed exceeding pre-COVID levels Revenue $M 1,027 485 +112% • Record points earned across Financial Services products; spend on Qantas Points earning credit cards recovered to >
Slide 23: Financial Framework
FINANCIAL FRAMEWORK YACANTAS croup
Slide 24: Delivering against our Financial Framework
Delivering against our Financial Framework 1 Maintain optimal capital structure 2 ROIC2 > WACC5 through the cycle 3 Disciplined allocation of capital Minimise cost of capital by targeting a Net Debt Deliver ROIC > 10%6 Grow Invested Capital with disciplined investment, range1 of 2.0x – 2.5x EBITDA w
Slide 25: Maintaining an optimal capital structure
Maintaining an optimal capital structure Net Debt1 ($B) Net Debt Net Debt target range • Net Debt1 at $2.4b • Liquidity of $5.4b including $4.1b cash3 and committed undrawn facilities of $1.3b maturing in FY24, FY26 and FY27 5.6 5.9 • Unencumbered asset base >$4.0b4 5.2 4.9 4.7 4.7 3.9 — Includes ~$
Slide 26: Focus on shareholder returns
Focus on shareholder returns Capital movements ($M) Record of regular shareholder distributions pre COVID • Mixture of dividends, on-market and off-market buy-backs and capital returns 2H20 dividend and off- market buy-back cancelled • 32% reduction in shares on issue from October 2015 to December 2
Slide 27: Disciplined capital allocation to optimise shareholder value
Disciplined capital allocation to optimise shareholder value Financial Framework indicates material surplus capital Structural improvements to earnings will sustain higher levels of by 30 June 2023 fleet investment and ongoing shareholder distributions FY23 FY24+ • FY23 capex1 guidance now $2.6b – $
Slide 28: New fleet deliveries
New fleet deliveries Committed aircraft Greater flexibility of delivery profile • Group fleet deliveries now reflects updated Airbus FY23 FY24 FY25 FY26 FY29 delivery position (~3-6 months delay) 787-9 • Of total narrow body order of 2994, the Group 3 3 A350-1000ULR — Received 4 x A321LRs into Jetst
Slide 29: Outlook
OUTLOOK QANTAS GROUP
Slide 30: Outlook
Outlook Group Domestic and Group International (including Freight) Qantas Loyalty • The Group has not seen any change in demand despite economic uncertainty. • Sustained consumer spending into calendar year 2023 and ongoing intent to Consumers continue to prioritise travel over other spend categorie
Slide 31: Outlook: Guidance Tables
Outlook Guidance Tables Capacity Guidance1 3Q23 4Q23 2H23 FY23 1H24 Capital Expenditure FY23 FY24 (as % of pre-COVID) Group Domestic 98% 103% 101% 97% 109% Net Capital Expenditure4 $2.6b - $2.7b $3.0b - $3.2b Qantas Domestic 97% 103% 100% 97% 106% Financial Risk Management5 2H23 1H24 Jetstar Domesti
Slide 32: We remain committed to the FY24 targets
We remain committed to the FY24 targets EBIT contribution from FY24 targets on track, different weightings across segments Qantas Jetstar Qantas Jetstar International Qantas Loyalty Domestic Domestic International1 Relative competitive Stable earnings growth Relative margin advantage Relative margin
Slide 33: 1H23 Results Supplementary Presentation
1H23 RESULTS SUPPLEMENTARY PRESENTATION Qantas Airways Limited 23 February 2023 ASX: QAN US OTC: QABSY
Slide 34: Disclaimer
Disclaimer 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 related bodies corporate (Qantas Group) and their activities current as at 23 February 2023, unless otherwis
Slide 35: Group Performance
GROUP PERFORMANCE WAcantas croup
Slide 36: 1H23 Key Group Financial Metrics
1H23 Key Group Financial Metrics 1H23 1H22 Profit metrics • Record 1H Underlying Profit Before Tax (PBT) in top half of Revenue $M 9,909 3,074 guidance range Underlying Profit/(Loss) Before Tax1 $M 1,428 (1,277) • Strong Group RASK offsetting record fuel prices and Statutory Profit/(Loss) Before Tax
Slide 37: 1H23 Key Group Operating Metrics
1H23 Key Group Operating Metrics Pre-COVID 1H23 1H22 Change (%) Change (%) 1H19 Unit Revenue1 (RASK) c/ASK 13.05 8.41 55.2% 8.94 46.0% Total Unit Cost2 c/ASK 10.47 17.86 (41.4) % 7.93 32.0% Unit Cost (ex-Fuel and depreciation)3 c/ASK 4.81 8.67 (44.5) % 4.44 8.3% Available Seat Kilometres4 (ASK) M 55
Slide 38: Reconciliation to Underlying Profit/(Loss) Before Tax
Reconciliation to Underlying Profit/(Loss) Before Tax $M 1H23 1H22 Statutory Items not included Underlying1 Statutory Items not included Underlying1 in Underlying in Underlying Net passenger revenue 8,393 – 8,393 1,534 – 1,534 Net freight revenue 810 – 810 920 – 920 Other revenue 706 – 706 620 – 620
Slide 39: 1H23 movement in cash position
1H23 movement in cash position Net Free Cash Flow $2,094m Predominately aircraft payments and capitalised Includes $0.3b maintenance of prepayments Operating Cash Inflow Investing Cash Outflow Financing Cash Outflows $2,811m ($717)m ($1,292)m1 Net Free Cash Flow positive for 1H23; Balance Sheet in s
Slide 40: Revenue received in advance (RRIA) and travel credits
Revenue received in advance (RRIA) and travel credits Total Revenue Received in Advance ($B) • Unavailed passenger revenue >130% of pre-COVID levels with expectations to maintain substantially above pre-COVID levels • Loyalty unredeemed Frequent Flyer revenue continues to grow, representing a struct
Slide 41: $1b Recovery Plan benefits
$1b Recovery Plan benefits Breakdown by Segment1 Breakdown by category1, 2 2% ~9% 9% ~3% ~12% 45% ~10% 44% ~9% ~57% Freight contributing ~$35m cost benefits 1. Breakdown is for the full $1b Recovery Plan benefits. 2. Costs of Ground Handling outsourced as part of the transformation initiative are ne
Slide 42: Three-year Recovery Plan progress
Three-year Recovery Plan progress KEY: Complete On-track KEY AREA OF FOCUS TARGET STATUS STATUS AS AT 31 DECEMBER 2022 ~$0.75b capex1 for FY21 Cash Flow Complete: Sustainable Net Free Cash Flow2 restored Sustainable Net Free Cash Flow2 Defer deliveries of A321neo and 787-9 aircraft Fleet Management
Slide 43: Group Unit Revenue and Unit Cost (c/ASK)
Group Unit Revenue and Unit Cost (c/ASK) RASK1 1H23 CASK3 1H23 Net passenger revenue $m 8,393 Underlying (Profit)/Loss Before Tax $m (1,428) Excluding other passenger revenue $m (1,160) Excluding Ticketed passenger revenue $m 7,233 A Ticketed passenger revenue $m 7,233 C Net expenditure $m 5,805 Les
Slide 44: Financial Framework
FINANCIAL FRAMEWORK WAcantas croup
Slide 45: Return on Invested Capital (ROIC) Calculation
Return on Invested Capital (ROIC) Calculation 12 mths to 12 mths to $M Dec 22 Dec 21 • ROIC EBIT is derived by adjusting Underlying EBIT Underlying EBIT 1,115 (1,739) to exclude leased aircraft depreciation under AASB 16 and include notional depreciation for these Add back: Lease depreciation under
Slide 46: Balance Sheet Summary under Financial Framework
Balance Sheet Summary under Financial Framework As at 31 Dec As at 31 Dec $M 2022 2021 • Invested Capital can be defined as Net Assets adjusted Net Assets 16 15 for the following: Less: Cash and cash equivalents (4,145) (2,705) – Exclusion of Cash and cash equivalents and Interest-bearing liabilitie
Slide 47: Net Debt Target Range
Net Debt Target Range • Net Debt target range = 2.0x — 2.5x ROIC EBITDA where ROIC = 10% • At average Invested Capital of $3.3b, optimal Net Debt range is $3.9b to $4.8b Dec 22 Drivers of Net Debt Range $B Invested Capital 3.3 Invested Capital will grow in line with aircraft deliveries Avg Invested
Slide 48: Net Debt and Liquidity Position
Net Debt and Liquidity Position As at 31 As at 30 $M Change4 Dec 2022 Jun 2022 Net Debt decreased by $1.5b for the 12 months to December 2022 Current interest-bearing liabilities on – Borrowing activity for the period included Balance Sheet 895 669 (226) Non-current interest-bearing liabilities ◦ $0
Slide 49: Net Debt movement under the Financial Framework
Net Debt movement under the Financial Framework $M 1H23 1H22 The Financial Framework considers aircraft leases as part of Net Opening Net Debt (3,937) (5,890) Debt – Aircraft leases are initially recognised in Net Debt at fair value Net cash from operating activities 2,811 137 Less: Net lease princi
Slide 50: The Qantas fleet is 'fit for purpose'
The Qantas fleet is ‘fit for purpose’ Evaluating future Mainstream fleet (fit for purpose) Adopting next generation technology1 technology2 Maintain aircraft life and keep product relevant Identify technology that Select right aircraft and build scale quickly step changes capabilities A380 103 787-8
Slide 51: Financial risk management framework
Financial risk management framework Hedging Program Principles of Financial Risk Management • Principles of financial risk management Reducing cash flow volatility in the short term through – Manage net cash flow impacts disciplined hedging program to allow for implementation of operational levers –
Slide 52: Robust financial risk management
Robust financial risk management Operational Fuel and FX Capital Expenditure FX – Hedging of USD Aircraft Payments • 1H23 fuel cost was $2.33b; hedging approach provided substantial • Hedging remains consistent with long term approach to risk management protection from elevated fuel prices allowing
Slide 53: Supplementary Segment Information
SUPPLEMENTARY SEGMENT INFORMATION
Slide 54: Qantas Domestic and International Overview
Qantas Domestic and International Overview Qantas Domestic Qantas International • Full service offering targeting business purpose and premium leisure sectors • Globally recognised long haul carrier targeting high demand business and premium leisure segments into USA, Europe and South East Asia – Ma
Slide 55: Jetstar Group Overview
Jetstar Group Overview Jetstar Domestic Jetstar International4 Jetstar in Asia • Low fares leadership with margin premium over • Australia international • Jetstar Japan is positioned for recovery as competitors driven by low-cost base, scale, network international markets open up, demand fully retur
Slide 56: Diversification and growth at Qantas Loyalty
Diversification and growth at Qantas Loyalty One of the world’s most diverse airline loyalty programs • Contributing ~$1b towards the Group Cash Flow1 for 1H23; delivering long term value to the Qantas Group • 7% growth2 in Qantas Frequent Flyer membership to 14.7m members; 17% growth2 in QBR3 membe
Slide 57: 1H23 Group and Group Domestic Traffic Statistics vs Pre-COVID
1H23 Group and Group Domestic Traffic Statistics vs Pre-COVID Pre-COVID Pre-COVID Pre-COVID 1Q23 Change (%) 2Q23 Change (%) 1H23 Change (%) 1Q19 2Q19 1H19 Total Qantas Group Operations Passengers Carried ‘000 11,186 14,103 (21) 11,489 14,397 (20) 22,675 28,500 (20) Revenue Passenger Kilometers M 22,
Slide 58: 1H23 Group International Traffic Statistics vs Pre-COVID
1H23 Group International Traffic Statistics vs Pre-COVID Pre-COVID Pre-COVID Pre-COVID 1Q23 Change (%) 2Q23 Change (%) 1H23 Change (%) 1Q19 2Q19 1H19 Group International Available Seat Kilometres M 14,077 25,031 (44) 16,037 24,816 (35) 30,114 49,847 (40) Group International Unit Revenue Change % 56
Slide 59: 1H23 Group and Group Domestic Traffic Statistics vs 1H22
1H23 Group and Group Domestic Traffic Statistics vs 1H22 1Q23 1Q22 Change (%) 2Q23 2Q22 Change (%) 1H23 1H22 Change (%) Total Qantas Group Operations Passengers Carried ‘000 11,186 2,153 >100 11,489 3,253 >100 22,675 5,406 >100 Revenue Passenger Kilometers M 22,940 2,790 >100 24,382 4,313 >100 47,32
Slide 60: 1H23 Group International Traffic Statistics vs 1H22
1H23 Group International Traffic Statistics vs 1H22 1Q23 1Q22 Change (%) 2Q23 2Q22 Change (%) 1H23 1H22 Change (%) Group International Available Seat Kilometres M 14,077 636 >100 16,037 1,493 >100 30,114 2,129 >100 Group International Unit Revenue Change % 123 41 54 Qantas International Passengers C