The Qantas Group has returned to profitability, posting a record performance for the first half of FY23 after suffering statutory losses of $7 billion over three years due to the pandemic.
Through 31 December 2022, the Group’s underlying profit before tax was $1.43 billion, a 49 percent increase over the previous first-half record result in FY18. One billion dollars was the amount that was considered to be “profit” after taxes under the law.
The Group’s $1 billion recovery effort is almost complete, which led to greater yields and cost improvements that drove this outcome. Notwithstanding the steep increase in fuel costs, the total operating margin was 16%.
Operational performance for customers was greatly enhanced because of a $200 million investment in operational resilience, which included keeping some aircraft in reserve and rostering additional backup staff. Over the last five months, Qantas has been the most punctual major domestic airline.
The Group’s solid financial standing allows for reinvestment in strategic areas like the fleet and the customer experience and for paying dividends and other incentives to staff and shareholders.
Chief Executive Officer of Qantas Group Alan Joyce commented, “This is a significant turnaround given the enormous losses we were facing only 12 months ago.”
“When we restructured the business at the start of COVID, it ensured we could bounce back quickly when travel returned. That’s effectively what’s happened, but the strength of the demand has driven such a strong result.
“Fares have risen because of higher fuel costs and supply chain and resourcing issues meant capacity hasn’t kept up with demand. Now that challenges are starting to unwind, we can add more capacity, which will put downward pressure on fares.
“In terms of overheads, we expect the costs we’re carrying from the extra operational buffer will start unwinding from this half and into next financial year.
“Our people have been absolutely central to our recovery, and that’s why we’re so pleased to be in a position to reward them with up to $11,500 in cash and shares and give them another $500 staff travel credit today.
“Returning to profit means we can get back to reinvesting for our customers, which is clear from the network, fleet and lounge announcements we’ve made and from the Project Sunrise cabins we’re previewing. Importantly for our investors, this also sets us up to deliver long-term shareholder value,” added Mr Joyce.
The Group has announced many key investment streams to enhance the customer experience in the short and long term. A $100 million domestic and international lounge upgrade over three years and three new and upgraded lounges launching in calendar 2023.
A 50% increase in Frequent Flyer Classic Reward tickets on international flights through the end of calendar 2023.
The gradual renewal of the Qantas and Jetstar fleets and continuous improvements in food, in-flight entertainment, customer-facing apps, and staffing levels.
Additional routes are being launched, including Auckland-New York, Sydney-Seoul, Melbourne-Dallas, and Sydney-Rarotonga.
Our employees have been critical to the Group’s turnaround. In appreciation, almost 20,000 non-executive staff are on course to earn up to 1,000 Qantas shares, now worth over $6,500. They may also get a $5,000 cash recovery boost.
Non-executive employees will also get a $500 credit for staff travel, which is substantially reduced due to its standby nature, and a 20% employee discount on any hotel booked via Qantas Hotels. This comes after considerable improvements to the staff travel plan and a 25% ‘always on’ discount on commercial fares.
The Group anticipates a wage bill to be over $4 billion in FY23, including significant investment in non-executive pay increases as part of its wage policy.
In Australia and all major markets, average domestic and international fares remain higher than pre-COVID levels. The primary factors are a 66% rise in fuel prices due to increased oil costs, a stronger US dollar in which fuel is bought, and higher refiner margins.
There is less capacity from all airlines due to supply chain issues (including delayed delivery of new aircraft), maintenance bottlenecks as the global fleet of widebody aircraft returns from storage, efforts to improve operational performance after challenging restarts, and high demand levels as well people prioritising travel.
The constraints with limited capacity are progressively relaxing, and predictions show domestic and international flights into Australia increasing for the rest of the calendar year. This additional supply will put downward pressure on fares.
Although average prices are around 20% higher than in 2021, significant value is still available to customers, mainly when booking well in advance and outside peak periods.
Qantas is embarking on the largest fleet renewal programme in its history, with up to 299 aircraft (including purchase options) spread over ten years. Twelve new planes are scheduled to arrive at Qantas and Jetstar by the end of the year. The fleet plan allows some flexibility, but the Group expects to receive one new jet every three weeks for the next three years.
Fleet renewal is critical to the Group’s progress towards its interim emissions reduction goal of 25% by 2030. These new planes use up to 25% less fuel than the planes they replace.
Another significant pillar is Sustainable Aviation Fuel, which aims to raise it to 10% of the Group’s overall fuel mix by 2030. The Group now has agreements to source SAF from the United Kingdom and the United States, and it is working with federal and state governments to produce supply in Australia.