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Renewed Qantas takes off as rewards flow

Petrina Berry  |  25 Aug 2017Text size  Decrease  Increase  |  

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BRISBANE - [AAP] Drastic restructuring, a boom in domestic travel, and a well-timed exit from unprofitable mining industry routes have helped Qantas (ASX: QAN) deliver its second-highest underlying full-year profit result on record.

A year on from delivering the highest underlying profit in its 97-year history--a $1.5 billion result--Qantas on Friday posted an underlying annual profit of $1.4 billion for 2016/17--the second highest on record.

Chief executive Alan Joyce said the result marked the completion of the turnaround plan which has repositioned Qantas as one of the most profitable airlines in the world.

"It's fair to say those efforts have well-and-truly paid off," he said.

Qantas began a $2 billion turnaround in 2014, a process that included 5,000 job cuts, major fleet changes and new routes.

Australia's largest carrier also announced a $373 million buyback to increase shareholder returns, having only begun delivering dividends again a year ago after a seven-year drought.

Qantas employees also stand to benefit, with the airline announcing bonuses of $2,500 each to around 25,000 non-executive employees to mark its turnaround.

Central to that turnaround has been cuts to unprofitable routes, in particular services linked to the once-booming mining industry, in favour of popular destinations.

"There's been a complete rejig of the market to balance from resources to other markets," Mr Joyce said.

He said routes linked to mining, such as Perth to Karratha, had been axed, making way for in-demand flights like its recently launched Melbourne to Tokyo service.

The group's two most profitable businesses, Qantas' domestic operations and its low-cost carrier Jetstar, reached a record $865 million in underlying earnings before interest and tax.

Qantas International, which has faced intense price and capacity competition, saw an improvement of conditions in the second half and made $327 million in underlying earnings for the year.

The group's statutory net profit of $852 million fell 17.2 per cent compared to a year ago, when results were boosted by gains from the sale of the Sydney Domestic Terminal.

Qantas expects international capacity to increase in the first half of 2017/2018 by around 5 per cent, driven by previously announced new routes into growing Asian markets.

The carrier also is investing in lounges, in-flight Wi-Fi, cabin upgrades and is looking at new aircraft and new businesses such as insurance and financial services to keep delivering sustainable returns.

Investors were impressed with the result and outlook and drove the airline's shares up 22 cents, or 3.8 per cent, to $6.02--their highest level since October 2007.

Citi analysts said the buyback was greater than the market had expected and the underlying profit was ahead of market expectations.

The Citi team said other positives included expected increases to the airline's domestic and international revenue per available seat-kilometre, a key efficiency measure, $400 million in transformation savings and longer-term growth in customer loyalty.

Once the latest buyback is completed, it is expected that the number of Qantas shares will have been reduced by more than 20 per cent since October 2015.

QANTAS RESULTS AT A GLANCE:

* Net profit down 17.2pct at $852m

* Underlying profit before tax $1.4bn, vs $1.5bn

* Revenue down 0.9pct at $1.6bn

* Final dividend of 7cps, unfranked, vs 7cps, fully-franked

 

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