The Qantas Group has achieved an Underlying Profit Before Tax of $1.30 billion and a Statutory Profit Before tax of $1.27 billion for the Financial Year 2019.
While the Underlying result was 17 per cent lower compared with the Group’s record profit in FY18, it was impacted by an $614 million increase in fuel costs from higher oil prices and a further $154 million of the foreign exchange impacts on non-fuel net expenditure.
The result was also impacted by a $92 million non-cash expense on provisions for items including employee leave entitlements, part of an accounting requirement that means this charge increases when interest rates fall.
All key parts of the Group’s portfolio remain strongly profitable, generating significant cashflow that allows for ongoing investment as well as shareholder returns.
Qantas Group CEO Alan Joyce said the FY19 performance was particularly positive given mixed market conditions.
“This result shows the strength of our individual businesses but also the strength of our portfolio as a whole. Even with headwinds like fuel costs and foreign exchange, we remain one of the best performing airline groups in the world.
“Our performance is the result of having the right strategy and the ability to deliver it.
“Domestically, our dual brand approach with Qantas and Jetstar continued to give us a leadership position in the corporate, premium leisure and budget travel categories, all with strong margins.
“Qantas International has improved its competitive position by evolving its fleet, network and partnerships. We’ve carved out some unique advantages like the Perth-London route and there is a lot of value still to be unlocked through our alliances.
“Qantas Loyalty returned to double-digit earnings growth in the second half, thanks to new revenue streams from insurance and financial services as well as improvements to the Frequent Flyer program.
“The simple message from this result is that the Qantas Group has solid foundations to keep investing and innovating, and to keep rewarding our shareholders as a result.
“We’re pleased to reward around 25,000 of our people with a $1,250 staff travel bonus each, which would take a family of four from Sydney to Honolulu on Jetstar. Since 2015, we’ve now set aside more than $340 million in cash and staff travel bonuses for non-executives.
“Looking ahead, the overall market remains mixed. Domestically, we’re seeing weakness in the price sensitive leisure market but premium leisure demand is steady.
“Overall demand from our corporate customers is flat, with continued strength in the resources sector offsetting weaker demand from other industries, like financial services and telecommunications. In competitive terms we’re growing our overall share of the corporate and SME sectors.
“Internationally, the outlook remains positive for premium international travel demand, helped by a reduction in broader market capacity.
“Our anticipated flat Group domestic capacity for the first half of FY20 reflects the mixed environment, and we’ll continue to monitor our settings against demand and our strategic position,” said Mr Joyce.
Group Domestic delivered an Underlying EBIT of $1.03 billion, down by 4 per cent. Unit Revenue from Qantas and Jetstar’s domestic operations grew by a combined 4 per cent on flat capacity, as fares caught up to higher oil costs.
Qantas Domestic, which achieved its second-highest Underlying Profit, increased Unit Revenue by 5 per cent and seat factors were steady at 78 per cent.
Qantas’ share of both the corporate and small business markets grew, helping to offset some broader weakness in travel demand. Qantas maintained a 15 point customer satisfaction premium to its domestic competitor.
The resources market continued to strengthen, with capacity added in Western Australia and Queensland contributing to a $47 million revenue increase from this part of the market.
Jetstar’s domestic Unit Revenue increased by 3 per cent and ancillary revenue per passenger rose by 12 per cent, driven largely by take-up of new baggage options and Club Jetstar reaching 340,000 members. The airline’s upgrade of its A320 cabins is now complete, delivering a 3 per cent capacity improvement per aircraft.
As a low fares leader, the Jetstar Group sold almost two-thirds of its fares for less than $100.
Qantas International delivered an Underlying EBIT of $285 million, down by 28 per cent. There was a significant improvement in second half performance, as competitor capacity and overall fare levels adjusted to higher fuel prices.
Unit Revenue grew by 6 per cent compared with FY18 and seat factor grew by 2 percentage points to 86 per cent.
Network and fleet changes continue to deliver benefits, with particularly strong performances on the Perth-London route and Singapore hub services. Competitive pressure on the Pacific remained intense but Qantas’ performance is expected to improve following implementation of the American Airlines joint business and the start of new routes, including Brisbane-Chicago in FY20.
Qantas Freight continued to provide steady earnings, which will be supported going forward by an expanded seven-year contract with Australia Post.
Jetstar’s international services achieved significant Unit Revenue growth, with solid performance on key leisure routes such as Bali and Japan.
Jetstar Japan delivered a record profit and Jetstar Pacific remained profitable, while Jetstar Asia faced challenges due to a significant increase to airport charges and taxes in its home market of Singapore. Jetstar’s regional services in New Zealand were loss-making and market conditions are being monitored closely.
The Group continued to deliver on the three pillars of its financial framework.
Operating cashflow was strong at $2.81 billion and net debt is now below the target range at $4.7 billion. Net capital expenditure was $1.6 billion after adjusting for cash received from the sale of Qantas Catering and the Melbourne Domestic Terminal lease. This resulted in net free cashflow of $1.24 billion.
Ongoing transformation delivered $452 million of revenue and cost benefits.
The Group’s total fuel cost was $3.85 billion, an increase of $614 million on FY18. Ongoing efficiency measures, including fleet modernisation and a new flight planning system, drove a 2.2 per cent improvement in fuel efficiency.
The Group incurred $374 million income tax on its FY19 profit.