Queens Birthday Honours picture of Qantas CEO Alan Joyce 9th June 2017 Photo by Louise Kennerley SMHQantas will plough $3 billion into ensuring its aircraft and in-flight technology are world-class as it looks to keep cruising at its current, unprecedented altitude, chief executive Alan Joyce says.
The airline’s shares rocketed to an all-time high after it handed down its second-highest profit on Friday, which Mr Joyce said was thanks to the turnaround plan it launched three years ago to cut $2 billion out of its business.
The share price closed up 3.8 per cent at $6.02.
But Mr Joyce said aviation was so fiercely competitive that Qantas needed to continuously improve in order to maintain its gains, and would look to also deliver another $400 million in annual benefits and savings, starting this year.
“We take nothing for granted and we have no intention of being complacent,” Mr Joyce said.
That would include savings from its purchase of eight fuel-efficient Boeing 787-9 Dreamliners that will start arriving from October; connecting aircraft to wireless internet so pilots could use technology to choose better flight paths and minimise disruptions, and improving runway turnaround times.
Low-cost arm Jetstar, which saw earnings slide in 2017 because of new rules capping credit card surcharges and soft freight prices, will refit its fleet of workhorse A320s to squeeze in six more passengers without reducing overall seat space.
Earnings from Qantas’ domestic business grew 11 per cent as it cut back on unprofitable routes, but its international arm fell 36 per cent, which Qantas blamed on international carriers flooding the market and forcing it to cut fares. This pressure started to ease in the second half of the year, Qantas said.
Fuel costs – Qantas’ single biggest expense – were $3.03 billion in 2017, a drop of $196 million from 2016 thanks to lower prices and fuel efficiency measures.
Macquarie analyst Sam Dobson said all signs pointed to more blue sky ahead for the airline. He said the expected 1 per cent cut in domestic capacity should improve its earnings, while pressure from foreign competitors was easing as they pulled back on growth plans.
“They’ve certainly got confidence, I think the market does too based on the fact they’ve delivered now two years of record profitability,” Mr Dobson said.
“You’ve got good employee engagement, the perception of the brand is very good; you’ve got a number things that are going in their favour.”
Rico Merkert, an aviation expert at the University of Sydney, said Qantas’ return on invested capital was “remarkable” at 20 per cent given the losses other airlines around the world were incurring, while it cutting debt net by $434 million to $5.2 billion was an important move given the potential for interest rates to rise in the near future.
“The really interesting question is whether the projected gross benefits from the next wave of transformation will be sufficient to fend of competition and sustain these impressive financial results,” Professor Merkert said.
Qantas’ underlying profit before tax for financial year 2017 was $1.4 billion, down 8.6 per cent from 2016, when it reported a record profit $1.53 billion.
Bottom line profit for the year was $852 million, down 17 per cent from 2016, when it received a windfall from the sale of its Sydney Airport domestic terminal.
Qantas said it was returning $500 million to investors, through a $373 million on-market share buyback and a dividend of 7?? a share.
The airline said it would also pay a $2500 bonus to about 25,000 staff who endured an 18-month wage freeze, including pilots, cabin crew, engineers, ground crew and office staff.