Qantas’ 2019 Yearly Report is in and the results were very good with Qantas reporting a $1.3 billion profit. This was a 17 per cent fall from the previous year. While Qantas may have reported lower earnings, their results were significantly better than what might have been given their circumstances. Qantas was hit with a $614 million increase in fuel costs and $154 million hit from the depreciating $A. An indicator of how tough the environment is for international carriers is that for the first time in decades Qantas expects a reduction in the amount of competitor capacity flying into Australia. Meanwhile, Virgin Australia, one of their main competitors reported a $315 million loss.
CEO Alan Joyce said that the 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”.
Qantas not only declared a fully franked dividend of 13¢ a share but announced yet another share buyback. The latest $400 million buyback means Qantas will have bought back nearly a third of its shares in the past four years. With net debt of $4.7 billion, below its target range of $5.2 billion to $6.5 billion, Qantas could afford the dividend and share buyback despite the continuing heavy investment in its fleet and lounges.
All sectors were again profitable however the airline’s loyalty business (Frequent Flyer), which has expanded to include its own line of credit cards and insurance products was the star growing earnings by 8.4 per cent to $374 million. Qantas delivered $452m in cost cuts (transformation benefits) and has targeted a further $400m in 2020. Qantas also announced that it will pay a $1250 travel bonus to employees.
Qantas will operate three non-stop research flights to test the viability of non-stop flights from Australia’s east coast to London and New York – which the airline has called “project sunrise”. Six more 787-9 Dreamliner’s are to be delivered next year leading to the complete retirement of the 747’s.
Alan Joyce is confident about 2020 based on hedging the group’s fuel supply, a continual focus on reducing costs, a strong financial position and the group’s ability to manage its capacity (adjusting plane size and flight schedules to manage costs).
Fig A Qantas Financial Ratios
|Net Profit Ratio||7.2%||9.4%|
|Rate of Return on Owners Equity||37%||41%|
|Total Expense Ratio||92%||91%|
|Revenue Seat Factor||84%||83%|