REPORTING SEASON: Qantas Airways Ltd (QAN)

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Figure 1: Qantas Airways 12 month chart

 

Qantas Airways Limited (QAN) returns to profit thanks to Transformation program

– Qantas Airways (QAN) has posted a largely in-line with consensus underlying profit of $975m for the 12 months ended June 2015. The result was a $1.6bn improvement on FY14 and was driven by savings on fuel and the airline’s transformation program. This marks its first profit in two years.

– Lower fuel prices boosted earnings by $597m. A more modest depreciation expense in FY15 added $326m while the repeal of the carbon tax was beneficial. Overall, $894m in Transformation benefits were realised in FY15: $712m in cost reduction and $182m in revenue benefits.

– Qantas Domestic continues to be the biggest contributor to earnings (39% of profit) and was boosted most by the realisation of $302m of Transformation benefits. Its Qantas Loyalty program made up a quarter of earnings. Its budget airline, Jetstar returned to profit (lost $116m in FY14).

– A $764m improvement in earnings for the underperforming Qantas International business provided a huge boost to its bottom line (first profit since GFC). More than half of the unit’s turnaround was due to its Transformation program. QAN will be adding four Dreamliners to its fleet in FY18 and another four in FY19.

– Although no dividend was declared, QAN announced a $505m capital return. Shareholders will receive $0.23/share, subject to approval at its AGM in October. The payment will be made in November 2015, with no tax expected to be payable by shareholders. This will be combined with a share consolidation (expected to have a similar impact to a share buyback). QAN shares have almost tripled in value in 12 months.

– Looking ahead, QAN has not provided profit guidance but expects $450m in Transformation benefits (cost, fuel and revenue) for FY16 and a slightly higher depreciation expense.

 

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Steven Daghlian, Market Analyst,