Qantas rakes in record billion dollar profit in just six months
Before the pandemic stopped aviation in its wake, Qantas was one of only a handful of airlines considered to be ‘investment grade.’ That term generally means that a business earns more than its cost of capital, and very few airlines can consistently pull that off, but it looks like the Flying Kangaroo can.
After losing around AU$7 billion ($4.78 billion) during the last three years, the Qantas Group, which includes Jetstar, has today announced a record-breaking half-yearly underlying profit before tax of AU$1.43 billion ($975.6 million).
This underlying profit earned in the six months to December 31st, 2022 (1H23), is 49% higher than the prior first-half record result in the first half of the 2018 financial year. For the same period last year (2021), Qantas lost AU$1.3 billion ($886.8 million), marking this result as a turnaround of AU$2.7 billion ($1.84 billion).
In an era where fuel costs have soared, this is an astonishing result, particularly given that in the grounded phase of COVID, Qantas, according to CEO Alan Joyce, had just “eleven weeks of cash left.” In this morning’s presentation, he said: “This is the recovery our people, our shareholders – and in many respects, our customers have been waiting for. Because this result isn’t about a single number. Ultimately, it’s about getting back to our best by reinvesting in the national carrier.”
Why the record came about
It’s little wonder Joyce was in a buoyant mood, notably when he curtly dismissed a journalist’s question asking if this was his last results presentation. On the record result, he attributed that to three main drivers:
- Consistently strong travel demand, particularly for leisure travel, which research shows is a high priority for Australians
- higher passenger yields due to international capacity still recovering, which includes overseas carriers being slow to restore capacity in this market
- the AU$1 billion restructuring program, which was announced three years as key to the airline’s COVID-19 recovery plan
- Qantas is moving swiftly to pre-pandemic capacity, with domestic flying increasing from 86% to 94% of pre-COVID levels in the first half. A more demonstrative gain was in the international, which doubled from 31% in January to June to 60% during the second six months.
Going forward, the Group expects domestic capacity to reach 103% and international 81% from January to June (2H23). International capacity is forecast to reach pre-COVID levels in 2024 and move ahead of that in 2025.
Source: Tom Boon Simple FlyingAll divisions are doing well
Qantas Loyalty has been a standout part of the group for some time, and in 1H23, it was no different. Loyalty products and services delivered AU$1 billion ($682 million) in revenue and underlying EBIT of AU$220 million ($150 million) for the half, a 73% increase on 1H22. The business is on track to reach the top end of its projected range of AU$450 million ($307 million) EBIT for the entire FY23.
On the flying side, domestic operations generated underlying EBIT of AU$915 million ($624 million), including AU$785 ($535.3 million) from Qantas and AU$130 million ($88.7 million) from Jetstar. Qantas International and Freight produced an underlying EBIT of AU$511 million ($348 million), driven by seven new routes and two others reopening in the first half.
Of course, these presentations are scripted and present the numbers how the business wants them to be, so it’s worth waiting to hear the questions from the press gallery for the real entertainment.
Apart from the one about his supposed early departure, Joyce took most in his stride. However, he got a little excited when asked if Qantas would return the reported AU$2 billion ($1.36 billion) government funds it received during COVID. He quickly batted that one away, pointing out that half was for flights Qantas operated, and the other half has been more than returned to government coffers through taxes of various kinds.
There were also questions about the high airfares in Australia, which Qantas says are up by around 20% compared to 2021, and Joyce put that down to the laws of supply and demand. He is a CEO who is fiercely protective of his airline and wanted to stress that Qantas competes with three other domestic airlines, Rex, Virgin Australia and Bonza, and more than 50 international carriers.
He added that, “Fares will keep trending down as more airlines can unlock capacity – which relies on things like supply chain for aircraft, labour availability and training pipelines. For Qantas, we started adding more flying back in January and have another step up in March.”
The group is on a significant fleet renewal program that will see it, on average, receive a new aircraft every three weeks for the next several years. Joyce says that extra capacity will help drive down fares and that Qantas Domestic currently has more than 2 million fares under AU$200 in the market, while Jetstar will offer more than 10 million fares for under AU$100 this year.
