The Qantas Group has reported a profit before tax of $192 million but issued a reasonably cautious outlook, despite which the company's share price rose by 14%.
The group has strengthened its financial position, with positive net free cash flow of $372 million at 30 June and liquidity of $3.4 billion, comprising $2.8 billion in cash and $630 million in undrawn debt facilities. Gross debt was reduced by $1 billion during the year.
The group intends to continue the on-market share buyback program of up to $100 million initiated in December 2012.
Net capital expenditure was $1.4 billion in FY13, a reduction of $200 million compared with previous guidance. Planned capital expenditure has been reduced by $300 million to $1.2 billion in FY14 and is expected to be $1.5 billion in FY15. After a period of accelerated fleet renewal, the group's average scheduled passenger fleet age is now 7.9 years – the lowest since privatisation.
With fleet renewal substantially complete, the group has moved into a period of lower capital expenditure.
Qantas Group CEO Alan Joyce said the level of activity and achievement across the Group over the past 12 months had been immense.
"We have launched a global partnership with Emirates – shifting our hub for Europe flights to Dubai – maintained our strong domestic market position with the Qantas-Jetstar dual brand strategy, continued building Jetstar in Asia, and achieved another record result with Qantas Loyalty," Mr Joyce said.
"The market is very tough. But we are focused on the elements we can control. We have Australia's leading airlines and loyalty business – and we have a clear strategy to build an even stronger business for the future."
In the domestic market, Qantas and Jetstar retained the group's profit-maximising 65 per cent share.
"Over the 12 months, the domestic market grew at its fastest rate in the past eight years," Mr Joyce said. "We responded to aggressive levels of competitor capacity growth, with the group's domestic operations holding our strong position and contributing more than $450 million to Underlying EBIT.
"Our financial position has been strengthened by the actions we have taken over past 12 months: reducing debt, extending our maturity profile and taking a prudent approach to capital expenditure.
"We have also continued our policy of selling non-core assets where appropriate. During the year we sold our stake in StarTrack to Australia Post and our Cairns and Sydney Riverside catering centres to Gate Gourmet – and today we have announced the sale of Qantas Defence Services to Northrop Grumman for a price of $80 million for the business and other related assets.
"Our focus remains on building long term shareholder value. We will continue to be disciplined in managing capital expenditure and costs, while improving the customer experience and engaging our people to provide the best possible service.
"Customer satisfaction is strong across all our businesses and at record levels in Qantas Domestic, Qantas International and Qantas Domestic. This is a tribute to the skill and dedication of our people, and reflects the investment we are making in aircraft, training and technology."
Freight
Qantas Freight reported Underlying EBIT of $36 million, down 20 per cent on FY12, driven by a decrease in international capacity and the sale of StarTrack.
"Our domestic freight business was fundamentally restructured in FY13, with the sale of our stake in Star Track and the acquisition of Australian air Express (AaE)," Mr Joyce said.
"While freight market conditions are challenging, the steps we took during FY13 will strengthen our position both domestically and internationally.
"The integration of AaE into Qantas Freight – expected to be complete in 1H14 – will create Australia's leading independent air freight provider. Internationally, Qantas Freight will benefit from a partnership with Emirates' SkyCargo division."
Outlook
The operating environment for the Qantas Group in 1H14 remains challenging and volatile.
Group capacity is expected to increase by 1-2 per cent in 1H14 compared with 1H13. Group domestic capacity is expected to increase by 1.5-2.5 per cent in 1H14 compared with 1H13, while maintaining flexibility.
Underlying fuel costs for the group are expected to be approximately $2.34 billion in 1H14 at current market rates, which is approximately $160 million higher compared with 1H13.
No group profit guidance was provided at this time due to the high degree of volatility and uncertainty in the competitive environment, global economic conditions, fuel prices and foreign exchange rates.
