Qantas Airways Limited 1H20 Results 20 February 2020 ASX: QAN US OTC: QABSY
1H20 highlights Str trong r g res esult lt in mixed dem ed deman and d condi diti tions First half Underlying Profit Before Tax (PBT) 1 $771m, Statutory PBT $648m, Statutory EPS 28.8 cps • Continued strong Group Return on Invested Capital (ROIC) of 19.6% 2 ; all segments delivering ROIC > WACC 3 • • Record Qantas Loyalty earnings 4 , resilient performance from domestic and international airlines • On track to deliver >$400m gross transformation benefits in FY20 In Inves esti ting g for o our custo tomer ers, peo people ple an and c d community ty • Set ambitious emissions targets, on track to deliver waste targets • Investing in fleet including three 787-9 additions, three A380 reconfigurations; completion of the new First lounge and expansion of the Business lounge in Singapore • First cohort of student pilots commenced training Fi Finan ancial al fr fram amework c conti tinues es to to suppo pport shar areh eholder lder r retu eturns Net debt 5 of $5.3b, at the lower end of the target range of $5.1-6.3b • • 13.5 cents per share interim dividend, fully franked. Additional off-market share buy-back up to $150m, utilising all available franking credits Transformed business delivers resilient result 1. Underlying PBT is a non-statutory measure and is the primary reporting measure used by the chief operating decision-making bodies, being the Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Qantas Group. All items in the 1H20 Results Presentation are reported on an Underlying basis, unless otherwise stated. For a reconciliation to Underlying PBT, please see slide 5 of the Supplementary presentation. The comparatives have been restated for the impact of the adoption of AASB 16 and | 2 the September 2019 IFRIC decision in relation to the accounting treatment of fair value hedges of foreign currency risk on non-financial assets. 2. Calculated as ROIC EBIT for the 12 months ended 31 December 2019, divided by the 12 months Average Invested Capital. 3. Weighted Average Cost of Capital calculated on a pre-tax basis. 4. Underlying EBIT. 5. Net debt under the Group’s Financial Framework includes net on balance sheet debt and capitalised aircraft lease liabilities. For a detailed calculation of the net debt target range, please see slide 11 in the Supplementary presentation.
Integrated portfolio provides a stable earnings base Ope perat ating g Segm gment E EBIT BIT 5 Dual Brand Domestic strategy at the core of the Group’s portfolio strength. Two largest 1 outbound airlines in Australia $1 $1.2b Group Domestic 2 Underlying EBIT of $645m, resilient performance in mixed demand conditions and flat $ Group Gr p Gr Group p Gr Group p Group Gr p Gr Group p market capacity settings Int nterna nationa onal 6 Int nterna nationa onal 6 Int nterna nationa onal 6 onal 6 onal 6 Int nterna nationa Int nterna nationa $0 $0.8b Record 3 Qantas Loyalty Underlying EBIT providing growing and diversified earnings stream, on track to achieve long term targets Group Gr p Group Gr p Group Gr p Gr Group p Gr Group p Dom Domestic Dom Domestic Domestic Dom Dom Domestic Dom Domestic $0.4b $0 4b Qantas International Underlying EBIT increased 4 as fleet and network transition continued to build resilience 8 7 Loyal alty Loyal alty Loyal alty Loyal alty Loyal alty Highly trusted brand that supports diversification into $0. 0.0b 0b new businesses. Expanded insurance portfolio with 1H16 1H 16 1H 1H17 17 1H 1H18 18 1H 1H19 19 1H20 1H launch of car insurance The Group’s integrated portfolio of mutually reinforcing businesses will ensure its ongoing success 1. Measured on Passengers. Source: BITRE Aviation International airline activity statistical report published data, November 2019. 2. Group Domestic includes Qantas Domestic and Jetstar Domestic. 3. Measured on Underlying EBIT. 4. Compared to 1H19. 5. Measured on Underlying EBIT. 1H19 restated for the impact of the adoption of AASB 16 and the September 2019 IFRIC decision in relation to the accounting treatment of fair value hedges of foreign currency risk on non-financial assets. 6. Group International includes Qantas International, Jetstar International Australian operations, Jetstar New Zealand | 3 (including Jetstar Regionals), Jetstar Asia (Singapore) and the contributions from Jetstar Japan and Jetstar Pacific.
Maximising leading dual brand domestic position BIT 5 ($M) Group D p Domestic c EBIT M) Operating margin 1 at Qantas Domestic in 1H20 14.4% 14 Operating margin 1 at Jetstar Domestic in 1H20 16.3 16 .3% 692 692 645 45 556 556 653 53 522 22 1H16 1H 16 1H17 1H 17 1H 1H18 18 1H 1H19 19 1H 1H20 >WA WACC ROIC 2 > WACC for Qantas Domestic and Jetstar Domestic business gins 1 (% Domestic O Ope perat ating g Mar argi (%) 19.9 19 19.5 19 20% 0% 16 16.3 16 16.1 Strong Group Domestic 3 Underlying EBIT in 1H20 $645m $64 15.8 15 15 15% 14 14.7 14.8 14 14.4 14 12 12.9 10 10% 12.7 .7 Qantas Domestic Increase in Group Domestic Unit Revenue 4 , positive signs of disciplined 5% 5% +0. 0.5% Jetstar Domestic market capacity settings for 2H20 0% 0% 1H16 1H 16 1H17 1H 17 1H18 1H 18 1H 1H19 19 1H20 1H The dual brand strategy continues to deliver superior margins 1. Calculated as Underlying segment EBIT divided by total segment revenue. 2. Calculated as ROIC EBIT for the 12 months ended 31 December 2019, divided by the 12-months Average Invested Capital. 3. Includes Qantas Domestic and Jetstar Domestic business. 4. Compared to 1H19. 5. Measured on Underlying EBIT. 1H19 restated for the impact of the adoption of AASB 16 and the September 2019 IFRIC decision in relation to the accounting treatment of fair value hedges of foreign currency risk on non-financial assets. | 4
Group International leveraging sustainable competitive advantage and home based strength Airline Group O p Ope perat ating g Mar argi gin 6 Qantas International rolling 12 month ROIC 1 >WA WACC 9.9% Japan Airlines 10.9% 8.7% Qantas Group Jetstar International 2 rolling 12 month ROIC 1 >WA WACC 9.2% 6.6% Singapore Airlines 6.5% Group International 3 Underlying EBIT in 1H20 6.3% $1 $162 62m ANA 7.7% 6.2% Air New Zealand 8.1% Increase 4 in Qantas International Unit Revenue in 1H20 +6.0 .0% 5.8% Cathay Pacific 4.8% -3.7% Virgin Australia Market outbound international capacity 5 share; maintaining leadership 26% 6% 4.4% Most recent results to Dec 19 12 months to Dec 18 Strong Group margin relative to regional peers 1. Calculated as ROIC EBIT for the 12 months ended 31 December 2019, divided by the 12-months Average Invested Capital. Compared to 1H19, restated for the impact of the adoption of AASB 16 and the September 2019 IFRIC decision in relation to the accounting treatment of fair value hedges of foreign currency risk on non-financial assets. 2. Jetstar International excludes Jetstar New Zealand (including regionals), Trans Tasman, Jetstar’s Asian portfolio. 3. Group International includes Qantas International, Jetstar International Australian operations, Jetstar New Zealand | 5 (including Jetstar Regionals), Jetstar Asia (Singapore) and the contributions from Jetstar Japan and Jetstar Pacific. 4. Compared to 1H19. 5. Measured on Passengers. Source: BITRE Aviation International airline activity statistical report published data, November 2019. 6. Calculated as EBIT (or equivalent) divided by the Group Total Revenue using published data. Current year margins reflect 6 months period from 1 January 2019 for Cathay Pacific, Air New Zealand, Virgin Australia.
Diversification and growth at Qantas Loyalty Qantas Freq equen ent F Flyer lyer M Mem ember ers ( (M) Record 1 first half Underlying EBIT, result up 12% $196m $1 96m 13.2 13 12.6 .6 11.6 12.0 .0 11.2 11. 11. +5.4 .4% Qantas Frequent Flyer member growth to 13.2 million 10. 0.5 9.7 .7 9.0 .0 8.3 8.3 Increase 2 in points earned in 1H20 across Coalition Partners including 7. 7.5 >20% 20% 6. 6.8 reset of Woolworths partnership Increase in Classic Reward activity 3 in 1H20 >20% 20% +20% 20% Growth in New Business revenue 2 in 1H20 1H 1H10 10 1H11 1H 11 1H 1H12 12 1H 1H13 13 1H14 14 1H 1H15 15 1H 1H16 16 1H 1H17 17 1H 1H18 18 1H 1H19 19 1H 1H20 On track to achieve target of $500-600M Underlying EBIT by FY22 1. Measured on Underlying EBIT. 2. Compared to 1H19. 3. Total classic reward seats redeemed on all Qantas Group flights. | 6
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