LONDON – Continued strength in travel demand has resulted in the Qantas Group upgrading its profit expectations for the first half of FY23.
Profit in excess of estimates
The Group now expects an Underlying Profit Before Tax of between $1.35 billion and $1.45 billion. This represents a $150 million increase to the profit range given in early October 2022.
Consumers continue to put a high priority on travel ahead of other spending categories and there are signs that limits on international capacity are driving more domestic leisure demand, benefiting Australian tourism.
Fuel costs remain significantly elevated compared with FY19 and are expected to reach approximately $5 billion for FY23, which would be a record high for the Group despite international capacity at around 30 per cent below pre-COVID levels.
Operational performance has continued to improve, with Qantas ranking as the most on-time domestic airline in October. The $200 million investment in rostering additional staff, continued recruitment and reserve aircraft will help maintain these levels during the latest wave of COVID community infections.
The carrier says that this will carry them through the busy Christmas period, as well as limiting the impact of extreme weather (especially wind) in November.
A fall in net debt
The Group’s net debt is now expected to fall to an estimated $2.3 billion and $2.5 billion by 31 December 2022. This is around $900 million better than expected in the most recent update, due largely to the acceleration of revenue inflows as customers book flights on Qantas, Jetstar and partner airlines into the second half of the financial year and beyond.
A deferral of approximately $200 million of capital expenditure to the second half has also assisted. Around 60 per cent of the $2 billion in COVID-related travel credits held by the Group have now been redeemed by customers.
Total credit usage is consistent at a rate of circa $70 million a month and new initiatives will be announced shortly to encourage full use of remaining credits over the next year.
While capacity is constrained, over a million sale fares were launched in October and further sale activity is planned in the weeks ahead. The Group is adding capacity as quickly as possible in the second half of the year while maintaining operational reliability.
Of the $400 million share buyback announced in August 2022, 76 per cent is now complete at an average price of $5.66. Low levels of net debt put the Board in a position to consider future shareholder returns in February 2023 consistent with the Group’s financial framework and phasing of capital expenditure for fleet renewal.
Jetstar pilot agreement
The Qantas Group recently finalised a three-year agreement with Jetstar pilots as part of its improved pay policy and expects to reach in-principle agreements with others in coming weeks.
More than 6,500 employees, or 33 per cent of those covered by an enterprise agreement, have now signed up to a post-COVID EBA.
The Group remains on-track to share the benefits of the recovery with around 20,000 non-executive employees through a $5,000 boost payment and up to 1,000 Qantas shares (currently worth approximately $6,000), subject to key conditions being met.
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