After three years of losses, Qantas posts $1b half-year profit

Australian airline Qantas (ASX: QAN) has returned to profit after three years and $7 billion in statutory losses due to the pandemic’s impact on the aviation industry.

The company today told shareholders it achieved a $1 billion statutory profit after tax for the first half, leading it to announce a share buy-back and bonuses for 20,000 non-executive staff.

Underlying profit before tax reached $1.43 billion in the half - 49 per cent higher than the prior first-half record result achieved in FY18 - driven by "consistently strong" travel demand, higher yields and cost improvements.

Qantas CEO Alan Joyce says the profit marks a "huge turnaround considering the massive losses we were facing just 12 months ago".

He adds that astronomically expensive airfares are set to become cheaper now that balance has been restored at Australia's iconic carrier.

“When we restructured the business at the start of COVID, it was to make sure we could bounce back quickly when travel returned. That’s effectively what’s happened, but it’s the strength of the demand that has driven such a strong result,” Joyce says.

“Fares have risen because of higher fuel costs, but also because supply chain and resourcing issues meant capacity hasn’t kept up with demand. Now those challenges are starting to unwind, we can add more capacity and that will put downward pressure on fares.

“Returning to profit means we can get back to reinvesting for our customers, which is clear from the network, fleet and lounge announcements we’ve made, and from the Project Sunrise cabins we’re previewing. Importantly for our investors, this also sets us up to deliver long-term shareholder value.”

Both the domestic and international segments performed well, with earnings from local operations hitting $915 million as flying increased from 86 per cent of pre-COVID capacity in 2H22 to 94 per cent during the latest half.

“Leisure demand continued to lead the recovery, which the group is well placed to serve through both its premium and budget brands,” Qantas says, adding that demand for corporate and SME travel also remains strong.

International operations delivered underlying earnings of $511 million as capacity almost doubled from 31 per cent of pre-COVID capacity in 2H22 to 60 per cent during the period ending 31 December 2022.

The airline concedes that domestic and international fares remain above pre-COVID levels in Australia and major overseas markets, which it blames on an increase in the price of fuel, less capacity from all airlines, and high levels of travel demand.

“The factors that have constrained capacity are gradually easing and forecasts show domestic and international flying into Australia continuing to grow through the rest of the calendar year. This additional supply will put downward pressure on fares,” Qantas says.

“While average prices are about 20 per cent higher than 2021, there is still significant value available to consumers, especially when purchasing well in advance and outside of peaks.”

Buoyant on the news, Qantas announced it would make a return to shareholders via a $500 million on-market share buy-back to commence in March. Of the buy-back, $300 million will fund employee entitlement plans.

Workers will receive another thank you from the airline in the form of a $500 credit for staff travel.

The company is well capitalised, with liquidity of $5.4 billion including $4.1 billion of cash. Net debt fell to $2.4 billion at the end of the half, down from $3.9 billion at the end of the 2022 financial year.

Qantas also provided a fleet update, noting the airline is at the start of its "biggest fleet renewal program in history", with 299 aircraft spread over 10-plus years. Twelve new aircraft are due to be delivered to Qantas and Jetstar by the end of the calendar year.

The airline also unveiled prototypes of its new First and Business class cabins for Project Sunrise - a new flight path that will fly passengers non-stop from Australia to New York and London from late 2025.

Joyce says the investment in new A350 aircraft and approach to cabin design continues Qantas’ 100-year history of aviation "firsts".

“Qantas has been the leader in opening up new long-haul flights for most of our history, and we’re bringing everything we’ve learned, both technically and in terms of passenger comfort, to Project Sunrise flying,” says Joyce.

“We think our A350 cabins have the most sophisticated and thoughtful design of any airline, combining cutting-edge technology with sleep research to shape the look and feel for what is effectively a new era of travel.

“We’re building on the customer experience of our extremely popular non-stop flights from Perth to London as we keep working to make it easier to connect Australia with the rest of the world.”

The new top-tier First class cabins have a range of luxury features, including an extra-wide fixed bed, a separate recliner chair, a personal wardrobe, a dining table for two and a 32-inch ultra-high-definition TV.

Business class passengers will have a two-metre flatbed, generous storage (including a large mirror), cushioned leather ottoman, 18-inch ultra-high-definition touch screen TV, large dining table and feature lighting.

The Qantas A350 will offer fast and free high-speed Wi-Fi with partner Viasat following completion of key satellite launches covering the Qantas international network.

Beyond its flashy new cabins, Qantas says the future looks bright, with travel demand expected to remain strong throughout FY23 and FY24.

Group domestic capacity is expected to increase from 94 per cent to 103 per cent through 2H23, while internationally capacity is poised to increase from 60 per cent to 81 per cent through the same period.