Qantas has confirmed its revised guidance from late last year with a surge in revenue and profit for the six months to December 31 as it took advantage of the re-opening of our borders and the easing of Covid restrictions to make a lot of money very quickly.
The airline restricted capacity additions and left airfares – domestic and international – as high as possible to exploit the re-opening, and suffered months of complaints of bad service, lost luggage, flight delays and cancellations to end more than $7 billion of losses during the Covid lockdowns.
On Thursday the improvement saw the airline reveal a $1 billion half-year net profit and announce a share buyback of up to $500 million for the six months to December.
This share buyback comes after a $400 million buyback was completed in December at $5.78 per share, which reduced the number of shares on issue by 3.7%.
But no dividend for another half year. Perhaps that’s why Qantas shares fell nearly 7% to $6.03 after the release of the result.
Some analysts though the net result was a bit light on but all seem to have been too optimistic and expected something a bit more, given the two quick upgrades late last year.
Australian Bureau of Statistics overseas arrivals and departures data gives a flavour of how Qantas made its money – in June of last year, departures totalled 880,000 but by December, the figure had soared 71% to more than $1.5 million. There was a similar upsurge in domestic travel in the same period, especially at holiday times in September and December.
The earnings rebound came after a loss of $456 million in the previous December half amid those tight Covid restrictions.
Qantas said revenue of $9.9 billion in revenue in the six months to December was three times the $3 billion for the December, 2021 half.
“This is a huge turnaround considering the massive losses were facing just 12 months ago,” Qantas boss Alan Joyce said in a statement sent to the ASX.
“It’s the strength of the demand that has driven such a strong result. 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.”
The airline is also giving 20,000 employees travel credit of $500 and bonuses of up to $11,500 in cash and shares.
Underlying profit came in at $1.43 billion for the half, meeting the airline’s November profit estimates of $1.35 billion and $1.45 billion, which was an upgrade of $150 million from an announcement just a month earlier.
Qantas’ swing back to profit was driven by its domestic operations, which recorded underlying earnings of $915 million – $785 million from Qantas and $130 million from Jetstar – as the number of flights reached 94% of the group’s flying capacity before the pandemic, up from 86% in the June half.
International flights almost doubled from 31% to 60% of pre-COVID capacity in the December half and the international arm had underlying earnings of $511 million.
Its frequent flyer program delivered underlying earnings of $220 million.
Ticket costs are still 20% higher than 2021 levels, but Qantas claims there’s increasing discounts and it is adding more capacity next month.
CEO Joyce said earlier this week the airline’s domestic seat capacity will be back at 100% shortly but international seat capacity will not recover for another year or or more because of a shortage of cabin staff and pilots.
Qantas said that at the end of December it had liquidity of $5.4 billion, including $4.1 billion in cash. “Net debt fell to $2.4 billion at the end of the half, down from $3.9 billion at last results and well below the target range.”
The company expects debt to remain under the target range by the end of June and the 2022-23 financial year.
That will be after the buyback and up to $300 million of shares bought in the market to to fund employee entitlements under the recovery and retention plan, ahead of expected vesting in August 2023.
“This is instead of issuing new shares and therefore avoids the 2.4 per cent dilution of existing shareholders that would have otherwise occurred,” Qantas explained. The extra $300 million means the effective buyback could total $700 million this year..
“Rephasing the Group’s long-term capital expenditure pipeline associated with new aircraft orders in the years ahead on commercially beneficial terms. As a result, forecast capex in FY23 will increase by up to $400 million to between $2.6 and 2.7 billion.”
So in effect Qantas has confirmed it could spend an additional $1.2 billion over the next few months in the new buyback, the on market purchase of the staff shares and higher payments for the new aircraft orders, and still be below its debt target range at June 30.
As well, Qantas said its fuel cost for the year to June is estimated at $4.8 billion “with hedging in place”.
The bottom line is that the airline is rolling in cash at the moment and will be for a while.
