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Edited Transcript of QAN.AX earnings conference call or presentation 21-Aug-19 11:00pm GMT

Full Year 2019 Qantas Airways Ltd Results Investor Presentation - Media Call

Mascot, NSW Sep 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Qantas Airways Ltd earnings conference call or presentation Wednesday, August 21, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan Joseph Joyce

Qantas Airways Limited - CEO, MD & Executive Director

* Tino La Spina

Qantas Airways Limited - CFO

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Conference Call Participants

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* David Flynn;Executive Traveller

* Jamie Freed;Reuters

* John Durie;The Australian

* Jordan Chong;Australian Aviation

* Mike Cherney;The Wall Street Journal

* Patrick Hatch;Sydney Morning Herald

* Robyn Ironside;The Australian

* Ross Kelly;The Wall Street Journal

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Presentation

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [1]

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Well, thank you for joining us. Can I first of all acknowledge the traditional owners of the lands, the Gadigal people of the Eora Nation and pay my respects to elders, past, present and emerging. I'm very pleased to report that the Qantas Group delivered an underlying profit of $1.3 billion and a statutory profit of $1.27 billion for the financial year 2019.

It's a very strong result, particularly when you consider some of the headwinds that we faced. Higher oil prices meant our fuel bill was up by over $600 million. A lower Australian dollar impacted us by around $150 million and we had this noncash impact of $92 million, which is a provision for items, including employee leave balances. And there were some really clear positive numbers from the results today.

Our revenue was at record levels at $18 billion. Our debt was at the bottom of the range at $4.7 billion and we now have a range of between $5.2 billion and $6.5 billion and our statutory earnings per share at $0.55 have remained at the record levels we achieved last year. So it is really pleasing to see how our business is performing across the board.

So I'm going to go to a little bit of detail about each of the segments and how each of the segments are performing and can I say each of our businesses had very, very good results. Domestically, Qantas and Jetstar are still performing really well in each segment of the market that they operate, whether it is the corporate market, the premium leisure market and the price-sensitive markets. Both airlines have significant competitive advantages in margin, in costs and market share in those segments.

Qantas International had a very strong second half after a tough start to the year. Fares had time to catch up on the higher fuel prices and for the first time since I was CEO, the -- now the capacity coming into Australia shrank. Our investment in fleet and network are paying off, particularly the 787s. And when they appear on new routes, they are improving the economics of the new routes overnight. Perth-London, we've already mentioned, is probably the most successful new route launch we've done in our 99-year history. And our Singapore hub is performing so well that we've had to expand our premium lounges by over 50% from 500 seats to over 800 seats.

To put it simply, our strategy is working. Qantas Freight also provided very strong and steady earnings. That was probably different to a lot of our competitors where we have seen decline in freight volumes. IATA has reported an 8-month continuous decline in freight volumes worldwide. And this performance and we think will be helped by a new 7-year agreement with Australia Post.

Jetstar International service saw significant increase in unit revenue growth as Australians still travel en masse to Bali and the Japanese market, in particular, are performing very strongly. Jetstar Japan delivered a record profit for the group and Jetstar Pacific in Vietnam remain profitable. However, Jetstar Asia was challenged by big increases in Singapore airport charges, no different from the other carriers based in Singapore. Our regional services in New Zealand were loss-making and we are monitoring these routes in these markets very closely.

Qantas Loyalty returned to double-digit earnings growth and in the second half of the year and over 8% growth for the full year, have posted another record profit. In fact, Qantas Loyalty is now the second largest contributor to the group's profitability after Qantas Domestic. The core Frequent Flyer Program continued to perform very well. Members love the program and are highly engaged and a recent relaunch of the program has resulted in significant uptake of premium seats for redemptions internationally.

Loyalty's new revenue streams, like insurance and financial services, continue to grow, and we'll have more products preparing to launch by the end of this year. We do know that our people are key to our success. So off the back of these results, we are very pleased to reward around 25,000 of our employees with $1,250 staff travel bonus each. Because of the internal discounts that we give for staff travel, $1,250 is a lot of value. It takes a family of 4 on a trip with Jetstar to Hawaii or a couple on a Perth-London trip return. This is worth a total of $32 million to our people. And since 2015, we've now set aside more than $340 million in bonuses for non-executives. That's on top of the 3% that we are paying in annual pay increases and is part of a total wage bill of over $4 billion. When you combine this with the career and training opportunities that come from growth and innovation, you can see why Qantas is consistently ranked as one of the preferred top employers in Australia.

The group's performance also translates into strong shareholder returns. Today, the Board has approved a fully franked, ordinary dividend of $0.13 a share an off market buyback of almost 80 million shares. At the end of the buyback, we'll have reduced the issued capital of Qantas by about 30% since 2015. So we bought back 1/3 of the company in that time. That's the most of any company in the All Ordinaries in the past 5 years and improves our earnings per share significantly.

Our strong financial performance also translates into a pipeline of customer investment across the group. And it means our customers will notice more improvements in the next 12 months. Our A380s are being completely refurbished: new seats, new business class, new Premium Economy, a refreshed first class and planned economy, new onboard lounge and a new cabin layout. The first one is already being worked on and will be in-service in September and the entire fleet will be complete by the end of 2020.

As I mentioned, we're opening a new first class lounge and expanded business lounge in this in Singapore. The business lounge is already opened and the first class lounge will be opened in November. Jetstar will take the first of its new A321 NEOs, which will have better range and will open up new destinations for Australians to travel internationally on leisure. Frequent Flyer will continue to roll out $25 million worth of improvements to a program that we know Australians already love, making it a lot easier to get a seat using points at the times when most want to travel. In fact, we've announced there's an extra 1 million seats each year as a consequence of those changes. And we are continuing to work on waste reduction targets, including eliminating over $100 million single use plastics by the end of next year.

But we're also focused on the future and on new horizons. In particular, our work towards nonstop flights from the East Coast of Australia to London and New York. That final frontier of modern aviation that we're calling Project Sunrise. We've made really good progress on Project Sunrise over the last few months. We know that Boeing and Airbus now have an aircraft that can do the job and we've had the senior management teams of both organizations here in Sydney to present their best and final offers, including a compelling offer from Boeing to deal with any delays that may be associated with the 777X. We now have a high-level design of more the cabins would look like and are requesting proposals for new seats in first and business class. We are working with regulators to allow flights beyond 20 hours.

There's plenty of enthusiasm for Sunrise, but I have to say it is not a foregone conclusion. This is ultimately a business decision and the economics have to stack up and if they don't, we won't do it. One of the hurdles that we have to deal with is find our pilots to fly the aircraft. We are asking from them for some productivity gains just as we did with the introduction of the Dreamliner and those discussions are ongoing. We'll be making the final yes/no decision on Sunrise by the end of this calendar year.

In the meantime, we have some very exciting opportunities to do new research. Qantas will run 3 separate research flights, using newly built 787s before they go into regular service, to assess well-being and comfort. Between October and end of the year, we'll collect these aircraft from the Boeing factory in Seattle. They would normally fly back empty to Sydney, but we will be positioning them to New York and London and fly direct to Sydney. We'll have researchers from Monash and Sydney University on board, running tests on crew well-being and passenger comfort for almost 20 hours. For weight reasons, there will only be about 40 people on the aircraft to give the 787 the range it needs.

These flights are groundbreaking in themselves. No commercial airline has done these type of experiments before. No commercial airline has ever flown direct from New York to Sydney. And this will only be the second time that we've had a London to Sydney direct flight and it is very fitting that we're making this announcement 30 years from the anniversary of the first, which is the Qantas flight with delivery of the 747-400 OJA, which flew direct and into Sydney and that aircraft, as you now know, is in museum in Wollongong. So this is a very significant moment for us.

And we'll be offsetting all the carbon emissions on those flights. I know there'll be a lot of interest to get on the aircraft so any bribes will be entertained if people want to contact me directly. These things -- the things we learn on these flights will be invaluable not just for Sunrise, but for all of our long-haul services.

Looking ahead, we're feeling very confident about this financial year. We've hedged 100% of our fuel, markets are mixed but capacity settings are in balance. We have competitive advantages in key sectors. We remain focused on cost and we are in a strong financial position.

In a few months, Qantas will celebrate its 99th anniversary. At the same moment, will move into our 100th year of operation. It's an amazing milestone. No other airline has operated continuously for a century. So there is a lot to celebrate and a lot more exciting things to come. So thank you.

Before we go to Q&A, I just like to recognize that Tino La Spina, who has been sitting next to be for 5 years. This is his last results as CFO for Qantas before he goes on to be CEO of Qantas International. Tino has spend 5 years in the role and 4 as Deputy CFO, and he has done a fantastic job of building up an amazing finance team, treasury team. He'll do a great job and make this job a lot easier. So thank you Tino for that.

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Tino La Spina, Qantas Airways Limited - CFO [2]

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Thanks, Alan.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [3]

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Tino is following the trend of all recent CFOs. He seems to grow a beard as they leave the job. I don't know the reason why that is. Gareth followed the same process.

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Tino La Spina, Qantas Airways Limited - CFO [4]

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I think that trend is about to end, Alan.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [5]

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And that brings me to Vanessa who is also here. Vanessa takes over as the CFO and she will be joining me at these discussions, these presentations in the future. Vanessa served 20 years in Qantas, started at the finance department and has worked in the range of commercial and operational roles. So she brings another set of experience I think will continue the great trend of fantastic CFOs in the country and I think the beard trend will definitely end. I hope so.

So thank you very much and then, we might open the Q&A.

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Questions and Answers

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [1]

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Ross and then, David. Yes?

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Ross Kelly;The Wall Street Journal, [2]

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Can you talk us through some of the demand side, domestically and internationally that you see. I can understand the fuel costs. I can see the diversity in the group but just talk us through the demand side, both in the business and also from consumers at the moment, where are the constraints? Where are they spending, where they are not spending, just how you see it across the organization?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [3]

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Interesting, Ross. I think we've been saying for some time that it's mixed and that continues to be the case. So when we look at the corporate market, and the start of last financial year was pretty strong and mixed in the market, it had a very strong resource sector and some weakness in the few other sectors. That's become now pretty flat. There is not much growth in the corporate market.

We are still seeing huge growth in the resource sector, particularly in Western Australia, but it has been offset by declines in the financial services and declines in the telecommunications. We are seeing some growth still in the SME market. Again, it was really strong at the start of last year. That's moderated a bit, but it is still in growth. And that could be part of the fact that we are taking market share in both sectors, more the corporate market and the SME market.

Premium leisure is actually still very strong and robust, but price-sensitive leisure, we've seen that being weak recently. That's in the Jetstar end of the market and that price-sensitive market. There was a little bit of disconnect when the retailers were seeing a decline, Jetstar wasn't, but we're hearing now the retailers are actually seeing a bit of an increase again. Jetstar hasn't seen that yet, but we think that might be a lag effect between the 2. So we're just watching that closely.

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Ross Kelly;The Wall Street Journal, [4]

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I think there's a parallel there.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [5]

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There usually is a little bit of a parallel, but the one factor that we have, which probably a lot of other companies don't is our ability to manage capacity. And if we can maintain our strategic decision, i.e., our market share and overall position in the market with frequencies and network, we can adjust capacity. And what we are seeing is the capacity settings for the year had been pretty good. We think the domestic market will be flat or slightly negative. Internationally, as I mentioned, for the first time, since I have been CEO, we are seeing negative capacity growth and Australia. That's helping and you can see the big improvement we had in Qantas International in the second half and allowing us to recover the oil prices. So it's a mixed bag, but with optimism around our ability to manage capacity, I think we can manage at those variations quite effectively.

David.

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David Flynn;Executive Traveller, [6]

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David Flynn from ExecutiveTraveller.com. You mentioned the refurbished A380s will begin flying late September?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [7]

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Yes.

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David Flynn;Executive Traveller, [8]

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What route will the first of the refurbished A380s be on? And how many more of the 12 will join it by the end of 2019?

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Tino La Spina, Qantas Airways Limited - CFO [9]

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The exact route, I mean you can imagine these aircraft get cycled through the network. So you don't dedicate an aircraft to a particular route. I think importantly for us, we're in this transition. We're really excited to see the 380 get refurbished. As you know, it's going to increase the premium mix on the aircraft. By the end of -- if I look forward to the end of 2020, international has a bright future because you're going to have all of the 787s on board, the 747s will be retired, the A380s, all of the refurbed A380s will be back in the fleet by the end. This is all by the end of next year and that's about the time that the joint business that we've got with American Airlines will be well and truly embedded in. We're looking at the moment just to add more than 100 destinations through their key hubs of Dallas and Chicago as well so it's going to be interesting times for us, I think.

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David Flynn;Executive Traveller, [10]

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[How many of those will we have in the air] by the end of 2019, do you think?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [11]

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I think you just assume roughly that's going to take 1 month, it's going to take a month to do them. There'll be some variations on that, David, as we have to do checks on aircraft. As you know, we're doing some significant checks on the A380s, these 12C checks. So there might be some variation on that, but roughly that. And what we typically do obviously, the people will be surprised and delighted when they see the A380 because when they appear on routes, I think there will be massive improvement than what people have seen before and that transition will get more and more flights as people travel with us over that year, but we can't dedicate onto 1 particular route. That is not the way the aircraft operation works.

I have to say by the way, Tino answered a really good question first time on Qantas International, he's already on the job, isn't he? You are pretty fast. Thanks, Tino.

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Jordan Chong;Australian Aviation, [12]

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It's Jordan Chong from Australian Aviation. Just a couple of questions, please. Firstly, Mr. La Spina, I was just wondering how do you think your time as the CFO has sort of placed you -- will place you for becoming Chief Executive Officer of Qantas International? And secondly, on the international work I wondering whether you can talk a bit about the impact on your Asian routes after the Jet Airways ceased operations, whether that having an impact because obviously a lot of your passengers through India connect through hubs in Singapore and Hong Kong. If you can talk a little bit about that and whether you're seeing any impact on your Hong Kong routes based on the disturbances in the region?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [13]

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You want to answer the first, I will answer the second?

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Tino La Spina, Qantas Airways Limited - CFO [14]

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Okay. I've been with the company, as you know, for 13 years and have spent some time in the loyalty business and in the finance business. And as you would appreciate, the role of CFO is more than just the numbers and obviously, need to be well across the strategy and I'm blessed to be surrounded by a fantastic team and seriously you come to work every day and you continue to learn. But I think the discipline that we've established in the group over the last 10 years since the JSA has put us in a great position where we can explore -- we're in a position right now where we can explore things like Project Sunrise, which clearly we couldn't do 10 years ago. So it's making sure that we continue to make the right decisions to ensure the sustainability of this group and continue to build this portfolio going forward. I'm really looking forward to it. I'm super excited. I think up until now, I thought I had the best job in the world for the best company in the world and I'm told on good authority that this new job coming up is a great job as well so looking forward to it.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [15]

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Jordan, I think what we find is that moving the executives around actually really makes them a lot more rounded and appreciative of the different areas. So as I mentioned, Vanessa has worked as our North American Regional Manager. She's worked in product, she's worked in finance. Gareth, as you know, did Tino's job, did international and is now Jetstar and the collaboration that creates between the entire team is immense and it makes the entire team stronger as a consequence of it. So it's something we think is embedded in our culture. It's partly who we are that makes us a better management team overall. So I think we will continuing this because it works and you can see it in the results. In terms of the performance of those international routes, the Singapore flights did take a bit of a hit because of Jet Airways. We are in dialogue with a number of alternative Indian operators. They are already keen to deal with Qantas. So we're hopeful we will be able to have an arrangement there that works into the future. We are providing other options for people to get to India but for Hong Kong we can't -- am still providing ways for that to occur.

The Hong Kong market has taken a hit and we've seen volumes down in the immediate future by up to 10%. Most people are not traveling to Hong Kong. We have huge flexibility in how we can manage capacity, as I mentioned earlier. As you know, we have A330 300s flying the routes. Our intention is to downgrade them, the same product, the same service to 330 200s. That will take around 7% capacity out of Hong Kong and we will take that out for the next few months to manage that decline in capacity. We will redeploy those bigger aircraft in markets that have some significant growth like Manila and Singapore. And I should say by the way, with Indian traffic (inaudible) from Singapore, we still see huge growth in Singapore because a lot of the destinations now with Jetstar in Asia that we connect to. And one of the reasons we have to expand the lounge by 50% is they're overflowing and there's too many premium customers for the lounges we have. So we're not saying those traffic not being replaced. But we will closely monitor Hong Kong. The other thing I will say is that our experience of these geopolitical events occurring in other places is that there is a fast rebound after the issue comes down, whether that was in Thailand or the issues we had with bombings in Bali or even things like volcanoes that have occurred that have impacted demand. They have rapidly rebounded after that and that will be our expectation for Hong Kong. We've got couple of questions on the phone. First question, please.

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Operator [16]

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(Operator Instructions) Your first phone question comes from Jamie Freed from Reuters.

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Jamie Freed;Reuters, [17]

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I was wondering if you could give some guidance on how forward bookings are lapping so for the first half and whether we should expect a record revenue again this year despite capacity being pretty flat?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [18]

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So one of the things we have done, I think, Jamie is we don't going to that level of detail. We do say as I think I answered to Ross that we're seeing a flat corporate market. We're seeing some growth in the SME market. We're seeing good premium leisure strength, but we are seeing weakness in the price-sensitive leisure. What we are doing is very much focused on managing capacity and as I said, the capacity settings we think are in balance. Domestic is flat to slightly negative potentially for the first 6 months. International has a bit of growth. That's because around 1%-or-so, that's because Jetstar gets a large number of 787s that were in maintenance last year back in operation and we think that is positive for profitability and that's why we have grown there, but we think it is very much in balance with the demand situation that we see.

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Jamie Freed;Reuters, [19]

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And did you also talk about the foreign exchange headwinds. I mean, is the Australian dollar a bit lower than you'd like and how are you managing that at the moment?

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Tino La Spina, Qantas Airways Limited - CFO [20]

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Yes, the low Aussie dollar obviously has a couple of impacts. One, on our fuel bill. We buy fuel in U.S. dollars so we convert to Aussie so it has a headwind there. We have also the impact on nonfuel expenditure, which we have significant expenditure in denominated in US dollars. We've guided to our fuel. So we said that our fuel, which is an Aussie dollar fuel bill, is expected to be about $4 billion. Importantly, we're 100% hedged into financial year '20 when worst-case position, based on the correlated Aussie U.S. dollar and fuel price is about $4.1 billion. But also importantly, because of the way we do our hedging and we restructure our hedging, we have significant participation at around 53% to any falling fuel prices.

One of the other moving parts is our revenues. So with the falling Aussie dollar has 2 impacts. Number one, Alan mentioned before that you're seeing reduction in competitive capacity coming into the country. You generally will expect to see that in a weak Aussie dollar environment. You will recall that post GFC we saw the opposite. When the Aussie dollar was stronger than the U.S. dollar or above parity, you saw carriers dumping capacity into Australia to get that high Aussie dollar. The opposite is true in a weaker Aussie dollar. And of course, we've got the natural hedge there because many of our revenues we fly to places like the U.S. and we have significant exposure there, we have significant revenue that comes from the U.S. So in terms of the international business, we've got that sort of balance happening. And Jetstar is in a position where it is quite nimble. So even though we've got the price-sensitive leisure traffic, which you would expect in a weaker Aussie dollar to destinations like Honolulu can be a big challenge, it is shown itself to be quite a dip to move the aircraft around quite nimbly and refocus because the Aussie traveler was still quite resilient and wants to travel and so they will travel to other destinations like Bali or other points in Southeast Asia. So Jetstar has shown itself quite capable to be able to move those aircraft around.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [21]

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Great. Jamie, we may go to somebody else. I know you probably have a range of questions, but let's go to the next question on the phone.

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Operator [22]

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Your next question comes with Robyn Ironside with The Australian.

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Robyn Ironside;The Australian, [23]

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My question is what factors do you think is dampening the travel demand given that most of the economic indicators are quite good, you've got a very low interest rates, low unemployment, housing prices seem to be in recovery, so what is causing this dampening of the demand?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [24]

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Well, as we said, Robyn, it's not dampening. There's a mixed components there. Certainly, on a lot of segments in the market, we are seeing really good growth like the resource sector. In fact, I think we've said before, we're adding 13% capacity to the [interim] WA operation because of that resource sector and robust demand, which continues to be pretty strong. But you can imagine and it's not a surprise from some of the results out there that the telecommunication side is cutting back, financial services are and they are certainly pulling back on travel and the SME market, as I said, has slowed down, but it is still in growth. We are seeing our market share improving their and premium leisure is still strong. The price-sensitive leisure market is weak and we are circling that and that's been there for a few months and that is continuing. That could be a lag effect, as I said, here to Ross because we are hearing and seeing that retail sales are improving. And when retail sales were weak, we didn't see that weakness with the Jetstar price sensitive end of the market and we have been quite yet seen the recovery, but that may happen and we're keeping an eye on it. And for us, it's all about managing the capacity as well and so we keep a very good focus and flexibility and agility to move capacity around to where that strength is and manage the weakness where you see the weakness.

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Operator [25]

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Your next question comes from Patrick Hatch with the SMH [MEH].

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Patrick Hatch;Sydney Morning Herald, [26]

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Just on international, you called out the pullback in competitor capacity, what prospect is there for further reduction on that front and also an associated yield improvement for Qantas?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [27]

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We still see the Qantas International position continuing, the good performance we had in the second half and the reason for that is all the strategic changes that we're making, the 787s when more of them come, these 3 aircraft we're taking at the end of the year, the benefits we're getting out from Singapore hub. But also, as Tino pointed out, the big benefit we think we will get from the joint venture with American Airlines, which is just kicking in now for this year. The international capacity, we do it by season for the Northern summer season, which is negative. There's a slight growth I think for northern winter at the moment, but it is very moderate. So we think the capacity settings that we've seen, the benign capacity settings that we've seen will continue. So we are optimistic and continue to be very optimistic about the performance of Qantas International. And certainly, for Jetstar International. Jetstar International is a very, very similar position.

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Operator [28]

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Your next question comes from John Durie with The Australian.

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John Durie;The Australian, [29]

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Just 2 quick ones please. What was your fuel bill for the last financial year? And secondly, you talked about in your outlook that you're going to get $400 million in benefits from transformation programs, could you give us some detail on that please?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [30]

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Sure, John. I'll ask Tino to give that detail.

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Tino La Spina, Qantas Airways Limited - CFO [31]

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The fuel bill last year was about $3.2 billion or just over $3.2 billion. So we saw over $600 million growth in FY '19. So FY '18 was $3.2 billion -- $3.9 billion now for rounded for FY '19. So a significant increase, but as I said before, or FY '20, we're fully hedged at around about the $4 billion mark based on current forward prices and our worst-case position at $4.1 billion. So that places us in good stead. But the prediction against fuel is only one factor. Transformation is something that we continue to do. It's business as usual. As you see, we brought $452 million as a combination of revenue initiative and cost initiatives in Qantas for the year and that process for FY '20 continues.

In fact, I've seen a pipeline of initiatives that's in there and we are quite confident that we're going to get it. If you think about, we are getting more 787s coming into the year, that is a significant contributor to the transformation agenda for us. You've seen the single impact that introducing the 787 has had on our London service, turning into profit for the first time in 10 years. So you can imagine how excited we are getting more of these things into our network and retiring the 747. The mere retiring of the 747 is going to deliver significant benefits to the group as well. On top of that, we've got fuel savings and initiatives, which just change the practice around how much fuel is consumed, that delivered $38 million in the year and it is a little higher than what we delivered last year. Those initiatives will continue into the period. We've got the new distribution platform. We've got personalization, we have many initiatives. I mean, the list of initiatives in the transformation pipeline, you can imagine, it numbers into the hundreds and they get the focus of a separate team to make sure that we deliver them.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [32]

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I know you wanted the short answer, but Tino was so excited about the transformation, he has to list them all and he probably could go on all day. John, any other questions?

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Operator [33]

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Your next question comes from Mike Cherney from Wall Street Journal.

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Mike Cherney;The Wall Street Journal, [34]

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A couple of questions on Project Sunrise. I guess, the first question is what exactly are you asking the pilots for in connection with the possibility of these long-haul flights? And then the second question is, do you think passengers will actually want to fly more than 20 hours on a plane? And how will the research being conducted help answer that question?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [35]

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So first of all, very similar to the introduction of the 78s, we're asking our pilots for some productivity improvements in order to be able to operate these services and make them efficient. No different from all of the components of the business case that we've been asking for. We've been asking the manufactures for efficiencies there, we've been asking other employees the same thing. The business case is key. I keep on emphasizing, we will not do this unless we have a solid business case to make this work. We're not going to be buying aircraft that we don't think there is a business for us to make profits out of it. So we're going to have very strong hurdles associated with this. And I have to say, we have every time we expand the horizons and Qantas has done this for its 99-year history. People always get worried about that next leap, whether it is going from 8 hours to 10 hours, 12 hours to 17 hours.

And I can say the Perth-London was a great example, the amount of people that actually said to us he will want to travel on 70 and there I was flying between the 2 continents. The first time that the 2 continents have been linked directly, well, we have a 95% C factor on those flights. And amazingly, for the longest flight in our network, it has the highest Net Promoter Score, the highest customer satisfaction, which means the people that are flying on it love it. And the feedback we get is once you travel there, people don't want to go back to a stop and we're getting a significant premium in fares we are charging for people flying direct, rather than stopping somewhere.

It does work. It is the way we've designed aircraft. We've deliberately decided on them for ultra long-haul. It's the way we worked with our designer on the seats, it's the way we worked with Neil Perry on the food. It's the way we worked with the [child's perk and since the food] on making sure this is healthy for people and recommending how they do it. It's things like putting a stretch class, yoga class into the lounge in Perth before you travel. And we're taking all of the knowledge that we've gotten there for over a year of operation of Perth-London and this research that with these universities that we have a great relationship with on these 3 test flights to enhance that even further. We think we can make it unique IP for Qantas in long-haul travel in the space that makes us unique and different from any other airline in the world. Perth-London is proving it and I think London to Sydney, Melbourne, New York to Sydney Melbourne Brisbane, they will prove that this is a great business opportunity for Qantas, great for employees, great for our customers and I will only do it if it is good for our shareholders and we think we will get there.

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Ross Kelly;The Wall Street Journal, [36]

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Just on that very same subject, I'd just ask about the pilots, you're asking for the productivity improvements, can you spell out the types of productivity improvements that you are needing from your staff that would actually make this a better business case for those shareholders?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [37]

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Ross, we're in dialogue with and I'm not going to go into the detail because there's various different ways you can get there, so we won't go into the detail of what they are, but we continue with that dialogue. We'd like to do that with them, but we just want to make it clear that there are a number of different hurdles we still have to overcome. We still -- the reason why we are doing these test flights and Lisa Norman is the pilot that is managing this, is that we have to show to the regulator that from a fatigue risk management point of view that we can do over 20 hours. So that's another hurdle that we just have to manage. So we're just making sure that people understand that this is not a slamdunk. There are still things that need to happen for us to get there and we are working on all of them with these test flights, these research flights and the dialogue we have with our pilots.

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Ross Kelly;The Wall Street Journal, [38]

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So explain this, it's not just with the pilots but with the regulators on the safety issue on both sides that's where much of the conversation will be right now?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [39]

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Yes, so the regulator is -- none of the world's rules at the moment allow airlines to fly over 20 hours. And every time you make one of these leaps, you need to sit down with the regulator and say how you manage operation, how you manage the rest, how you -- we call the fatigue risk management. We've been doing this for most of our history. We've been using the Monash University, Adelaide University to give us science behind it and we're going to be applying those techniques in these flights to help to understand the sleep patterns, the rhythms, the alertness and that will help inform us how we manage on these long haul flights. It's something that is very scientific. It's done in cooperation with the regulator and it's something that I think we do really well. So that's part of why we're doing this.

Thank you very much everybody. Go inside for some pictures.