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Edited Transcript of QAN.AX earnings conference call or presentation 23-Aug-18 1:30am GMT

Full Year 2018 Qantas Airways Ltd Earnings Call

Mascot, NSW Apr 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Qantas Airways Ltd earnings conference call or presentation Thursday, August 23, 2018 at 1:30:00am 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

* Alison Webster

* Andrew Paul David

Qantas Airways Limited - CEO of Qantas Domestic & Freight

* Frances van Reyk

Qantas Airways Limited - Head of IR

* Gareth R. Evans

Qantas Airways Limited - CEO of Jetstar Group

* Robert Marcolina

Qantas Airways Limited - Group Executive of Strategy, Innovation & Technology

* Tino La Spina

Qantas Airways Limited - CFO

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Conference Call Participants

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* Anthony Moulder

CLSA Limited, Research Division - Analyst

* Guy X. Bunce

JP Morgan Chase & Co, Research Division - Analyst

* Jakob Cakarnis

Citigroup Inc, Research Division - Associate

* Michael Morrison

Deutsche Bank AG, Research Division - Research Analyst

* Owen Birrell

Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst

* Paul Butler

Crédit Suisse AG, Research Division - Director

* Simon A. Mitchell

UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand

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Presentation

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Frances van Reyk, Qantas Airways Limited - Head of IR [1]

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Okay, thank you. Good morning, and welcome to the Qantas campus today for the 2018 Full Year Results Presentation. I'm Fran Van Reyk, Qantas' Head of Investor Relations.

Before we get started today, I'd like to acknowledge the traditional owners of the land, the Gadigal people of the Eora Nation and pay my respects to their elders, past and present.

Because safety is our first priority at Qantas, I'll play a short video that will run you through the campus emergency procedures.

(presentation)

Well, I'll share just a couple of housekeeping items before we begin. The event is being webcast and transmitted, so your voice or your image may be captured and transmitted over the Internet on the replay available on our website later today.

In a few moments, Alan Joyce, our CEO; and Tino La Spina, our CFO, will present our results, followed by a Q&A session. Questions will come from the room and the phones, and Alan will direct where the next question will come from.

Members of our group management committee are in the room here today, and some questions may be referred to them. If you wish to ask a question, please raise your hand if you're in the room and wait for a microphone so everyone, including on the webcast, can hear you. Please say your name and the company you represent before asking any questions. If there are any further questions after the formalities conclude, myself and the rest of the Investor Relations team, who are in the room here today, will be available to speak with you.

Finally, can I ask that you set your phones to silent for the courtesy of the presenters and others in the room.

Thank you. And I'll now hand over to Alan to commence today.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [2]

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Thanks, Fran. Welcome, everybody. I'm glad to see there is more people here than there were at the press conference. I think the press are actually more interested in what's happening in Canberra today. I said to them in that conference, if we had any bad news, it would be a great day to bring her out because of the (inaudible). Unfortunately -- or fortunately, we have only good news here today.

Before I get started, I want to introduce the executive team. And they're going to be asked to help with the questions at the end. And in the order from left to right that they're sitting, can I first introduce Olivia Wirth, who's CEO of Qantas Loyalty; Andrew Finch, who's Company Secretary and General Counsel; Andrew David, who's CEO of Qantas Domestic; Ali Webster, who's CEO of Qantas International; Rob Marcolina, who's Head of Strategy, IT and Transformation. Did I get it that right?

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Robert Marcolina, Qantas Airways Limited - Group Executive of Strategy, Innovation & Technology [3]

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[Exactly].

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [4]

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Close enough. Gareth Evans, who's CEO of Jetstar Group; Lesley Grant, who's Head of HR and People; John Gissing, who's Head of QantasLink, Jetconnect, Other Services, did I get that right?

And Andrew Parker, who's got the most difficult job at the moment, Head of Government Affairs. So welcome, everybody.

And Tino La Spina is joining me here. And Tino's got the task of controlling the slides, which he's getting better at every year. By retirement, you'll be an expert at this, I think.

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Tino La Spina, Qantas Airways Limited - CFO [5]

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Thanks, Alan.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [6]

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On behalf of every Qantas employee, I'm very proud to say that the company is reporting the best result in its 98-year history. This has been made possible by the hard work and dedication of our people and the continued support of our customers. And it's particularly pleasing because the record performance was achieved in a year of rising fuel costs. But it's not just this year's records, it is our consistently strong performance year-after-year that makes me feel the most proud.

Now I'd like to take you through some of the highlights of the results. On an underlying basis, profit before tax was at a record $1.6 billion. This beats the previous record set in financial year 2016 by over $70 million and is an increase of nearly 15% versus last year's results. Statutory profit before tax increased by $210 million to $1.4 billion.

We have delivered our goal of maintainable EPS growth over the cycle. Statutory earnings per share were up 21% to a record $0.56 per share, and has more than doubled since the 2015 financial year. The group's return on invested capital was strong at 22%, making financial year 2018 the fourth conservative year of returns well over our 10% value creation threshold.

And our focus on ongoing transformation has delivered benefits, totaling $463 million this year, well in excess of our $400 million target. In recognition of the contribution of our people to these record results, we have announced a bonus for the 27,000 front-line employees totaling $67 million.

At a segment level, we achieved record earnings at Qantas Domestic and Jetstar's Domestic business. They combined to deliver record group domestic earnings. The Jetstar Group and Qantas Loyalty also delivered record performances. While earnings improved at Qantas International at higher unit -- as higher unit revenue helped to offset the impact of rising fuel costs.

Turning now to the balance sheet. Operating cash flow was at a record level of $3.4 billion, up over $700 million on the prior year, demonstrating the significant cash flows-generating ability of this business. After CapEx spend of $1.97 billion, we were able to generate strong net free cash flows in excess of $1.4 billion. This allowed us to return $1 billion to shareholders through dividends and buybacks.

Our net debt at the 30th of June 2018 reduced to $4.9 billion. This is a $300 million improvement since last financial year and provides the group with significant financial flexibility as it enters financial year 2019.

The strength of the balance sheet and outlook for our earnings has given the Qantas business the confidence to announce further capital returns to shareholders. This includes an increase of the dividend from $0.07 to $0.10 per share, and this will be fully franked in recognition of our return to paying company income tax. In addition, we have announced an on-market share buyback of up to $332 million. This will take the anticipated total capital returns to shareholders since October 2015 to over $3 billion.

The group's domestic airlines and loyalty segments are at the core of the group's financial performance. They provide a stable and growing earnings base that underpins the group's strong operating cash flows. The dual-brand strategy remains core to that performance, with domestic earnings for this financial year, are -- of over $1 billion.

Qantas Loyalty continued to grow earnings in what was a transition year. It continues to provide a diversified earnings stream by leveraging our strong brand and the unique data assets into new businesses.

I'm pleased to say that the group's restructured international airlines, including the freight segment, have delivered resilient performance with strong earnings in the rising fuel cost environment.

I now hand over to Tino, who will take you through the details of the group's results.

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Tino La Spina, Qantas Airways Limited - CFO [7]

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Thanks, Alan. So the group delivered another record performance for the 2018 financial year, with underlying profit before tax of just over $1.6 billion. Underlying earnings per share was up 18%, driven by record earnings and the accretive nature of the buyback. Statutory EPS was up 21%. Return on invested capital was also strong at 22%, well above the group's cost of capital.

Unit revenue for the group was up 3.9% for the full year and 4.4% in the second half as the aviation industry took action to address rising fuel prices. Total unit cost was up 2.7%, reflecting the impact of rightsizing aircraft in the domestic market, higher selling expenses as revenue rose, investment in customer experience to support the revenue premium and increased fuel prices.

The group's focus on growing operating margin has delivered a 0.6 point improvement to 10.5%. And operating cash flow was a highlight, with a record $3.4 billion, resulting in strong net free cash flow of $1.4 billion. This strong cash flow performance has supported the additional returns to shareholders we're announcing here today.

Starting with 2017 earnings, the bridge to 2018 consists of the following. Ticketed passenger revenue was up $645 million, including $176 million in net revenue benefits from transformation. This reflects not only a strong operating environment, but also improvements in group unit revenue as capacity discipline was maintained in the domestic market and international -- and competitor capacity moderated to levels more closely aligned to demand.

Fuel expense rose by $193 million net of transformation fuel efficiency of $33 million. The group's disciplined hedging program provided significant protection from rising fuel prices through the year.

Increased activity and network changes cost $189 million as group capacity grew by 1.4%. Transformation delivered a total of $463 million, including a non-fuel cost reduction of $254 million to offset the impact of cost inflation.

Depreciation and rentals rose $51 million, driven primarily by reinvestment in fleet and new technology. We had favorable foreign exchange movements on nonfuel expenditure, which provided a $36 million benefit to the result. And there was a noncash impact of the bond rate on certain provisions, which reduced the result by $23 million compared to the prior comparative period.

I'll now hand you back to Alan.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [8]

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Thanks, Tino. This year's record result was underpinned, again, by our earnings at the domestic market, which grew 25% to over $1 billion. Our sophisticated dual-brand strategy, the domestic market capacity savings and the improved demand environment allowed the recovery of increased fuel through a 6.8% increase in group domestic unit revenue. And our focus on growing domestic market margins delivered improvement at both our domestic airlines.

The Qantas Transformation program significantly repositioned the competitiveness of Qantas International business. And this year, we continued the structural transformation with the introduction of the 787 Dreamliners to the fleet. At the same time, we have continued to expand the network through codeshare arrangements, and our key alliance partners enabling the network and hub restructure that has been quite significant.

The increase in earnings and stable margins achieved this year is particularly pleasing, given the international business had the highest exposure to rising fuel prices. Importantly, we have improved our group margins and maintained the advantage against our key regional competitors. We expect, as a result of the changes we are making at Qantas International and the strong competitive position versus our peers, we will substantially recover the higher fuel costs in the international market.

Turning now to the details of the segment performance on Slide 9. Qantas Domestic reported a record underlying EBIT of $768 million, up 19% on last year. Total revenues were up more than 6% as unit revenue rose 8%. Load factor was also up as available capacity reduced. And the operation margin was a record 12.9%, up 1.4 percentage points versus the prior year.

On the demand side, Qantas Domestic has maintained its leadership position in the corporate market and it's growing the SME market share while growth in resource market revenue continued in the second half as activity picked up in that sector.

Our superior earnings are maintained through our focus on the customer. Qantas Domestic continues to invest in the customer experiencing, installing in-flight WiFi on the domestic fleet and upgrading its airport lounges. And importantly, for our customers in regional centers, Qantas has improved the regional resident fare program and is investing in refurbishment of the turbo prop fleet. Also for our regional customers, we have announced today upgrades to 2 regional lounges.

As you will remember, in the first half, we rolled the freight segment into Qantas International to simplify reporting. For the purpose of comparison, we have restated the 2017 financial year results. Qantas International underlying EBIT was up 6.7% to $399 million, with the operating margin maintained at 5.8%, even as fuel costs rose, given the revenue increased 2.5% as international competitive capacity additions eased and global airline peers raised fares to recover increase in fuel costs.

Financial year 2018 saw many important changes at Qantas International. The introduction of the Dreamliner, and on -- launch on the unique Perth to London non-stop service and the new network and hub services have already unlocked benefits which will flow into the 2019 financial year. During the year, we received 5 of the first 8 Dreamliners, and we have committed to a further 6, which will grow that fleet to 14. This will allow us to accelerate the retirement of the 747s, given the high fuel environment.

A significant contributor to the transformation of Qantas International is its core airline partnerships. The focus on strengthening these partnerships continues. The Emirates partnership was renewed for a further 5 years, and we are seeking approval for the extension of our partnership with American Airlines and on obtaining antitrust immunity. And we are growing our China presence through the China Eastern joint coordination agreement.

Associated with the changes to Qantas International network and fleet, it is investing in the overall customer experience. We are seeing our highest level ever of customer advocacy on the new Perth-London service. For a new service that's only operating since March, that's a great outcome. And the seat factor since March on that service is at a massive 92% overall and 94% in the business class cabin. An amazing result for a brand-new service.

And this year, we also opened the landmark London lounge and the new Perth Transit lounge. As recently and -- very recently as last weekend, we welcomed the sixth Dreamliner, Boomerang, to the fleet. I'll speak later about the project -- the progress on Project Sunrise, the next exciting frontier of long-haul international travel.

The Jetstar Group delivered a record full year underlying EBIT of $461 million. This includes a record performance in the domestic market, supported by a 5% improvement in unit revenue, driven by a 3 percentage point increase in seat factor and a 1% decrease in capacity. The contribution from Jetstar International business was strong despite the impact of volcanic eruptions on services to Bali and the lower earnings from a number of start-up routes, including Melbourne to Ho Chi Minh.

All Jetstar-branded airlines in Asia were profitable in the year, and Jetstar Japan maintained its LCC leadership position in the domestic market while Jetstar Pacific in Vietnam improved its earnings as the competitive environment eased. And Jetstar Asia is contributing to the benefits from the switch of Qantas to the Singapore hub.

While airfares are rising as a result of the higher fuel cost environment, Jetstar maintained its commitment to low fares, selling over 24 million fares for under $100. That's about 2/3 of its customers. And when you consider the group carries 55 million people, it shows the value for money in airfares that is still in the marketplace.

And more than 250,000 members have joined Club Jetstar to gain access to even bigger discounted airfares. Jetstar's investment on the customer experience continues with the cabin enhancement program well underway, while investment in innovation and digital capacity will enhance the customer experience and drive ancillary margin growth into the next financial year.

The records continue at Qantas Loyalty, with underlying EBIT at $372 million. The fundamentals of the coalition business are strengthening. Qantas co-branded credit growth is outpacing the market due to the success of the strategy to offset the impacts of disruption in the credit card markets.

The retail portfolio also continues to perform well with a full year contribution from the renewed Woolworths partnership and continued growth in everyday earn partners. As more partners join the program, members are provided with additional earn and redemption options. Membership in the program continues to grow, and this year grew by more than 4% to 12.3 million members as of the 30th of June 2018. And engagement with the program is also growing. This helps us maintain a premium to our airline competitors, making Qantas Loyalty a unique asset in the Qantas group's portfolio of businesses.

Through the year, we have seen good growth in membership and partners for the Qantas Business Rewards program, a key part of our airline SME strategy, which has seen a significant increase in our share in that segment of the market for the airlines. And Qantas Travel Money maintains its strong position in the market.

Turning to our new businesses. We branded Assure to Qantas Insurance during the second half, and it continues to grow strongly and is on track to meet our target of 2% to 3% market share in the health insurance market.

The Qantas Premier Platinum card, which was launched last July, has performed beyond our expectations, and we recently launched the new Qantas Premier Everyday credit card. Beyond this transition period, the coalition and new businesses will continue to drive Qantas Loyalty growth and the diversifications of earnings.

I'll now hand you back to Tino, who will talk to you about the performance against the Qantas group financial framework.

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

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Thanks, Alan. Our financial framework continues to guide how we create value for our shareholders. The 3 pillars of the framework remain consistent. Firstly, maintaining an optimal capital structure that minimizes the group's cost of capital. The group's optimal net debt range has increased to $5.1 billion to $6.3 billion. This reflects the increased cash-generating ability, where ROIC is at 10%. The supplementary slides that we've got lodged as well go into some of the calculations and the detail.

Secondly, delivering ROIC above 10% through the cycle. And finally, growing invested capital with disciplined investment, returning any surplus to our shareholders.

Qantas has again performed strongly against each of these long-term metrics. And we're pleased to say that we continue to deliver strong EPS performance, in fact, at record levels this year, consistent with achieving our overarching target of delivering TSR in the top quartile of the ASX 100 and our global airline peers.

The strong operating environment meant that the group's net debt as of 30 June, 2018, was $4.9 billion, which is below the targeted range. Heading into financial year '19, this gives us the financial flexibility to continue with our capital investments, shareholder returns and maintain our optimal capital structure under a wide range of operating conditions.

During the year, the group extended debt tenor and diversified funding sources through the $350 million issuance under our corporate secured debt program, where we were utilizing midlife aircraft as security, the first of its kind. We also upsized and refinanced our drawn syndicated loan facility out to FY '23, raising a further $325 million.

We continue to hold investment-grade credit metrics from both Moody's and S&P, and our debt instruments have no financial covenants. This reflects debt investor confidence in our business and our financial framework settings.

At 30 June, 2018, Qantas held substantial short-term liquidity of $2.7 billion. This includes $1.7 billion of cash and $1 billion in undrawn facilities. In addition, another source of liquidity is the group's significant pool of unencumbered aircraft. With 5 new 789 Dreamliners added to this pool, it grew in value to more than USD 4 billion.

Our hedging program was highly effective during the year. We were able to keep the fuel cost increase to $193 million or just 6%, that's inclusive of additional consumption due to the increased flying activity. This compares very favorably with the, on average, 25% increase in the Aussie dollar Brent crude prices through the year. The hedging program has provided us with the time to make the necessary operational and commercial setting adjustments to address the rise in prices in financial year '18 and over the medium term. This included making adjustments to the dual-brand capacity settings, pricing and revenue management.

We have a higher level of hedging in place for financial year 2019 biased to the first half. Going forward, the group's Aussie dollar fuel risk is 73% hedged for the remainder of the financial year. At current Aussie dollar forward prices, we expect the group's fuel cost to be $3.92 billion, and this is inclusive of option premium. We have approximately 54% participation to lower Aussie dollar Brent prices for the remainder of the financial year based on a USD 10 fall from where we are here. This level of participation reflects the fact that our hedge book is highly effective at current prices. And hedging for 2020 financial year is also underway, consistent with our long-held hedging strategy.

As the airline industry as a whole faces higher fuel prices, our strong group operating margin relative to our peers gives us confidence that we will substantially recover the higher fuel costs. In the domestic market, we expect to recover fuel price increases through capacity discipline and application of the dual-brand strategy.

The actions taken to structurally transform Qantas International will help build its earnings resilience. Given our superior margin versus our peers, we will substantially recover the higher fuel costs in Qantas International. In conjunction with the ongoing transformation, the group will continue to generate strong cash flows in financial year '19.

Turning now to Transformation. This year, we delivered $463 million in transformation benefits, exceeding our minimum annual target of $400 million. This includes net revenue benefits of $176 million. Examples of initiatives include the structural changes, such as the Dreamliner introduction, Singapore hub restructure, commencement of the Perth-London direct service as well as revenue management system enhancements. We've continued to focus on containing our costs with a nonfuel cost reduction of $254 million. $33 million in fuel benefits were achieved through a range of initiatives, including increased utilization of ground power units and single-engine taxiing.

The pipeline of initiatives for financial year '19 is progressing well, and we're on track to deliver at least $400 million in benefits to help offset CPI and any other headwinds.

As I said earlier, the group is at its optimal capital structure and continues to generate returns on invested capital much greater than 10%. As a result, the group continues to generate significant capital for reinvestment and distribution to shareholders. The group invested $1.97 billion during the 2018 financial year as we took delivery of 5 Dreamliners and continued to invest in product and technology. No significant asset sales were completed in the year, although we have announced the proposed sale of the catering business to dnata, which is expected to compete in the first half of this financial year.

The strong operating cash flow generated this year has also allowed us to return $1 billion to shareholders through a combination of unfranked dividends and on-market share buybacks. During the financial year, the buybacks reduced issued capital by 7%. This takes the reduction in shares on issue since October 2015 to 23.4% at an average price of $4.27.

The financial framework continues to guide our capital allocation decisions. Our primary objective is to maintain a strong balance sheet at all times to maximize value for our shareholders. The group's forecast net debt position relative to its earnings prospects defines whether surplus capital exists. And today, we are pleased to announce an increased ordinary dividend of $0.10 per share, totaling $168 million. The base dividend has been increased in recognition of the group's sustained strong cash flow performance. The dividend will be fully franked as a result of the group recommencing tax payments in financial year '19 with available carryforward tax losses now exhausted. We're also announcing an on-market share buyback of up to $332 million. The shareholder distributions totaled $500 million this half.

Looking forward, the group intends to distribute surplus capital via a base dividend every 6 months in conjunction with share buybacks, special dividends or capital return, considering the most efficient form at the time of distribution.

I'll now hand you back to Alan

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [10]

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Thanks, Tino. At our Investor Day in 2017, we outlined our strategic priorities through financial year 2020 in the context of the longer-term trends impacting our business. Fundamental to the creation of long-term shareholder value is the successful execution of our strategic priorities. And as you have already heard, we have made good progress and delivered some outstanding results. In the documents lodged today, you will find more details on each of our strategic priorities. Right now, I would just like to briefly touch on a few of those highlights.

This year, we have further optimized the dual-brand strategy in the domestic market, delivering improved margins and earnings, even in the rising fuel environment. We continue to build earnings resilience at Qantas International with the new Perth to London service, fleet renewal and the network and hub evolution. All of these are expected to deliver ongoing benefits into financial year 2019. The additional capacity directed to Singapore has improved the connectivity to Jetstar Asia's service, delivering additional benefits to the group.

Our Loyalty is well-positioned in both the coalition and new businesses to provide a growing and diversified earnings streams which is not exposed to higher fuel prices. And for our customers, there have been lots of exciting investments in fleet and in the customer experience. And today, we announced lounge upgrades at 6 different ports.

We know that our people are key to our success, and that's why we continue to invest in training, including the commitment to establish of what is now 2 pilot academy facilities in regional Australia. As today -- and today, we have announced that we will again be sharing our success with our people with a bonus to front-line staff totaling $67 million.

We track our progress against our strategic priority using this balanced scorecard. Our financial performance is measured by segment performance and transformation. I am pleased to say our progress to date has us on track with all operating segments delivering ROIC in excess of 10%, Loyalty remains on track to reach its medium-term goal objectives and $463 million of transformation benefits were delivered this year.

For people and customer, our employee engagement scores were at record levels of 80%, and customer advocacy measured through net promoter scores was at a significant premium to our domestic competitor.

Meanwhile, our focus on innovation has identified new products, services and process that drive revenue and efficiencies.

We have made significant gains in maintaining our high operational standards, insurance we are acting responsibly to maintain our social license to operate. Some highlights include a reduction to our injury frequency rate due to our unwavering focus on both operational and personal safety. On the environment, this year, we operated the world's first dedicated biofuel flight between the U.S. and Australia, and marked the 10th anniversary of us offsetting carbon emissions.

As a national carrier, we're well aware of our role in supporting the communities where we operate. We have spent over $7 billion with Australian-based suppliers and have committed to delivering $3 million for drought relief, with the support of our customers.

Turning now to our fleets. Our fleet strategy is based on 3 principles, matching the right aircraft to the right routes, maintaining flexibility to respond to a range of operating scenarios and to maintain competitiveness in every market that we serve.

Fleet renewal in Qantas International has commenced with the induction -- with the introduction of the Dreamliner, combined with the early retirement of the 747 and the refurbishment of the A380s. We will have a consistent product across the international fleet by our 100th birthday in 2020.

At Qantas Domestic, investment is focused on installation of WiFi and the interior refresh of the 45 turbo prop regional aircraft. And with the recovery of Western Australia resource market, we have introduced A320s into the QantasLink operation.

At Jetstar, we announced the renewal of the A320 and A321 fleets with the order of 18 A321 NEOs, with long-range capability for delivery commencing in 2020. In the meantime, the cabin enhancement project continues, with the A321 fleet now complete and the A320 fleet refit on the way.

Looking longer term, we have the ability to replace an entire fleet without exceeding gross capital expenditure of $2 billion in any 1 year, but we retain the flexibility to adjust our fleet renewal plan guided by our financial framework.

The competitiveness of our fleet is not based on average age but on maintaining competitiveness on the technology curve. The vast majority of the group's aircraft are similar to the aircraft in the fleets of our competitors. But we are not standing still and are well on our way to transitioning all fleets to the next-generation technology across both Qantas' and Jetstar's. Through Project Sunrise, we are challenging both Airbus and Boeing to deliver an ultra-long-range aircraft, capable of flying nonstop from the East Coast of Australia to destinations such as New York and London. And we have other aircraft types under evaluation as potential replacement for our domestic fleet in due course.

Turning now to our outlook. The value of forward bookings as at the 30th of June 2018 was up 6.2% compared to the same time last year. Combined with the capacity discipline and effective dual-brand strategy execution in the domestic market, our group margin advantage over our regional peers and our ongoing focus on transformation, we are confident that we will substantially cover higher fuel costs.

Our particular capacity guidance for the first half is for group capacity to increase of between 0% to 1% compared to the prior corresponding period. Within this, group domestic capacity expected to be flat, while the group international capacity expected to increase by approximately 1%.

You can see all other guidance for the full year on this slide, including our expectation to deliver at least $400 million in gross transformational benefits, again, this year and a noncash increase of approximately $175 million for depreciation and amortization.

The 3-year Qantas Transformation program provided a solid platform for the group to build long-term shareholder value and the actions we have taken in the 2018 financial year have further strengthened the business. Our strong balance sheet, forward bookings and demand environment give the group the confidence that we will substantially recover higher fuel costs. We expect to be able to invest for the future and still deliver strong net free cash flows.

With that, I think it's time that we opened her up to questions. We'll start as we normally do with questions in the room and then go to the phone. And as I said, I will be asking the executive team in the front row to help us answer the questions depending on the particular area. So first of all, any questions in the room? Okay. Well, I might go to the phone and get you to think of a few before we come back. Any questions on the phone?

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Questions and Answers

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Operator [1]

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Your first question today comes from the line of Simon Mitchell from UBS.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [2]

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If I look at the revenue performance in Group Domestic, you reported a RASK increase of 6.8% for the full year and for the first 9 months of the year, I think you've reported 8%. So it looks like the June quarter was only up about 3% to 4%, probably the slowing from what you experienced through the balance of the year. So I guess, my question, is that accurate? And secondly, how do you consider that as you look into FY '19, your comments around strong revenue?

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

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Andrew, do you want to start and talk about for Domestic and maybe Gareth for Jetstar? First of all, Andrew?

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Andrew Paul David, Qantas Airways Limited - CEO of Qantas Domestic & Freight [4]

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Simon, I think you'll recall at the half results, we did call that we expected second half to be lower performance than the first half because we are rolling over a very, very strong second half '17. If you come back to the fundamentals of the business and the points that both Alan and Tino made, we've got cash capacity discipline in the market. We've got growth in resource. We've got growth in SME. We've got growth in corporate. Both Qantas and Jetstar are working together to manage our dual brand very, very effectively. And then if you go to Slide 18 of the pack that Tino and Alan have just walked you through there are a number of transformation initiatives listed there that are both revenue and cost driven. So from our perspective, we're very confident in the market. And as Alan said, we are more than confident that the Domestic business can offset the cost of rising fuel.

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Gareth R. Evans, Qantas Airways Limited - CEO of Jetstar Group [5]

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In terms of the final quarter of the year, it is the weakest quarter. For Jetstar, as a leisure airline, the majority of revenues actually generated through the Easter period and as it happened in the year that we just closed, the configuration of the Easter holiday wasn't as good as in the previous year. There -- Victoria and the New South Wales holidays were split, there was a split between Easter and Anzac Day. So that was -- it was expected from a leisure perspective, we would get a less strong yield than we've been experiencing in earlier months. As it happens, there's a good configuration of holidays through Easter in the year that we're in now. And certainly, we've seen a good strong start to the year as Alan and Tino expressed in forward bookings as we've gone through the first leisure peak of the year through the July school holidays.

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Tino La Spina, Qantas Airways Limited - CFO [6]

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And Simon, we didn't give the international and domestic split, but the comment on the value of forward bookings was deliberate at 6.2%. The value of forward bookings give you some sense as to what we're seeing when we look forward in the financial year around -- into financial year '19.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [7]

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Just on that point, Tino, the revenue received in advance balance pretty much equates to the same percentage of passenger revenue as it did back in 30 June 2017. So it just kept pace with revenue. So I guess, your comments around up 6% is that what you're suggesting is the best indication of RASK into the first quarter?

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Tino La Spina, Qantas Airways Limited - CFO [8]

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Correct, correct. If your value of forward bookings is going up, then your underlying value, it's the -- it's the number that we could put out there to point to that gives a sense of what we're seeing.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [9]

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And just a second question for Tino if I could just on tax.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [10]

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Okay. Simon, I'll allow you a second question. You usually put them all in, in one go. So go for a second one. No third one, though.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [11]

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No. I just noticed that the carry-forward tax losses have been fully exhausted now. So do we -- how does the timing work with the resumption of cash tax payments? Can you just discuss that?

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Tino La Spina, Qantas Airways Limited - CFO [12]

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Yes. It's a good question. So what happened is, we do our tax -- we lodge our tax return towards the end of the calendar year. As soon as you've lodged a tax return, you start an installment tax payment regime, which means that we're starting to generate franking credits from the end of this calendar year or there about once the return is lodged. Those franking credits get paid through to 30 June, which means we end 30 June with a franking credit balance. So while today, we haven't paid that tax, we will end the year having paid tax and therefore don't end the year with a franking account deficit, which allows us to frank the dividend today. I hope that makes sense.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [13]

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Does that mean that you pay a full year's worth of tax in cash turn in FY '19?

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

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No. No. You're absolutely right. So you'll -- if we start from -- and just assume 1 January, then you'll have half of the tax -- half of financial year '19's tax paid in financial year '19, and financial year '20 will include a year's worth of financial -- that is tax plus the half of financial year '19.

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

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Thanks, Simon.

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Operator [16]

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Your next question from the line -- comes from the line of Owen Birrell from Goldman Sachs.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [17]

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Just some questions around the CapEx guidance. You've stood -- outlined $1 billion in net CapEx for FY '19. Just firstly, can I just ask what's the gross CapEx expectation within that net number?

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Tino La Spina, Qantas Airways Limited - CFO [18]

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Yes, you can, but we've disclosed just net, Owen. And that's -- the reason for that is there's a few asset sales that are planned for 2019. So we've -- and we've already discussed the sale of the catering business, so that's included there. And in 2019, there's 2 significant transactions that are due to occur. One's with Melbourne Airport, where Melbourne Airport due to buy back our terminal and the same in Perth with Perth Airport. So they're more likely to happen in the second half, but they are netted against the number to give us the net number. And of course, the commercial incompetence one, that's why we're not showing it.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [19]

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And Owen, I think we, obviously, don't want to disclose what we're putting in there because that's part of our negotiations with both airports. They have to be sold, the lease has come to an end. They may not necessarily happen this year. We'll make sure we get a good price. And there's obviously no rush to make sure it's finalized, but that money will come in at some stage in the future, and we'll make sure we get it right. But that's -- we can't disclose that number given, as Tino said, the financial sensitivity of it.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [20]

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Yes. And I understand. Can I just ask, are there any likely aircraft sales or sale leasebacks within that net number?

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Tino La Spina, Qantas Airways Limited - CFO [21]

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No. So any sale and leaseback we would not -- would not be included in the -- oh, sale and leasebacks. You mean buying out leases? So if we were buying out any leases, they wouldn't be included in...

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [22]

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No. If you're selling, basically, aircraft on your books at the moment and then leasing them back.

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Tino La Spina, Qantas Airways Limited - CFO [23]

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No. There will be nothing significant there. If there is, it will be selling spare parts or retiring 747s.

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

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Owen, if you want to buy some 747s, we've got a load of them to sell to you.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [25]

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No. I saw it on eBay the other day, but it's looking pretty cheap.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [26]

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Yes. And if you know anybody that wants to buy them, we have a good deal out there for them. But we're not assuming we're going to sell them. If it happens, it will be great.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [27]

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No. That's fine. And can I ask, the A380 refurbishment program that you say that, that will commence this year, can you give us a sense of the amount of CapEx that's going to go into that refurbishment program and the timing, the duration of that CapEx spend?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [28]

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We'll talk about the timing and what's proposed, so I'll get Ali to do that, but we haven't given. It's in our overall CapEx guidance, and we don't separate that out as part of what we've outlined to the market. And all of our product enhancements, the lounges, any seat changes, any investment in WiFi, any investment in IT is included in that capital guidance. We won't break it down any further. Ali, do you want to talk about the timing?

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Alison Webster, [29]

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Yes, absolutely. We're really excited. We will start the first reconfiguration of our A380s in July of 2019, and we complete 8 of those by the end of July '19. The further 4, we'll compete in early 2020. And just to remind that we're actually improving the premium footprints with regards to our A380s. We will take the currency count from 484 to 485. We're actually removing 30 economy class seats to put an additional 6 business class seats and a further 25 Premium Economy seat in that footprint. Importantly, apart from refreshing our first fleets, we will be introducing the very much loved by our customers' flatbed 789 to our Business Suites, a new premium economy seat in the same styling as our 789s and a refresh of our economy cabins.

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

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Thanks, Ali.

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

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And Owen, I don't know how you did that, but you trumped Simon and got 3 questions in.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [32]

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They're all on CapEx, I kept it to 1 category.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [33]

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Thanks, Owen.

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Operator [34]

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Your next question comes from the line of Jakob Cakarnis from Citi.

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Jakob Cakarnis, Citigroup Inc, Research Division - Associate [35]

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I just wanted to get some clarity on the timing of these cost savings. So the gross benefit for $400 million in FY '19, your saying 32% is complete at the presentation. Just wondering how we split those over first half and second half '19, please?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [36]

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Do you want to do that, Rob? I call on Rob.

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Robert Marcolina, Qantas Airways Limited - Group Executive of Strategy, Innovation & Technology [37]

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I think it's very similar to other years. So if you think about, in the past, particularly, on the $2 billion and then the $400 million last year, we've typically seen about 40% or 50% of that come in the first half and the remainder in the second half. But I think the most important thing to talk about the transformation is just the confidence we have in terms of delivery. Because this year, it's really the first year of our sustainable program, after the $2 billion program. And we're very confident as we go into FY '19 of being able to deliver on that $400 million as well.

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Operator [38]

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Your next question comes from the line of Guy Bunce from JPMorgan.

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Guy X. Bunce, JP Morgan Chase & Co, Research Division - Analyst [39]

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My question relates to domestic demand. So one of the things that stood out to me in yesterday's -- in the airport result was just how weak it became during May, June and into July, where basically passenger growth through Kingsford Smith slowed to almost being flat on the PCP. I just wanted to get your input as to what is driving that slowdown in domestic passenger growth?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [40]

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So we are actually seeing really strong demand across the board. We -- as we said today, we're seeing the corporate market really strong for us and we're maintaining our market share. The resource sector, it's fair to turn, which was the only part that was weak. Probably every year for the last 3 years, I've said how weak that is. I think we lost $300 million in revenue from that sector. It's up $50 million this year. And we're seeing really good green shoots about it, actually even performing better going forward. That's why we've put the A320s into Western Australia. We see, in the SME market, we may be winning share, but we're seeing the SME market really strong, again. We are winning share, so that's seeing some really good growth there for that market. And across the board on the leisure market for both Jetstar and Qantas, it is very strong. And you can see that in the RASK numbers that we've outlined, and you can see that in the outlook about our forward bookings. We -- you don't have a business that say forward bookings revenue up by 6%. And as Tino hinted, that that's obviously better on domestic than there is on international. Having more than 6% growth on the domestic market is not a weak market in revenue. That's actually quite a strong market. So I think we're very confident and happy where that is positioned. And at the moment, we don't see any weakness or any inability for us to recover the increase in fuel prices and continue to generate really good returns on our domestic businesses.

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Guy X. Bunce, JP Morgan Chase & Co, Research Division - Analyst [41]

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So Alan, given that the border market seems to be weaker than what you're experiencing. Can you give us an idea of what sort of market share gains you must be making?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [42]

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So again, we -- what we're focused in on is on our continued margin improvement, is our continued presence in the corporate and the SME market and on our market shares in each of those segments, and we are continuing to hold our position in corporate, improve our position in SME. And you can see it in the margins, the record margins of the domestic businesses both for Qantas and Jetstar, record profits there. So the 2-brand strategy and the position is working really well. So I'm not going to go into details of what the movement in the SME market is, but needless to say, we are making good progress there.

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Tino La Spina, Qantas Airways Limited - CFO [43]

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Guy, I know you got a thesis that there's a weakening outlook there. But it's just not consistent with what we're seeing. You don't report $645 million growth in passenger revenue and see 6% growth in forward bookings and suggest there's a weak demand there?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [44]

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Yes, I think, Guy, I think that one, I mean, we would be pretty honest, as we have been in the past, when we've seen it weak, we've said it's weak. When we've seen the resource sector weak, we said it's weak. We're not seeing any weakness in the domestic market. It is actually quite a strong market. And what I've said in the press meetings today is that, despite what's happening in Canberra, we have a really good economy. We have it actually growing really well. And I hope that certainty is brought there because we want to see that continuing. It's actually the healthiest I've seen in a long while since I've been CEO, so I think you're on a wrong tangent with that one, I have to say, that the domestic market is very strong.

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Guy X. Bunce, JP Morgan Chase & Co, Research Division - Analyst [45]

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It's just a disconnect to the information that we get from like the Bureau of Infrastructure and Transport, a disconnect with Sydney Airport and others, so that's hence why I raise it?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [46]

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Well, I think it's, from our statistics, you would definitely could see a disconnect with our thesis. Because, again, I'd say with the RASK improvement we've seen in the last year, and we're saying we're seeing in forward bookings that's just not the case at the moment.

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Operator [47]

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Your next question comes from the line of Anthony Moulder from CLSA.

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Anthony Moulder, CLSA Limited, Research Division - Analyst [48]

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Just if I can ask about, obviously, substantially recover the higher fuel cost. Can you talk to international, is the -- what are the markets that are perhaps more challenging to more fully recover that higher cost?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [49]

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Ali, if you want to have a go as well, and Tino can come in as well?

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Tino La Spina, Qantas Airways Limited - CFO [50]

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Yes.

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Alison Webster, [51]

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What I would underline is, we obviously have a track record for a very successful fuel hedging program and what we do know is all of our competitors are facing the same high fuel cost environments. We also know particularly that our American carrier competitors, for example, who are not hedged on fuel, we are already seeing them do capacity shaping in the market, particularly as early as August, September and October. So we're watching very closely what our competitor activity is right across the markets. We also know that the ASK growth ahead of us in Qantas International, and we're expecting roughly 4% market growth, comes predominantly, over 50%, from the Chinese carriers and also, over 30% comes from Middle Eastern carriers. Two markets where we're very CapEx-light in terms of our strategy and certainly, where we see great, still, choice of opportunity for our customers with our relationship with Emirates through Dubai. But certainly, we are seeing the benefits of the forecasted numbers we expected in our move from Dubai to Singapore hub. We also are CapEx-light on our China strategy, with our strong relationship with China Eastern. So again, we feel that we've got some good strengthening around some of those markets where we see the competitor capacity coming at us. The other thing I would underline in terms of our performance with the first London service launch as well as our change from the Dubai hub to Singapore, we are definitely seeing strengthened performance, and we've significantly reduced our exposure on our capacity ASKs on the competitive U.K. Europe region, where we're -- in 2012, we had just under 30% of our capacity to now sitting around 8% on a point-to-point capacity basis.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [52]

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Thanks, Ali. Tino, do you want to add anything?

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Tino La Spina, Qantas Airways Limited - CFO [53]

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Let's probably just go ahead, where Ali was talking about the U.S. market as well. In terms of what's happening with the Aussie dollar as well. So the Aussie dollar is weaker than where it's been over the last couple of months. If you're competing with U.S. carriers that are unhedged as well, the value of Aussie bookings -- or Aussie revenue has come down for them. So there is a natural inclination not only to cover their fuel costs because they are unhedged but also to try to improve their yields out of the Aussie market as well. And that's why we keep saying, and we made particular reference to our operating margin versus our peers. That's the important piece here because everyone is -- the higher fuel cost hit the entire industry, not just Qantas. And our position where we are now is far different to where we were back in 2012, where our position relative to our peers, our operating margin is so much higher. That does put us in a good position to be able to recover it all.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [54]

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And Anthony, one other thing I'd just add is that we are seeing positive RASK improvement. You saw it -- we're over 2.5%, I think, in international in the last year. And that positive improvement is continuing. We are also going to get benefits that other airlines don't get. And Ali mentioned the Singapore hub switch that happened in March. We said in the full year that was worth, all things being equal, $80 million to us. Perth-London only started in March. And that's turned around the economics of London. London is back in profits. And the load factors, as I outlined, are extremely high. They're benefits our competitors don't get because that's restructured and that's unique to us. And the introduction of the 787s, while other people are introducing the 787s, we have got productivity benefits from our pilots that are quite significant that other people are not getting and that will flow through as well. And there is a bit of a transition year. There's a lot of training going on. We have a lot of aircraft coming in. We're having to digest that training this year as well, but we're very confident about how the international businesses is holding up and the initiatives we've made, how well they're actually coming true in terms of the business case we set for them.

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Operator [55]

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Your next question comes from the line of Michael Morrison from Deutsche Bank.

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Michael Morrison, Deutsche Bank AG, Research Division - Research Analyst [56]

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Just for the growth. So you touched on that. Are you seeing that reduced consumer confidence and higher RMB is impacting on -- or lower RMB is impacting on demand at all?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [57]

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Not at all. I mean, I might ask each of the guys to talk about what they are seeing on the demand environment just to recap on it. So Andrew, do you want to talk about the consumer confidence. You're going to grab that coffee, aren't you?

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Andrew Paul David, Qantas Airways Limited - CEO of Qantas Domestic & Freight [58]

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So from a domestic perspective really, just repeating what I was saying earlier. What we are seeing is significant growth in our SME shares. Some of that may be share shift, but we are seeing growth in the SME market for us. We continue to see growth in corporate. The resource sector Alan spoke to earlier, over the course of the last 3 or 4 years, we've seen a $300 million reduction in revenue out of that market. Last year, FY '18, we saw a $50 million increase. We continue to see growth in the West out of the resource sector. We continue to see growth from inbound leisure into this market that travels around the Australian domestic market both on Jetstar and on Qantas. So overall, from the domestic perspective, we are seeing very good growth, and it's reflected in our numbers. And you can -- it's reflected in the FY '18 performance for the domestic business that recorded an 8% improvement in its RASK year-on-year for the full year.

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Unidentified Company Representative, [59]

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Yes, similarly, I mean, it's very, very strong out there in the leisure market. Our July peak was super strong. Our load factors were substantially into the 90% net worldwide. And we're seeing strength in the forward bookings. And similarly, internationally, again, in pretty much all the markets, very strong demand. We're building some of the routes, Ho Chi Minh, Vietnam. We're starting to see more and more interest in that coming on. And routes like Bali, even though they've been impacted by volcanoes, they're very, very resilient and the demand bounces back very quickly after one of those events. So I hear what one of the analysts said about passenger numbers in Sydney, but that's certainly not what we are seeing right around the country from a demand perspective. It's strong out there.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [60]

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Ali?

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Alison Webster, [61]

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And likewise, from a Qantas International perspective, certainly Alan touched on earlier, the forward bookings that we are seeing, and I'll do some route highlights, but certainly on our Melbourne, Perth, London Dreamliner, we have been holding an average load factor at 92% and our forward bookings for that route continue to be equally strong. Likewise, we're seeing strong uptake on our hub change from Dubai to Singapore and equally, we've just finished the growth period where we're seeing 2.2 million passengers move between the Qantas and Emirates partnership, and we're expecting further growth of that in this financial year. We also are continuing to be very responsive and dynamic in terms of our network and scheduling opportunities. In fact, a week on Saturday, we will launch our inaugural Melbourne, San Francisco service and again, we're seeing healthy forwards to the start of that service. We're also seeing strength in the line with the business case expectations on the Tasman, where, as you know, it was part of the repositioning of our relationships with Emirates. That saw Emirates withdraw from the Tasman, and we're actually providing the capacity there. So generally across the markets, we are seeing a good healthy forward-booking profile.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [62]

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I think we've got one more on the phone, and we'll come back to the -- yes, go on. I cut him off,

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Operator [63]

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I'll just bring him back down, just one moment.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [64]

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Hello?

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Operator [65]

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Michael, please go ahead.

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Michael Morrison, Deutsche Bank AG, Research Division - Research Analyst [66]

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I was just saying, and then on China demand specifically, Alan?

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [67]

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China demand? So let's do that.

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Alison Webster, [68]

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I think it's safe to say, and I come back to our strategy. China continues to be a market that is in overcapacity. And so we are very thoughtful in our relationship with China Eastern. We have a very strong joint relationship and a joint business with them. What we do see is strengthening demand for our premium services, particularly on Shanghai. And we are very focused on our accessibility to the premium leisure market out of Beijing. And certainly, in deepening recently our commercial agreements with China Eastern, we continue to leverage their expertise in that Chinese market. But I would say, and I mentioned earlier, over 50% of the ASK growth in our market is coming from the Chinese carriers. So we're very cautious about the CapEx that we commit ourselves. We get strong strength from our relationship and partnership with China Eastern. We also have codeshares. We have China Southern. And importantly, we also know that from a Hong Kong perspective that is still the gateway of choice for Australian business travelers actually entering into Mainland China. So we've got all of our assets covered in China, but again, we are cautious in our approach because it is an overcapacity market.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [69]

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Thanks, Michael. Take one last one on the phones.

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Operator [70]

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Your next question comes from the line of Paul Butler from Crédit Suisse.

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Paul Butler, Crédit Suisse AG, Research Division - Director [71]

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If I could try and sneak in a question. In the International business, you report freight in that now. Just wondering if there was a benefit in the current year -- or sorry, in FY '18 related to freight. And if I could just be cheeky and ask another one. Can you just explain how you think about the $0.10 base dividend and how you get -- what the right base number is and the thinking around that?

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Tino La Spina, Qantas Airways Limited - CFO [72]

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Okay. For the first one, we've put freight in with international, Paul, so we're not giving a split. Suffice to say that -- one thing I can say is that even the International business even without freight achieved its ROIC targets of greater than 10%. That's about as far as we're going to go on that. In terms of how we think about the 10% -- the $0.10 dividend, very well. We think it's a great -- it's a great issue to increase the base. So going forward, the way to think about it and the reason we call it a base dividend is we see that, that is the first call on our capital. And we've increased the base dividend to $0.10 because of its -- because of the strong confidence we have in our cash flow generating ability going forward. So we don't see a position where we would want to tone that down or reduce it at any point in time. So that's a 40 -- it's nearly a 40% increase in the value of the dividend, and it's fully franked. So that's the sign of the confidence there. So that -- you should think about that continuing going forward. And then the balance of that will -- the board will make its call on the -- as we've got more surplus, at the most efficient way to distribute that, whether it's a special dividend, an on-market buyback, off-market buyback or capital return, it really depends on the circumstances at the time.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [73]

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And I think it's fair to say, Paul, on those things, one, if we do have surplus franking credits, they're no use to us, they're use to our shareholders. So I think it's the board's inclination and our inclination to pass them back to shareholders if they're there, which is fair. And then just going back on freight and international. One of the reasons why we merged the 2 together was that the vast majority of the profits on freight are international profits. So it's actually a more of a fair representation of the international segment. So even if it did move up, it is still international because that's, as we said in the numbers, it's international that saw the improvement and domestic was stable. So this is a fair representation of how the International business is doing. Okay. I think we're through on questions. So I'll just check in the room that nobody's thought of a question since we last raised it. I think they're mostly Qantas employees in the room anyway, with our staff road showdown (inaudible).

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Tino La Spina, Qantas Airways Limited - CFO [74]

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They're either employees or those people that want to be employees.

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Alan Joseph Joyce, Qantas Airways Limited - CEO, MD & Executive Director [75]

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We give out -- for the staff road shows, we give out usually presents like pajamas or amenity kits. So everybody was saving their good questions for that, I'm sure. So can I thank everybody very much for the session, and we'll see you again in 6 months and some of you well before that. So thank you very much.

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Tino La Spina, Qantas Airways Limited - CFO [76]

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Thank you.