Qantas Airways (ASX:QAN) Ltd achieved an Underlying Profit Before Tax of $2.08 billion and a Statutory Profit After Tax of $1.25 billion for the year ending June 30, 2024.
The group ended the year with $10.2 billion of liquidity, including $1.7 billion in cash, $1 billion in undrawn facilities and $7.5 billion in unencumbered assets.
However, profits were dented by moderating airfares as CEO Vanessa Hudgens attempts to reverse reputational damage.
"Qantas’ soaring profits were dented today as new CEO Vanessa Hudson’s push to restore trust coincided with moderating airfares," eToro analyst Josh Gilbert said.
"Everything comes with a price and the cost of rebuilding Qantas’ tarnished public perception through improved customer initiatives is hurting its bottom line.
“Revenue for the year came in at A$21.9 billion, missing estimates, while net income fell 28% year-over-year to A$1.25 billion, also missing the mark.
“Hudson had a mammoth task when taking over as CEO, balancing shareholder happiness and consumers' confidence alongside satisfying regulators. Alan Joyce left the business with record profits but his focus on customers left a lot to be desired.
“In the short term, shares are likely to feel the impact of the focus on rebuilding trust but it feels like a crucial decision to build for the future. Investors should see its spending on new customer initiatives and its shiny new fleet as a runway for growth and that its increased spend is quite simply a necessity.
“Its dividend didn’t reappear, which seems like a smart choice for now - but investors can be optimistic by Qantas’ view that its dividend may return this time next year.
"For that to happen, bookings and travel demand will need to stay robust, which seems completely feasible as ‘revenge travel’ post-pandemic remains in full swing.
“Its journey in the next year will certainly be a turbulent one; managing ongoing ACCC investigations, continuing to repair its damaged reputation and navigating increased spending. It won’t be a one-way flight to success, but it feels like Qantas’ is making the right moves at the right times to get back to its best."
Breaking down the report
Hudson has turned her attention to investing in customers, new aircraft, benefits for employees and returns for shareholders.
Qantas reported that net debt rose to $4.1 billion by the end of June 2024, following the delivery of new aircraft, share buy-backs amounting to $869 million, and the payment of bonuses to approximately 20,000 employees.
This level of net debt places the company within the lower half of its target range of $3.9 to $4.9 billion. The company anticipates that its robust balance sheet and improved cashflows will support future aircraft acquisitions and shareholder returns.
The group plans to return up to $400 million to shareholders in the first half of FY25 through an on-market share buy-back. However, overall earnings declined compared to the previous year due to lower fares with the restoration of market capacity, increased spending on customer initiatives and reduced freight revenue, especially in the first half. Despite this, Group Domestic Unit revenue grew positively in the second half of FY24.
Significant operational and customer satisfaction improvements were noted across Qantas and Jetstar, driven by investments in operations, upgraded digital platforms, and the introduction of new aircraft.
The group’s fleet expanded with 11 new aircraft, including Jetstar Airbus A321neo Long Range aircraft and QantasLink A220s. Qantas Loyalty achieved a record underlying EBIT of $511 million, with a 14% increase in active members.
“Our strong financial performance and balance sheet will allow us to continue to invest in our largest-ever fleet renewal program, which will benefit our customers and people, as well as delivering shareholder returns,” Hudson said.
“These investments come at a time when Australians are continuing to prioritise travel over other spending categories, with the intention to travel over the next 12 months remaining high.
“I want to thank every one of our people for their professionalism, hard work, and commitment to delivering for our customers.”
International earnings moderate
Group International earnings moderated to A$755 million in Underlying Earnings Before Interest and Tax (EBIT) as the return of global airline capacity exerted downward pressure on fares, while freight yields also declined.
The Qantas Group resumed pre-COVID international capacity in May 2024, supported by the return of more aircraft, including two additional A380s. However, the revenue generated from this increased flying was tempered by an anticipated rise in competitor capacity, leading to an 11% reduction in unit revenue, although the decline eased in the second half.
What to expect
Positive revenue momentum is anticipated for the first half of the financial year 2025 (1H25). Domestic unit revenue is expected to grow by 2-4% compared to the previous year.
However, international unit revenue is projected to decline by 7-10% due to market capacity restoration. This decline is expected to slow in FY25, with a potential positive turn in the fourth quarter.
Net freight revenue in 1H25 is expected to increase by $20-40 million compared to the first half of last year.
Key financial expectations include a fuel cost of approximately $2.7 billion in 1H25, inclusive of hedging and a gross carbon cost of around $35 million. Depreciation and amortisation for FY25 is projected at approximately $2 billion, with net finance costs estimated at $270 million.
The group aims for a transformation target of $400 million in FY25 to counteract CPI, including cost and revenue initiatives.
Net debt is expected to remain within the target range. The gross impact of the Same Job Same Pay policy in FY25 is around $60 million, which the group plans to offset through savings. Entry into service costs are expected to increase by approximately $30 million in FY25.
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