Thursday 26 February 2015 by Alen Golubovic Company updates

Qantas 1H15 results

Qantas delivered an ideal result from a bondholders’ perspective – a return to profitability, all segments EBIT positive, free cash flows and no dividends

Key Points
  • Qantas has returned to profitability as previously guided, delivering an underlying profit before tax of $367m for the half year, up from a $252m loss in 1H14 and overshooting its own forecast in December of a profit between $300m-$350m
  • The result has been ideal from a bondholders' perspective - a return to profitability, all segments EBIT positive, free cash flows and no dividends
  • With further gains expected in 2H15 from lower fuel prices, the company is on track to deliver a full year profit of $1 billion

Summary of 1H15 Results

  • Total revenue was up 2.1% to $8.071bn
  • Net free cash flow was up to a positive $194m versus a net free cash flow loss of ($358m) in 1H14
  • Underlying EBIT was up from an EBIT loss of ($156m) in 1H14 to a $500m EBIT in 1H15. All segments were EBIT positive. Notably, the International business turned around to an underlying EBIT gain of $59m, versus a $262m EBIT loss in 1H14
  • Cash on hand of $2.9bn is up from $2.4bn at end 1H15 – giving a total liquidity of $3.6bn when $720m of undrawn facilities are included
  • Record low average fleet age of 7.2 years (since privatisation)
  • With 17 mid-life aircraft becoming unencumbered in 1H15, about 1/3rd of aircraft are now debt free. A further 4 aircraft to become unencumbered over 2H15
  • $306m debt reduction in 1H15, with a further $615m reduction in debt in 2H15 needed to achieve the $1bn debt reduction target
  • In 1H15, Qantas led Virgin Australia for on-time departures and arrivals for the 6th consecutive year (a key metric in the retention of profitable government and business contracts)

Commentary and outlook

Qantas delivered an ideal result from a bondholders’ perspective – a return to profitability, all segments EBIT positive, free cash flows and no dividends. This is generally an unlikely combination however the $1bn debt reduction target by FY15 remains a priority for the company. The position of bondholders has been further improved through material increases in unencumbered aircraft and cash on hand.

Fuel costs were down only $33m in 1H15, which seems low given the large fall in oil prices but this is due the fact that the airline had pre-hedged much of its exposure to fuel. However the gain from fuel in 2H15 is expected to be more than $450m in 2H15, with the company saying its total fuel bill for FY15 will be below $4bn, versus $4.5bn last year. In addition, Qantas will receive a $120 million full-year benefit from the removal of the carbon tax.

The full Qantas curve rallied around 15 basis points following the announcement of the results.

Based on the improved benefits from fuel, cost reduction efforts and the continued favourable operating conditions in both domestic and international markets, Qantas could report underlying earnings of $1bn for FY15, which would represent an outstanding turnaround from last year’s performance.


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