Qantas Boeing 787

Qantas announces it will buy eight Boeing Dreamliners

Qantas Boeing 787

The Qantas turnaround has happened faster, and more dramatically than anyone – even management – could have ever imagined.

The underlying pre-tax profit today of $975 million means it is close to the billion dollar profit mark not seen since before the Global Financial Crisis.

And, truth is, there is more in store for Qantas as oil prices have plunged to fresh six-year lows overnight close to US$40 a barrel, which is not reflected in these latest annual results.

The company, this time last year, reported a disastrous $2.8 billion headline loss after writing down the value of its international fleet by $2.6 billion. But even worse was its underlying performance – a loss of $646 million.

That was caused, not only by oil prices, but the transformation plan of Qantas management to cut staff numbers by 5000 and to builld in $2 billion of cost savings.

In this past year the company has managed $1 billion in free cash flow. It is in such good shape it has repaid shareholders with a $505 million capital return (instead of a dividend) and its employees will share a $190 million pool for pay increases.

The airline has also re-commenced changing its fleet, with the additional purchase of eight 787-9 Dreamliners, which will replace ageing 747s. These new fuel efficient aircraft have a range from Sydney to Dallas, so remain a genuine option for long-haul travel.

The other area where there is more to come for Qantas is in the transformation itself. CEO Alan Joyce says that $1.1 billion of the proposed $2 billion in annual savings have been achieved.

The result says something about the pragmatic – even harsh – decisions that management at Qantas had to make to change the culture and the economics of the airline. Staff cuts were hard on the airline’s reputation.

But just as important was a decision to stop chasing its domestic rival Virgin Australia in a death-spiral for market share. By foregoing its target of 66 percent of domestic travel, the local arm increased its revenue per available seat kilometre by 4.5 percent and its underling profit before tax. It made $480 million before interest tax and depreciation compared with $30 million last year

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