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qantas report

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    Media Release
    Qantas Airways Limited ABN 16 009 661 901
    Further information and media releases can be found at the Qantas internet website:
     Profit before tax of $502.3 million
     Revenue of $11.4 billion
     Final dividend of 9 cents per share fully franked, taking total fully franked
    dividends for the year to 17 cents per share
     Earnings per share of 20.0 cents per share
    SYDNEY, 21 August 2003: Qantas today announced a profit before tax of $502.3 million
    for the year ended 30 June 2003.
    The net profit after tax was $343.5 million.
    The Directors declared a fully franked final dividend of 9 cents per share, bringing the total
    fully franked dividends for the year to 17 cents per share.
    The Chairman of Qantas, Margaret Jackson, said the result was pleasing given the
    negative circumstances existing in the airline industry.
    “The fallout from 9/11, constant security alerts, acts of terrorism, the war in Iraq and the
    SARS pandemic have all affected both inbound and outbound travel,” Ms Jackson said.
    “The constant pressure on the industry has made planning extremely difficult.
    “It is a tribute to all our staff and to our management that the company performed so well in
    those circumstances.”
    The Chief Executive Officer of Qantas, Geoff Dixon, said the lead-up and outbreak of the
    war in Iraq and SARS had combined to decimate the airline’s profitability in the second
    “After a record first half we saw all sections of our business come under severe strain in
    the second half, with inbound visitors to Australia falling by more than 20 per cent in some
    months and by up to 45 per cent on some Asian routes,” he said.
    This particularly impacted:
     Qantas domestic operations, where 15 per cent of all passengers come from inbound
    services; and
     The key international markets of Japan, Hong Kong, Singapore, Bangkok, the United
    Kingdom and Europe.
    Mr Dixon said Qantas had acted quickly following the war and the outbreak of SARS to:
     reduce planned international flying by up to 20 per cent from April 2003;
     use accumulated leave to reduce staffing numbers by the equivalent of 2,500 full time
    employees between April and 30 June 2003 and by 1,000 between July and
    September 2003;
     implement a restructuring program involving 2,000 redundancies, 800 positions
    eliminated through attrition as well as hundreds of permanent positions being
    converted from full time to part time;
     freeze capital and discretionary expenditure;
     retire some older aircraft and defer delivery of some new aircraft;
     introduce a program to reduce planned capital expenditure in the 2003/04 financial
    year by $1 billion.
    Mr Dixon said other issues that affected the second half result included increased
    competition and falling yields in the domestic business and a yield decline internationally
    as pricing was used to stimulate travel after the fear of SARS began to recede.
    The introduction of a new fares package domestically from 1 July and a growing return of
    the inbound market had stabilised domestic yields and international yields were recovering
    as the "SARS recovery” fares leave the market.
    Mr Dixon said the initiatives in response to the SARS outbreak had resulted in a one-off
    charge of $91 million for the write down of the 767-200 fleet, which would be retired by the
    end of the 2003/04 year, and were the major reason for the redundancy charge of $115
    He said the airline industry was still recovering from the “constant shocks” of the past two
    The hard work on costs and product over a sustained period, and new strategies
    underway or to be implemented, provided the platform for Qantas to transition back to
    satisfactory levels of profitability over the next two to three years while re-equipping its
    fleet with modern, cost efficient aircraft.
    The new initiatives included:
     a program called Sustainable Future that aims to reduce operating costs by $1 billion
    over two years;
     significant investment in the international airline product, including new airport lounges
    and new seating and interiors in all international aircraft; (see separate release);
     investment in, and changes to, the domestic airline that will provide better product,
    service and reliability, greater sales on the internet and a wider range of choice for
    passengers (see separate release);
     a further $6 billion investment over three years in new and more efficient aircraft;
     further growth of Australian Airlines into leisure markets where Qantas cannot attract
    satisfactory yields; and
     the introduction of a new business model that will see Qantas run stand–alone
    businesses for flying, airports, maintenance, freight, catering, Qantas Holidays and
    Qantas Defence Services (see separate release).
    Mr Dixon said the need to continually make Qantas more efficient was the backbone of the
    Sustainable Future program.
    ‘We intend to work closely with our people and all Unions, including the ACTU, to ensure
    we reduce costs and improve productivity,” Mr Dixon said.
    “Although this will not be easy and will certainly involve some difficulties, we are confident
    that it can be achieved in a constructive manner.”
    Group Revenue
    Revenue for the year totalled $11.4 billion, an increase of $0.4 billion or 3.7 per cent.
    Excluding the impacts of foreign exchange rate movements, total revenue increased by
    5.0 per cent.
    Passenger revenue increased by 3.1 per cent, with RPKs growing 2.8 per cent and yield
    deteriorating by 1.7 per cent.
    Total expenditure increased by 5.0 percent to $10.8 billion. Excluding the favourable impact
    of movements in foreign exchange rates, this increase amounted to 7.5 percent and was
    mainly due to costs associated with the 3.7 percent increase in capacity, higher depreciation
    due to new aircraft deliveries and the write down of the Boeing 767-200 fleet,
    higher manpower costs following EBA settlements, higher superannuation contributions and
    redundancy costs arising from the reorganisation program announced in April 2003.
    Cost per Available Seat Kilometre, excluding the impact of exchange, increased by 1.2 per
    Fuel costs decreased by 1.9 per cent, or $29.6 million. The underlying fuel price was 15.8
    per cent greater than last year, increasing costs by $209.2 million. However, hedging
    benefits were $107.6 million better than the previous year. While flying hours increased,
    fuel efficiency gains from new fleet acquisitions reduced litres consumed per hour,
    resulting in an overall activity saving of $5.3 million versus the prior year. Favourable
    foreign exchange rate movements also reduced fuel costs by $125.9 million.
    There were also substantial cost increases in insurance, security costs and domestic
    airport charges which were largely recouped by direct passenger recoveries.
    Net interest expense increased by 34.0 per cent or $16.4 million. Average net debt was
    $2.5 billion, $0.7 billion higher than the prior year. Interest rates were lower and $82.7 million
    of interest was capitalised into aircraft progress payments (compared with $77.0 million in the
    previous year).
    The net impact of favourable foreign exchange movements was a $106.8 million benefit to
    International operations
    During the first half of the year, demand rebounded following 9/11. However, from January
    onwards, the threat of global terrorism, the war in Iraq and the SARS virus all adversely
    affected demand. Qantas international capacity was reduced by up to 20 per cent. Yields
    weakened as price led initiatives were introduced to boost flagging demand.
    Australian Airlines commenced operations in late October 2002 and was profitable until
    March 2003. However, it recorded a loss for the June quarter due to the impact of the war
    in Iraq and SARS on international leisure travel in the Asia Pacific region.
    Earnings before interest and tax (EBIT) for international operations, including Australian
    Airlines, totalled $206.9 million, up from $202.8 million last year. This result includes an
    EBIT loss of $54.5 million for the second half of the year.
    International capacity is still approximately 10 per cent below the level at 11 September
    2001. Yield (excluding the impact of unfavourable movements in foreign exchange)
    increased by 2.0 per cent.
    Domestic operations
    Domestic performance was adversely impacted by the effects of global events on the
    inbound market. While some outbound international travel switched to local destinations, this
    impact was confined to deep discount leisure travel. Additional capacity was added to the
    domestic market throughout the year, leading to increased levels of price competition.
    QantasLink performance improved due to network rationalisation and the cessation of the
    loss making Beechcraft 1900 operations.
    Domestic operations, including QantasLink, contributed $223.0 million in EBIT, down 34.5
    per cent from last year. Yield deteriorated by 6.3 per cent versus the prior year (after
    excluding the unfavourable impact of foreign exchange movements) but was offset by a
    10.2 per cent increase in load due to the airline's efforts to meet market demand following
    the collapse of Ansett. Domestic capacity was 11.4 per cent higher than the prior year
    while seat factors deteriorated by 0.9 percentage points.
    Qantas Holidays
    Qantas Holidays increased EBIT by 2.8 per cent to $43.6 million, primarily due to stronger
    domestic demand. While SARS and the Bali bombings severely reduced the demand for
    international tourism, the improved result was driven by generic growth in the domestic
    business together with the implementation of wide-ranging cost saving measures.
    Qantas Flight Catering
    Qantas Flight Catering’s EBIT improved by $3.7 million, or 5.3 per cent, to $73.3 million.
    While the Iraq war and SARS adversely impacted volumes, this was offset in the first half
    by the international recovery following September 11 and additional new contracts. Overall
    meals produced increased by 4.5 percent and flights handled were up by 6.6 percent.
    SnapFresh, one of the most modern meal production centres in the world, commenced
    sales of domestic and international economy meals to Qantas and a number of other
    major international airlines during the year.
    Balance Sheet and Cash Flow
    Cash flow from operations totalled $1,290.8 million, an increase of $147.5 million versus
    the prior year. This was due to favourable movements in working capital which more than
    offset the reduction in profitability.
    Total capital expenditure of $3,137.2 million for the year predominantly related to aircraft
    progress payments, aircraft reconfiguration costs and engine modifications and spares.
    Book debt to equity ratio moved from 49:51 at 30 June 2002 to 51:49 at 30 June 2003,
    principally as a result of the substantial investment in capital equipment made during the
    year. This impact was partly offset by the equity raised in the Share Entitlement Offer and
    strong operating cash flows.
    Proposed Strategic Alliance with Air New Zealand
    In November 2002, Qantas and Air New Zealand agreed, subject to regulatory and other
    approvals, that they would enter into a strategic alliance and Qantas would acquire an
    equity interest of up to 22.5 per cent in Air New Zealand. In December 2002, the two
    airlines lodged submissions with the Australian Competition and Consumer Commission
    and the New Zealand Commerce Commission. In April 2003, both authorities responded
    with unfavourable draft determinations. Qantas and Air New Zealand have responded to
    the draft determinations. The final determinations are due in late September 2003.
    While conditions in the aviation industry remain challenging and it is still early in the new
    financial year, Qantas expects to improve on its performance in 2003/04 while continuing
    to invest in its fleet, product and service.
    The fully franked interim ordinary dividend of 9 cents per share is payable on 1 October
    2003, with a record date (books close) of 3 September 2003.
    Issued by Qantas Corporate Communication (Q2947)
    Media Enquiries: Michael Sharp - Telephone 02 9691 3469
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