Written on the 23 February 2016 by Jenna Rathbone


QANTAS (ASX:QAN) today announced a record first-half performance for FY16, marking the 2015 calendar-year result as the best in the airline's 95-year history.

Qantas reported an underlying profit before tax of $921 million for the six months ending December 31, an increase of $554 million from the prior corresponding period.

Revenue jumped 5 per cent to $8.5 billion, while total unit costs dipped 7 per cent compared with the first half of FY15.

Strong cash generation was another highlight of the half year, with operating cash flow of $1.4 billion - almost double the prior half year - and free cash flow of $770 million.

On the back of the result, Qantas has announced a share buyback of up to $500 million, commencing in early March, in a move that indicates restored confidence in the business.

While every division of the Qantas Group contributed to the result, Qantas Domestic, the Jetstar Group and Qantas Loyalty led the trend with record underlying profits.

Qantas Domestic reported underlying earnings before interest and tax (EBIT) of $387 million, compared with $227 million in the first half of FY15.  Meanwhile, Jetstar Group reported EBIT of $262 million, compared with $81 million a year earlier.

CEO Alan Joyce says Qantas is securing greater benefits from lower fuel prices than its competitors because of its approach to hedging.  The group's fuel bill was $448 million lower in the first half of FY16, relative to last year.

However, the success of the company in FY16 is largely attributed to the company's $2 billion transformation program, which has realised $1.36 billion of benefits in two years of the three-and-a-half-year program.

"This record result reflects a stronger, leaner, more agile Qantas," says Joyce.

"Without a focus on revenue, costs and balance sheet strength, today's result would not have been possible.

"Both globally and domestically, the aviation industry is intensely competitive.  That's why it's so important that we maintain our cost discipline, invest to grow revenue and continue innovating with new ventures and technology."

In August 2015 Qantas placed an order for a new fleet of Boeing 787-9 Dreamliners for its long-haul fleet, to be delivered from 2017.

Joyce describes the purchase as a 'milestone' acquisition and says the first-half FY16 performance is the platform to keep investing in experiences.

Qantas is set to create a new lounge at London's Heathrow Airport, to be opened in the first quarter of 2017, and has confirmed it will partner with ViaSat to develop a free wi-fi service across its domestic fleet, harnessing the NBN network.

On-board trials are expected to begin later this year, and will enable customers to stream live sports, movies and TV shows.

"What we've been waiting for is the ability to deliver the same speeds in flight that people expect on the ground, and we now have technology to make it happen," says Joyce.

Qantas has declined to release a profit guidance for FY161 due to industry and economic dynamics.

Despite the profit turnaround, the Qantas board has elected not to pay an interim dividend.

Author: Jenna Rathbone
About: Jenna Rathbone is a Queensland-based journalist who writes on a range of issues including business and property affairs and social issues.
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