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Accounting project Accounting project Document Transcript

  •          ACCOUNTING  ANNOUNCEMENT  ASSIGNMENT  Qantas  Airways  (QAN),  Virgin  Blue  (VBN)  and  Skywest  (SXR)  Laura  Fernandez  (13179100)  and  Stian  Larsen  (13163941)                                    Submission  Date:  22/07/11  Word  Count:  2026  Subject  Code:  ACCT11-­‐100  Lecture  Times:  (Wednesday  8-­‐10  and  Thursday  2-­‐4)  Lecturer:  Tamara  Zunker       1  
  • CONTENTS      1.0  Executive  Summary  .........................................................................................................................................................  32.0  Objectives  ........................................................................................................................................................................  3  3.0  The  Aviation  Industry  and  Qantas  Airways   ......................................................................................................................  4   3.1  The  Aviation  Industry  ..................................................................................................................................................  4   3.2  Qantas  Airways  ............................................................................................................................................................  4   3.3  Competitors  .................................................................................................................................................................  4  4.0  Qantas  Airways  Profit  Announcement  ............................................................................................................................  5   4.1  Expected  Impact  ..........................................................................................................................................................  5  5.0  Stock  Market  Results  .......................................................................................................................................................  5  6.0  Returns  and  Residuals  .....................................................................................................................................................  6   6.1  Cumulative  Residuals  ....................................................................................................................................................  6  7.0  Analysis  ............................................................................................................................................................................  7   7.1  Qantas  Airways  (QAN)  .................................................................................................................................................  7   7.2  Qantas  Airways  Ratio  Analysis  .....................................................................................................................................  8   7.3  Virgin  Blue  Airline  (VBN)  ..............................................................................................................................................  8   7.4  Skywest  Airways  (SXR)  .................................................................................................................................................  8  8.0  Conclusion  .......................................................................................................................................................................  9  9.0  Appendices  .......................................................................................................................................................................  i   9.1  Announcement:  “Qantas  Announces  Profit  Result  –  Half  year  ended  31  December  2010”  ........................................  i   9.2  “Qantas  Profit  Soars  But  Misses  Mark”  .......................................................................................................................  ii   9.3  “Virgin  Blue  and  Skywest”  ..........................................................................................................................................  iii   9.4  “International  Passengers  By  Major  Airlines”  ............................................................................................................  iv   9.5  Qantas  Airways  Data  Calculation   .................................................................................................................................  v   9.6  Virgin  Blue  Airways  Data  Calculation  ..........................................................................................................................  vi   9.7  Skywest  Airways  Data  Calculation  .............................................................................................................................  vii  10.0  References  ...................................................................................................................................................................     viii           2  
  • 1.0  Executive  Summary  The  following  business  report  has  been  created  to  identify  the  impact  of  profit  announcements  on  a  particular  company  and  its  share  prices.  This  report  focuses  on  Australia’s  leading  airline,  Qantas  Airlines  (QAN),  as  listed  on  the  ASX.  An  analysis  of  the  relationship  between  Qantas’  residuals,  cumulative  residuals  and  share  prices  is  included,  as  well  as  a  comparison  between  Qantas  and  two  of  its  main  Australian  competitors,  Virgin  Blue  Airways  (VBN)  and  Skywest  Airlines  (SXR).  The  profit  announcement  can  be  found  in  the  appendices  (Appendix  5).  Calculations  and  graphs  are  used  to  analyse  the  change  in  the  share  prices  due  to  the  company’s  profit  announcement.  The  airlines’  financial  positions  are  discussed  and  the  results  of  this  report  indicate  that  the  profit  announcement  reflected  a  decrease  in  Qantas  Airways’  share  price  overall.  Through  analysis  of  the  graph  and  prior  media  coverage,  it  is  evident  that  Qantas’  cumulative  residuals  increased  the  day  before  the  announcement,  as  it  was  predicted  that  the  profit  announcement  would  be  positive.  A  large  decrease  followed,  despite  the  positive  results  of  earnings  about  the  expected  level  and  a  more  than  four-­‐fold  profit.  This  may  be  due  to  rising  fuel  prices  and  their  inability  to  pay  dividends.    However,  the  debt-­‐to-­‐equity  ratio,  return-­‐on-­‐equity  ratio,  current  ratio  and  total-­‐asset-­‐turnover  ratio  all  indicate  that  Qantas  has  improved  its  ability  to  finance  its  assets  through  equity  rather  debt,  generate  increasing  returns  from  shareholders’  investments,  generate  more  current  assets  to  cover  short  term  liabilities  and  increase  its  sales  revenue  faster  than  its  total  assets.  The  competitors  share  prices  varied  throughout  the  analysed  period,  with  Virgin  Blue  showing  similar  results  and  fluctuations  to  Qantas.  This  is  most  likely  because  they  are  more  similar  in  size,  target  market  and  location,  whereas  Skywest  Airways’  cumulative  residuals  were  negative  for  the  duration  of  the  period.    2.0  Objectives   • To  present  the  effects  of  releasing  accounting  information  pertaining  to  profits  on  the  valuation,  financial   position  and  share  prices  of  the  company.   • To  evaluate  the  correlation  between  the  casual  relationship  of  the  investors  and  the  disclosure  of  accounting   information  in  the  market.   • To  identify  the  effect  of  the  use  of  residuals  to  control  the  market  variables.   • To  analyse  the  factors  behind  the  financial  aspects  of  a  company.  The  objectives  within  this  report  will  apply  to  the  aviation  industry,  with  a  focus  on  analysing  Qantas’  current  financial  performance  in  contrast  with  its  competitors,  Virgin  Blue  and  Skywest.             3  
  • 3.0  The  Aviation  Industry  and  Qantas  Airways  3.1  Industry    The  aviation  industry  is  one  of  the  largest  and  fastest  growing  industries  in  the  world,  increasing  at  “an  average  annual  rate  of  10%  between  1947  (19  billion  Revenue-­‐Passenger-­‐Kilometres)  and  2000  (3038  billion  RPKs)”  (Wiley,  2005,  p.  1).  With  over  890  air  carriers  listed  in  the  Official  Airlines  Guide,  an  increasing  consumer  demand  for  air  travel  and  an  escalation  in  the  ability  for  travellers  to  attain  affordable  tickets,  it  is  no  surprise  that  the  number  of  flights  scheduled  in  May  2011  has  increased  by  4.2%  globally  (OAG  Aviation,  2011),  and  simultaneously,  “industry  revenues  grew  from  US$1.05  billion  to  US$328.5  billion”  (Wiley,  2005,  p.1).  Low  cost  airlines  are  growing,  and  account  for  a  market  share  of  16%  in  2010.  The  amount  of  global  passengers  will  increase  to  more  than  nine  million  by  2025,  putting  pressure  on  the  industry  with  higher  demands  to  security,  price  and  service.      3.2  Qantas  Airways    With  over  87  years  in  service,  Qantas  is  the  longest  operating  airline  in  the  world,  being  the  first  airline  to  introduce  business  class  in  1979.  For  almost  a  decade  Qantas  has  been  voted  in  the  top  airlines  category  by  Skytrax,  and  is  the  safest  airline  in  Australia.  Qantas  is  the  only  airline  within  Australia  with  flights  to  every  capital  city,  with  over  160  destinations  and  approximately  6,000  flights  per  week  (ASX,  2011),  making  them  the  largest  airline  in  Australia.  The  Qantas  fleet  consists  of  140  airplanes,  with  27  new  planes  awaited  in  2013.  In  July  2011,  Qantas  and  its  subsidiaries  operated  a  total  of  279  aircrafts,  giving  them  a  market  share  of  65%  domestically  and  18.7%  internationally  (Qantas  Annual  Review,  2010).  Since  its  inclusion  on  the  Australian  Stock  Exchange  on  31  July  1995,  Qantas  has  reported  increasing  profits  each  year.  Qantas’  annual  net  profits  “had  grown  from  A$180  million  to  A$684  million”  with  an  increase  in  its  activity  by  62%  and  its  revenues  by  59%  between  1995  and  2004  (Wiley,  2005,  p.10).      3.3  Competitors    Virgin  Blue  and  Skywest  make  up  1.22%  and  0.18%  of  the  market  sector  respectively  (Investsmart,  2011.)  Virgin  Blue  is  part  of  the  Virgin  Group,  however  it  is  a  fairly  newly  established  company  (2000),  whereas  Skywest  began  operations  in  1963.  Virgin  Blue,  like  Qantas,  services  both  international  and  domestic  destinations.  In  contrast,  Skywest  is  renowned  for  its  position  as  Western  Australia’s  premier  regional  airline.  Skywest  was  previously  part  of  Ansett,  a  company  which  whose  carrier  fleet  was  bought  out  by  Virgin  and  Qantas  after  their  (Ansett’s)  eventually  insolvency.             4  
  • 4.0  Qantas  Airways  Profit  Announcement  Qantas’  half-­‐year  profit  announcement  was  released  on  17  February  2011,  in  the  form  of  a  media  release  and  in  the  newspaper  “Sunshine  Coast  Daily”  (See  appendix  1).  It  declared  a  “profit  before  tax  of  $417  million  (up  56%  on  prior  corresponding  period)”  (Qantas  Group,  2011,  p.  1),  forecasting  growth  in  its  domestic  and  international  capacities.  4.1  Expected  Impact    It  is  expected  that  the  share  prices  of  Qantas  will  decrease  due  to  changes  in  fuel  prices,  foreign  exchange  rates  and  general  trading  conditions.  Despite  the  company  showing  a  steep  increase  in  profit  before  the  release  of  the  announcement,  the  share  prices  are  likely  to  decrease  due  to  the  impact  of  Qantas’  dividend  freeze,  which  shows  shareholders  that  Qantas’  shares  may  become  volatile.  The  dividend  freeze,  however,  may  improve  its  situation,  therefore  bringing  share  prices  back  to  a  relatively  steady  figure  again.  This  can  be  supported  by  the  stabilised  conditions  after  the  resolution  of  issues  with  the  Rolls-­‐Royce  engine  failures  and  Queensland  floods.  Qantas’  announcement  of  a  more  than  four-­‐fold  profit  (Qantas,  2011)  is  likely  to  negatively  impact  its  competitors,  Skywest  and  Virgin  Blue,  due  to  the  high  competitiveness  of  the  industry  in  which  substitutes  are  readily  available.      5.0  Stock  Market  Results   All  Ordinaries  Index   5050   5000   4950   4900   4850   4800   4750  Figure  1:  All  Ordinaries  Index  The  All  Ordinaries  Index  (AOI)  represents  the  closing  prices  of  Australia’s  500  biggest  companies  listed  on  the  ASX.  The   thAOI  is  a  good  indicator  of  the  stock  market  result.  On  the  17  of  February  (the  day  of  Qantas’  profit  announcement),  the  AOI  is  at  its  peak,  before  experiencing  a  general  trend  of  decline.         5  
  • 6.0  Returns  and  Residuals  This  report  displays  the  variations  in  share  prices  and  accompanying  returns  for  the  period  pertaining  to  the  three  weeks  before  and  after  the  profit  announcement.  A  calculation  of  returns  and  residuals  was  necessary  in  order  to  illustrate  the  effects  of  the  release  of  financial  accounting  information  on  the  valuation  of  the  company.  This  is  shown  through  the  effect  of  changing  share  prices  as  a  result  of  the  announcement.    The  residuals  are  a  reflection  of  the  daily  operations  of  a  company,  and  reflect  the  general  performance  of  company  share  prices  in  relation  to  the  stock  market.  Qantas  and  Virgin  have  minimal  residual  fluctuation  for  the  period,  whereas  SkyWest’s  residuals  decrease  to  -­‐12.70%  on  February  22.  This  may  be  due  to  an  estimated  negative  profit   rdannouncement,  the  day  before  its  release.  The  increase  on  the  23  may  be  due  to  the  Virgin-­‐Skywest  alliance.  Qantas  had  the  most  regular  residual  fluctuation  throughout  the  six-­‐week  period,  due  to  its  solid  market  establishment.  Returns  are  a  measurement  of  performance,  calculated  as  the  changes  in  daily  share  price  compared  to  the  previous  day.  Qantas  and  Virgin  had  a  stable  trend  on  their  returns,  with  minimal  fluctuations.  SkyWest  had  high  fluctuations  between  4%  and  -­‐12%.  The  sharp  decrease  on  February  22  may  be  associated  with  the  suspension  of  Rio  Tinto’s  mining  operations  in  Western  Australia  due  to  Cyclone  Carlos.  The  location  of  Skywest’s  operations  is  linked  to  the  resource  industry,  with  some  of  its  major  clients  being  the  mining  operators.  The  rapid  increase  in  share  prices  on  the  February  23  may  be  attributed  to  Skywest’s  positive  profit  announcement,  which  was  released  on  that  day.   Company  Returns   10.00%   5.00%   Daoly  returns   0.00%   Qantas   Virgin  Blue   -­‐5.00%   Skywest   -­‐10.00%   -­‐15.00%   Date  Figure  2:  Company  Returns    6.1  Cumulative  Residuals    The  cumulative  residual  is  the  daily  percentage  change  in  Qantas  share  prices  compared  to  the  AOI  change,  as  listed  in  the  ASX.  It  is  evident  that  the  changes  in  share  prices  are  a  direct  consequence  of  the  company’s  announcement,  as  the  information  contained  in  the  announcement  explains  profits  earned  and  losses  incurred.  The  effect  of  other  factors  in  the  valuation  of  the  company  can  be  understood  through  a  calculation  of  the  cumulative  residual  of  the  share  prices  and  share  price  index.  The  ASX  figures  peaked  at  the  same  rate  as  the  Qantas  cumulative  residuals,  indicating  the  similarity  between  Qantas  and  the  market  overall.     6  
  • 7.0  Analysis   Cumulative  Residual   0.15   0.1   0.05   Cumulative  Residual   0   Qantas   -­‐0.05   Virgin  Blue   -­‐0.1   Skywest   -­‐0.15   -­‐0.2   -­‐0.25   Date  Figure  3:  Cumulative  Residuals  7.1  Qantas  Airways  (QAN)    Qantas  announced  a  four-­‐fold  profit  in  the  profit  announcement  released  on  17  February  2011.  Figure  3  is  derived  from  the  market  prices  of  the  company  (see  appendix  5)    As  figure  3  shows,  there  is  a  lot  of  fluctuation  in  the  three  weeks  prior  to  and  post  the  announcement,  however  there  is   th nda  sharp  increase  from  -­‐0.02  on  the  16  of  February  2011  to  0.04  on  the  22  February  2011  and  a  consequent  sharp   thdecrease  to  -­‐0.02  on  24  February  2011.     thJust  before  the  profit  announcement  was  made,  (16  February  2011),  an  article  was  published,  stating  that  Qantas  had  an  expected  profit  increase.  This  explains  the  major  increase  in  the  share  prices  of  Qantas  before  the  announcement.  The  massive  increase  of  the  announcement  may  also  be  attributed  to  the  domestic  Australian  market’s  strong  post-­‐GFC  growth,  as  well  as  Qantas’  announcement  of  the  lease  of  11  new  airlines  (Herald  Sun,  2011).     thDespite  Qantas  being  profitable  in  the  second  half  of  2010,  on  the  18  of  February  2011,  “Qantas  shares  fell  sharply…after  the  airline  posted  a  72%  fall  in  first-­‐half  net  profit,  did  not  pay  a  dividend  and  warned  of  further  volatility  in  the  aviation  industry”  (The  Australian,  2011,  p.1)  Figure  3  shows  the  Qantas  share  price  falling  by  as  much  as  7%,  which  can  also  be  explained  by  the  increased  fuel  prices  and  exchange  rates.  In  denying  a  payment  of  a  dividend,  Qantas  indicates  that  it  is  lacking  in  liquid  assets.  Fluctuations  are  shown  after  the  major  decrease.         7  
  • 7.1  Qantas  Airways  Ratio  Analysis    The  debt-­‐to-­‐equity  ratio  shows  whether  assets  are  financed  mostly  by  debt  or  equity.  The  debt-­‐to-­‐equity  ratios  are  calculated  in  the  December  2009  to  December  2010  reporting  period.  They  show  a  positive  result  with  a  decrease  in  reliance  on  debts  from  2.45  to  2.33.  This  is  a  decrease  of  5.1  %.  This  shows  that  the  assets  of  Qantas  are  increasingly  being  financed  by  equity  rather  than  debts.    The  return-­‐on-­‐equity  ratio  indicates  how  much  return  the  company  is  generating  from  the  historical  accumulated  shareholder’s  investment.  The  analysed  period  shows  an  increase  from  0.01  in  December  2009  to  0.04  in  December  2010.    This  is  an  increase  of  16.69%.    The  current  (working  capital)  ratio  indicates  whether  the  company  has  enough  short-­‐term  assets  to  cover  its  short-­‐term  debts,  and  shows  an  increase  of  1.41%  from  0.89  in  December  2009  to  0.90  in  December  2010.    The  total-­‐asset-­‐turnover  ratio  shows  how  much  of  Qantas’  sales  volume  is  associated  with  a  dollar  of  its  assets.  In  December  2009,  the  total  asset  turnover  ratio  was  0.35,  increasing  by  8.33%  to  0.38  in  December  2010.  The  turnover  ratio  increased  because  Qantas’  sales  revenue  increased  faster  than  its  total  assets  did  in  this  period.  Ie.  Qantas  got  more  sales  out  of  each  dollar  of  its  assets.  7.3  Virgin  Blue  Airline  (VBN)    As  a  recently  established  company  with  a  relatively  small  portion  of  the  market  share  (1.22%),  Virgin  Blue  has  done  well  to  become  the  prime  competitor  to  Qantas  in  Australia.  Virgin  Blue  is  not  listed  on  the  Australian  Government’s  chart  of  2010’s  major  airlines  depicted  in  Appendix  4.  Figure  2  shows  the  cumulative  residuals  of  share  prices  for  Virgin  Blue,  accessed  from  the  company  and  market  share.  In  the  three  weeks  prior  to  Qantas’  profit  announcement,  a  relatively  steady  decrease  occurred  (from  0.11  to  0.  02)  with  minimal  fluctuation.  The  decrease  in  cumulative  residuals  may  be  explained  by  “Air  New  Zealand  (who)  has  continued  its  buy  up  of  shares  in  Virgin  Blue,  lifting  its  stake  through  off-­‐market  purchases  to  14.9%  of  Australia’s  No  2  airline”  (The  Age,  2011,  p.  1).    A  relatively  constant  period  remained  after  the  announcement,  until  February  22,  2011,  where  the  share  price  decreased  rapidly.  The  steady  decrease  from  0.06  to  -­‐0.07  occurred  in  just  over  a  week  (at  the  same  rate  and  in  the  same  period  as  Qantas).  This  could  be  due  to  the  conditions  affecting  the  major  players  in  the  Australian  aviation  industry,  such  as  rising  “fuel  prices,  foreign  exchange  rates,  general  trading  conditions  and  the  impact  of  significant  weather  events”  (Qantas,  2011,  p.1).    It  is  evident  that  the  release  of  the  Qantas  profit  announcement  had  a  significant  impact  on  the  share  prices  of  Virgin  Blue  Airways,  as  shown  in  Figure  2.         8  
  • 7.4  Skywest  Airways  (SXR)    Skywest  is  Western  Australia’s  largest  regional  carrier  however  it  is  not  listed  in  the  Australian  Government’s  listing  of   thtop  airlines  (see  appendix  3).  From  the  beginning  of  the  period  (27  January  2011)  to  the  17  of  February,  there  are  small  fluctuations  in  the  cumulative  residuals,  with  peaks  at  -­‐0.08  and  troughs  at  -­‐0.16.  Figure  3  is  derived  from  the  company  and  market  share  of  the  company  (see  appendix  7).  In  this  six-­‐week  period,  it  is  evident  that  there  is  a  relationship  between  the  Qantas  profit  announcement  and  the  share  prices  and  residuals  of  Skywest.  On  the  day  of  the  announcement,  the  share  price  for  Skywest  was  -­‐0.15,  however  there   thwas  a  general  decreasing  trend  until  the  18  February  2011  where  the  cumulative  residuals  reached  a  trough  of  -­‐0.19.  They  then  showed  a  general  decreasing  trend  until  the  end  of  the  period.  Figure  3  shows  that  the  cumulative  residuals  never  exceeded  ‘0’,  indicating  that  despite  the  rapidly  rising  share  prices,  Skywest’s  market  share  was  always  considerably  lower  than  their  larger  competitor,  Qantas.    The  noticeable  increase  in  share  prices  may  be  due  to  the  alliance  formed  between  the  Virgin  Blue  Group  and  Skywest  airlines,  which  enabled  code  sharing  and  Skywest’s  operation  of  several  Virgin  Blue  aircraft  (see  appendix  4).    8.0  Conclusion  The  financial  performance  of  a  company  can  be  assessed  through  the  analysis  of  a  company’s  financial  statements,  its  profitability,  activity  and  liquidity.  In  order  to  make  an  accurate  assessment,  it  is  necessary  to  make  comparisons  between  the  company  being  studied,  other  competitors  in  the  industry  and  the  overall  market  occurrences.    The  above  business  report  outlines  Qantas’  financial  position,  as  well  as  that  of  its  competitors;  Virgin  Blue  and  Skywest.  Based  on  recent  market  activity,  it  is  reasonable  to  assume  that  while  the  aviation  industry  would  be  a  profitable  share  investment,  it  is  subject  to  many  external  factors,  as  previously  discussed.    The  AOI  showed  fluctuations  within  the  six-­‐week  period,  and  overall,  the  Qantas  share  prices  showed  regular  fluctuations  and  a  large  and  sudden  increase  and  decrease  around  the  release  of  the  profit  announcement.  Qantas’  profit  announcement  is  for  the  half  year  ended  December  2010,  and  indicates  that  the  release  of  the  profit  announcement  impacts  its  share  prices.  It  is  a  much  more  established  company  compared  to  its  competitors,  with  a  larger  market  share,  being  Australia’s  number  one  airline.    The  ratios  analysed  indicate  that  over  the  year,  Qantas  improved  its  profitability,  retention  of  sales,  and  debt  figures  however  they  did  not  pay  out  dividends  in  the  six-­‐week  period  and  share  prices  decreased  overall.  Qantas’  reputation  and  positive  future  prospects  combined  with  its  announced  new  fleet  of  aircraft  confirm  that  investment  in  Qantas  shares  would  be  beneficial  overall.           9  
  • 9.0  Appendix  1  8.1  Announcement:  “Qantas  Announces  Profit  Result  –  Half-­‐year  Ended  31  December  2010”  QANTAS ANNOUNCES PROFIT RESULT–HALF-YEAR ENDED 31 DECEMBER 2010   SOLID RECOVERY FROM GFC AND OTHER EVENTS, STRONG GROWTH ACROSS ALL OPERATING SEGMENTS   HIGHLIGHTS:  Underlying Profit Before Tax1 of $417 million – up 56 per cent on prior corresponding period  Revenue of $7.6 billion – up 10 per cent on prior corresponding period  Operating cash flow of $743 million – up 54 per cent on prior corresponding period  Cash balance of $3.3 billion   SYDNEY,  17  February  2011:     Qantas  today  announced  an   Underlying  Profit  Before  Tax  (Underlying   PBT)  of  $417   million   for  the  half-­‐year  ended   31  December  2010.     The  Underlying  PBT  result   was  materially  stronger  than  for  the  half-­‐year  ended   31  December   2009.     Qantas  Chief  Executive   Officer,   Mr  Alan  Joyce,  said  the  result  built  on  the  Qantas  Group’s   FY10   performance  and  showed   it  had  emerged  from  the  Global   Financial  Crisis   in  a  solid  position.     “The  Qantas   Group  has  delivered   a  strong  result  and  is,  again,  one  of  the  few  airlines  to  remain   consistently  profitable  and  continue  to  hold  an  investment  grade   credit   rating,”   Mr  Joyce   said.     ”With  half-­‐year   underlying  profit  up  more  than  56  per  cent  year-­‐on-­‐year,  all  parts  of  the  Group   performed   well,  with  Jetstar  and  Qantas  Frequent  Flyer  delivering  record  half-­‐year  profits  and  Qantas  Airlines’   performance  significantly  improving.     “Qantas  and  Jetstar  are  now  the  two  most  profitable  domestic  airlines  in  Australia,  demonstrating   the   strength  of  our  two  brand   strategy   and  capacity  to  service  and  grow   both   the  business  and  leisure   sectors.     “The     Group’s     response     to     events     that     included     the     A380     Rolls-­‐Royce     engine     failure,     and     subsequent  temporary   grounding   of  the  Qantas  A380  fleet  in  November,  also  showed   us  to  be  flexible,   adaptable   and  resilient.”     Mr   Joyce   said   the   Group   was   well   positioned   to   capitalise   on   the   improving   global   aviation   environment   and  opportunities  in  both  the  premium  and  leisure   sectors.     “Domestic   business   travel  continues   to  recover   and  Qantas’  yield  premium   has  been  restored   to  pre-­‐ financial  crisis   levels,”   he  said.     “While  domestic   leisure  market  conditions   continue   to  be  highly  competitive,   Jetstar  remains  well  placed   as  the  low  fare  leader.     “While  demand   on  key  international  routes  continues  to  improve,   the  international  environment  remains   challenging.     We  remain   committed  to  improving  the  performance  of  Qantas’   international  business.”     10   i  
  •  “In   Asia,   to   which   Australia’s   future   is   clearly   tied,   the   Group   is   looking   for   growth   opportunities   via   Jetstar’s  aggressive   pan-­‐Asian   growth  as  well  as  options  for  Qantas  to  capitalise   on  the  growing   demand   for  premium  travel   in  the  region.     A380   Rolls-­‐Royce  Engine   Incident  and  Fleet   Grounding   Mr  Joyce   said  the  grounding  of  the  A380   fleet  in  November  was  a  setback   for  Qantas.     “Qantas’   response   to  this  unprecedented  event  was  swift  and  appropriate.  In  very  challenging   circumstances,  and     with    the    commitment     and    hard    work    of    our    people,    we    managed     to    maintain     98    per    cent    of    our   international  operations.   While  disruptions   were  minimised,   we  regret  any  inconvenience  customers   may  have   experienced  at  the  time,”   Mr  Joyce   said.     Qantas  has  estimated   the  full-­‐year  economic   impact  to  the  business  at  $80  million,  with  $55  million  in  the  first  half   and  $25  million   forecast   in  the  second   half.     The   figure   does   not   include   the   cost   of   repair   of   the   damaged   aircraft   and   engines,   estimated   to   be   at   least   $100   million,   which   are  all  covered   by  insurance  or  by  existing   contractual  arrangements  with  Rolls-­‐Royce.     Qantas   remains   in   discussions   with   Rolls-­‐Royce   in   relation   to   a   commercial   settlement   to   compensate   the   airline   for  the  economic  loss  incurred.  While   discussions  continue,  no  agreement  has  yet  been   reached.     Segment  Performance   Mr     Joyce     said     all     operating     segments     of     the     Qantas     Group     were     profitable     for    the     half-­‐year     ended     31   December  2010,   delivering  significant  EBIT   growth.     “Qantas  Airlines     produced     a     strong     revenue     performance     across     both     its     international     and     domestic   operations,  with  Underlying  EBIT   of  $165   million   up  175  per  cent  on  prior  year  first  half,”   Mr  Joyce   said.     “Qantas   remains   the   best   domestic   airline   for   the   business   market   in   terms   of   frequency,   product,   service,   large   wide  and  narrow   body   fleets,   industry-­‐leading  punctuality  and  an  unsurpassed  loyalty   program.     “Domestic   market  share  was  maintained,  as  was  yield  premium   in  the  corporate   market.   The  international  business   remains   challenging  but  with  demand  expected  to  strengthen  in  coming   months.     “QantasLink   also   delivered   a   strong   contribution   to   the   Qantas   Airlines   result   and   is   set   to   grow   with   the   addition   of  a  further  seven  new  Q400  aircraft,   the  first  of  which  has  just  entered   service.   The  regional   airline   operation   will  also  oversee   the  Group’s   move  into  the  Western   Australian   fly-­‐in-­‐fly-­‐out  resources   air  charter  market   through   the  purchase  of  Network  Aviation.     “Qantas’   three-­‐year   transformation   program,   QFuture,   continued   to   deliver   sustainable   margin   improvements   alongside   an   expanded   suite   of   full   service   customer   product   and   service   offerings.   The   program   delivered   $173  million  in  benefits  across  a  range  of  business  areas  in  the  half-­‐year  and  is  on  track  to  achieve  the  FY11   target   of  $500   million,   and  $1.5  billion   in  benefits   over  three   years.”     Mr   Joyce   said   Jetstar   delivered   another   record   profit   (Underlying   EBIT   of   $143   million,   up   18   per   cent)   and,   after  Qantas,   was  Australia’s  second   most   profitable  domestic  airline.     “Jetstar   continued   to   grow   and   maintain   its   low   fares   market   leadership   position   in   Australia   and   Asia   –   the   world’s  fastest  growing  aviation  market  –  and  grew  capacity  by  19  per  cent  across  its  operations  compared  to   1H10,”   he  said.     “Jetstar  has  been  profitable   every  year  since  its  launch  in  2004  and,  in  keeping   with  this  history,  continued   to  expand   its  international  and  domestic   networks,  attracting   significant   growth  in  passenger   numbers,   while  still  reducing  its   unit  costs.     “Jetstar  Asia  contributed   a  record  profit  (Underlying   EBIT  of  S$17  million)  to  Jetstar’s   result.  It  has  embedded  the   Jetstar   brand   in   Asia   across   a   range   of   key   markets   and,   as   the   largest   low   cost   carrier   operating   from   2  
  •  Singapore,  achieved  capacity   growth   of   46   per   cent   compared  to   1H10.   The   airline   also   launched  A330  services  out  of  Singapore  during   the  half,  and  is  well  positioned  for  future   growth.     “Qantas   Frequent   Flyer  (Underlying   EBIT  of  $189  million)   once  again  delivered   a  record  result,  this  time  a  20  per   cent  improvement  on  the  comparable  half-­‐year.     “Program  membership  continued   to  grow  –  now  at  7.5  million,  up  12  per  cent  over  the  last  12  months.   It  also  added   new  partners,   including   Caltex,   as  part  of  the  Woolworths   Group   alliance,   and  OnePath   life  insurance,  and   launched  multiple   market   leading   credit   card  products.”     The  result  of  Qantas  Freight  (Underlying   EBIT  of  $41  million,  up  141  per  cent),  confirmed   the  strong  recovery  of   the  international  air  freight   market.     Investment  in  Fleet   and  Customer  Initiatives   Mr  Joyce  said  the  Group  remained   committed   to  cost  effective   investment   in  customer   product,   service,  innovation   and  fleet.     “Investment  –  $1  billion  in  the  half-­‐year   –  in  our  customer   offering   and  the  best,  modern,   next  generation  fuel   efficient   fleet   remain   integral   to   our   strategy   of   making   Qantas   the   best   premium   airline,   and   maintaining   Jetstar’s  position   as  the  low  fare  leader   in  Australia  and  across   Asia,”   he  said.     “Qantas’   international   transformation   continued,   with   the   arrival   of   more   A380s   and   the   commencement   later   this  year  of  the  fleet  reconfiguration  will  bring  the  B747  product  to  the  ultra-­‐premium  A380  standard   and  better   match   travel   class   options   to  demand.     “The   B787   also   remains   central   to   the   Group’s   international   strategy   and   our   multi-­‐billion   dollar   fleet   and   growth   plan,   and  the  first  aircraft   is  now  expected  at  the  end  of  2012.     “Another  key  development   has  been  the  successful  launch  of  Qantas’  faster,  smarter  Next  Generation  Check-­‐  in   offering   in  Perth,   Sydney,  and  Melbourne.”     Outlook   The  general   operating  environment  continues  to  improve.     Forward   bookings   indicate   yields   in   the   second   half   of   FY11   will   be   higher   than   the   same   period   in   FY10,   noting   that  the  first  half  is  typically   a  stronger  revenue  period   due  to  seasonal  factors.     The   Group   expects   to   increase   capacity   in   the   second   half   of   FY11   by   11   per   cent   compared   to   the   same  period   in  FY10,   while   maintaining  flexibility.     As  at  14  February  2011,  underlying  fuel  costs  for  the  second  half  of  FY11  are  estimated  to  increase  to  around   $2.0   billion   due   to   higher   forward   market   jet   fuel   prices   and   increased   flying.   Fuel   surcharges,   fare   increases  and   hedging   are  being   used   to  mitigate   the  impact   of  fuel  price   rises.     However,   a  number  of  significant   weather  events  are  impacting   current  trading  conditions,   including   the   Queensland  floods  (estimated  to  impact  second  half  FY11  Underlying  PBT  by  up  to  $55  million)  and  Cyclone  Yasi  in   North   Queensland  (estimated  to  impact   second   half  FY11   Underlying  PBT  by  up  to  $15  million).     The   Qantas   Group   estimates   the   A380   disruptions   will   have   an   impact   of   $25   million   in   the   second   half   of   FY11,  in  addition   to  the  $55  million  in  the  first  half  of  FY11.  Qantas  remains   in  discussions  with  Rolls-­‐Royce  in   relation   to   compensation   for   the   economic   loss   incurred.   No   agreement   has   been   reached   at   this   stage.   Any   compensation  will  be  recognised  in  the  Group’s   Underlying  PBT  in  the  relevant   period.     Given   the  first  half  result,   Underlying  PBT  for  FY11   is  expected  to  be  materially  stronger  than  FY10.     However,  changes     in    fuel    prices,    foreign    exchange     rates,    general    trading    conditions     and    the    impact     of   significant   weather   events  could  rapidly  impact  earnings.   It  is  therefore   not  possible   to  provide   a  more  specific   forecast   at  this  time  given   the  volatility   and  uncertainty  of  the  aviation   market.     3  
  •   Dividend   The  Board  remains  committed  to  the  resumption  of  dividend  payments.  As  previously  disclosed  to  the  market,  the   quantum   and  timing  of  this  will  depend  on  actual  and  forecast   trading  results,  market  conditions,   the  maintenance  of   an  investment  grade   credit   rating   and  the  level  of  capital   expenditure  commitments.     In    the    first    half    of    financial     year    2011,    the    operating     performance     of    all    Qantas    businesses     improved   significantly  and  the  Board  is   confident  in  the  outlook  for  the  company.  However,  significant  capital  investment  is   being  undertaken,  reflecting   a  fleet  renewal   to  bolster  the  foundations  for  future  growth.   Considering  this   investment   program   alongside   the   preference   to   rely   on   internally   generated   capital   and   debt   funding   for   this   investment,  the  Board   believes  it  is  prudent   not  to  pay  a  dividend  at  this  time.     Future   dividend  payments  will  be  assessed  against   ongoing   earnings  performance  and  capital   requirements.     4  
  •  APPENDIX     Review  of  Operations  (Extracted  from   Appendix  4D)     Highlights  of  the  half-­‐year  result   include:       Underlying  Profit  Before  Tax  up  56  per  cent  and  operating   cash  flows  up  by  54  per  cent       Strong  growth  across  all  operating  segments       Record  results  for  Jetstar  and  Qantas  Frequent  Flyer       Result  achieved   despite  financial  impact  of  A380  disruptions    Strong  revenue  growth  of  10  per  cent  achieved  through  expansion  of  capacity  and  continued  improvement  in   yield     Underlying  PBT  Result   Up  56  Per   Cent     The  Qantas   Group   reported  an  Underlying  PBT  of  $417   million   for  the  half-­‐year  ended   31  December  2010,   an   increase  of  56  per  cent  on  the  prior  corresponding  period   of  $267   million.     This  result  was  achieved  while  overcoming   significant  operational   challenges   during  the  period  including   disruptions   to  the  A380  network  from  November.   No  financial  settlement   from  Rolls-­‐Royce   has  been  reflected  in   the  results.     Segment  Performance  Summary     $M   December   December   $  Change   %  Change   2010   2009   Qantas   165   60   105   175   Jetstar   143   121                                                22                                      18   Qantas   Frequent  Flyer   189   157                                        32                                      20   Qantas   Freight   41   17                                        24   141   Jetset   Travelworld  Group   3                                              5                                        (2)   (40)   Corporate/Unallocated   (94)   (67)   (27)                                        40   Eliminations   5   14                                        (9)   (64)   Underlying  EBIT   452   307   145                                        47   Underlying  net  finance   costs   (35)   (40)                                            5   (13)   Underlying  PBT   417   267   150                                        56     Strong   Growth   in  all  Operating  Segments     All  operating   segments   have  improved   contributions   to  Underlying   PBT,  delivering  strong  growth  compared   to  the   prior   corresponding   period.   Qantas   and   Qantas   Freight   achieved   growth   in   excess   of   100   percent.   Both  Jetstar   and  Qantas   Frequent  Flyer   delivered  record   half-­‐year  results.     Capacity   and  Yield   Recovery     Despite    the    challenges     presented     during    the    period,    the    Group    achieved     strong    revenue     growth.        Total   revenue     for    the    half-­‐year     increased     10    per    cent    from    $6,909    million    to    $7,591    million.    Average     yields,   excluding   foreign  exchange   (FX)  movements,  increased   by  7  per  cent  reflecting   the  continued   improvement  in   premium   business   following   the   Global   Financial   Crisis.     Capacity   increased   7  per  cent   following   the   addition  of   22  aircraft   to  the  Group   fleet  between  31  December  2009   and  31  December  2010.     The  Group’s  revenue  performance  has  been  supported  by   maintaining  the  Group’s  target  of   65   per  cent  share  of  the   domestic   Australian   market,  industry   leading  on  time  performance,  and  continued   efforts  to  improve   and  ensure   customer   safety   and   satisfaction.   Qantas   Frequent   Flyer’s   record   result   has   been   built   on   continuing  robust   growth   in  members  and  program  affiliates.     5  
  •   Expenses   for  the  half-­‐year   were  $7,227  million,  an  increase  of  7  per  cent  from  the  prior  corresponding   period  of  $6,766   million.   Cost   increases   were   in   line   with   the   Group’s   capacity   growth   of   7   per   cent.     However   fuel  costs  increased   by  10  per  cent,  impacted   by  higher  average   fuel  prices  in  the  current  period  compared   to  the  prior  corresponding  period.     The   Rolls-­‐Royce   A380   engine   disruptions   and   associated   loss   of   capacity   unfavourably   affected   unit   cost   in  the     first    half.    After    allowing     for    the    effects    of    A380    disruptions     and    reduced     average     sector    length    the   Comparable  Net  Underlying  Unit  Cost  performance  is  favourable  by  1  per  cent.     Operating  Statistics       %     Available Seat Kilometres   Revenue Passenger Kilometres   Passenger   Seat     Yield (Excluding   Net Underlying Unit   Comparable Net Underlying Unit       1  ASK  –  total  number  of   seats  available  for   passengers,   multiplied  by   the   number  of   kilometres   flown   2  RPK  –  total  number  of   paying  passengers   carried,  multiplied  by  the   number  of   kilometres   flown   3   Net   Underlying   Unit   Cost   –   Underlying   PBT   less   Passenger   Revenue,   fuel   and   Frequent   Flyer   change   in   accounting   estimate  per   ASK   4  Comparable   Net   Underlying   Unit   Cost–   Net   Underlying   Unit   Cost   adjusted   for   the   impact   of   A380   disruptions   and   reduced   average  sector   length     Capital   Expenditure  Supported  by  Strong   Balance  Sheet   and  Operating  Cash   Flows     Operating  cash  flows  grew  to  $743  million,  an  increase  of  54  per  cent  on  the  prior  corresponding   period  result  of   $483   million,   in  line  with  the  growth   in  earnings.     Qantas   Group  cash  was  $3,337  million  at  31  December  2010,  a  decrease   of  $367  million  from  30  June  2010  resulting   from   aircraft   purchases   partially   funded   from   cash   reserves   and   the   deconsolidation   of   cash   held   in  Jetset   Travelworld  Group.     $M   December   December   $  Change   %  Change   2010   2009   Cash   at  Beginning   3,704   3,617   87   2   Operating  Cash   Flow   743   483   260   54   Investing  Cash   Flow   (1,076)   (947)   (129)   14   Financing  Cash   Flow   (20)   345   (365)   (106)   Effect   of  Foreign   Exchange  on  Cash   (14)   -­‐   (14)   -­‐   Cash   at  Half-­‐Year  End   3,337   3,498   (161)   (5)     Qantas     has    retained     a   strong    balance     sheet    and    a    secure    capital    position     while    supporting     substantial   ongoing   investment  in  the  Group’s   portfolio   of  businesses.     The  Group  invested   $1  billion  in  additional   property,   plant  and  equipment   during  the  period.  This  includes   the   purchase   of  six  aircraft,   progress   payments   on  a  significant   pipeline   of  future   deliveries,   and  the  introduction  of   Next  Generation  Check-­‐In  and  other   product   investments.     A  conservative  approach   to  capital  management  and  significant   growth  in  Operating   Cash  Flows  provide  ongoing   flexibility   to  manage   medium  term  capital  expenditure  and  funding  requirements  while  preserving  an  investment   grade   credit  rating.     As  at  31  December  2010,   the  Group’s   gearing   ratio  is  52  per  cent.   6  
  •     $M   December   June   $  Change   %  Change   2010   2010   Net  Debt1   2,558   2,209   349            16   Net  Debt  Including  Off  Balance  Sheet   Debt2   6,605   6,170   435              7   Equity   (Excluding  Hedge   Reserves)   6,041   5,896   145              2   Gearing   Ratio3   52:48   51:49   1  Includes  fair   value  of   hedges  related  to   debt  and   aircraft  security  deposits   2     Includes     non-­‐cancellable     operating     leases,     excluding     hedge     reserves.     Non-­‐cancellable     operating     leases     are     a     representation   assuming   assets  are   owned  and  debt  funded  and  is  not   consistent   with   the   disclosure   requirements   of   AASB117:   Leases   3  Gearing  Ratio  is  Net   Debt  to   Net   Debt  and  Equity  (including  off   balance  sheet  debt  from  operating  leases  excluding  hedge  reserves)     Fleet   The  Group  remains   committed  to  a  fleet  strategy   designed   to  provide   for  long  term  fleet  renewal,   simplification  and   growth.     Qantas  continues  to   have  one   of   the   world’s  largest  aircraft  order  books,  with  173   new  aircraft  to  be   delivered  by  FY18.     These   include   13   more   A380   flagship   aircraft   for   Qantas,   and   50   B787   Dreamliners,   with   the   first   to   be   delivered   to   Jetstar   in   last   quarter   2012.       At   31   December   2010,   the   Qantas   Group   fleet   comprised   266   aircraft.     During   the  half  year,   the  Group   entered   13  new  aircraft   (6  purchased  and  7  leased)   into  service:       Qantas   –  1  A380,   1  A330-­‐200       Jetstar,   including  Jetstar   Asia  –  10  A320-­‐200s,  1  A330-­‐200     The  Group  retired  no  aircraft   during  the  half  year  but  did  return  one  leased  B747-­‐400.   Three  aircraft  are  scheduled   for  retirement  during   the  second   half  of  the  year.     Product  and  Service   Across   the  Group,   investment  in  customer  product,  service,   training   and  innovation  remains   a  core  focus.     Key  developments  in  the  half-­‐year   for  Qantas  included   the  progressive  roll-­‐out  of  the  faster,  smarter  domestic  Next   Generation  Check-­‐in   –  now  available   in  Perth,  Sydney   and  Melbourne.  Planning   also  continues   for  the  international   fleet  reconfiguration  program   that  will  commence  later  this  year.  It  will  see  nine  B747-­‐400s  upgraded   to  A380   product  standards   and  the  A380  fleet  reconfigured  over  time  to  meet  forecast   changes  in  market   demand.     While   focused   on  its  low   fare   leadership,   Jetstar   also   continued   its  investment   in  innovation,   including   in  the   area  of  airport   self-­‐service  and  the  introduction  of  iPads   for  inflight   entertainment  use.     Qantas     December   December   $  Change   %  Change   2010   2009   Total   Revenue   $M   5,706   5,295   411                                                8   Underlying  EBIT   $M   165                                          60   105   175   Seat  Factor   %   82.4   83.1     (0.7)pts     Qantas   achieved   an   Underlying   EBIT   of   $165   million   for   the   half-­‐year.   The   result   is   175   per   cent   above   the  prior   corresponding  period,   driven   by  a  $411   million,  or  8  per  cent,   increase  in  total  revenue.     Qantas   improved   yield  by  9  per  cent,  and  increased   capacity   by  3.3  per  cent  demonstrating  a  strong  revenue   recovery  across  both  international   and  domestic  business.     The  result  was  achieved  despite  the  significant   operational   and  financial  challenges   of  the  A380  disruptions   and  northern  hemisphere   snow  storms  during  the   period.     QantasLink   continued   to  deliver   a  strong   contribution   to  the  Qantas   Airlines   result   with  capacity   growing   10.6   per  cent.     QantasLink  has  also  added   fly-­‐in-­‐fly-­‐out  charter   capability  with  the  acquisition  of  Network  Aviation.   7  
  •  Looking   ahead,   Qantas   is   expecting   to   grow   its   domestic   and   international   capacity,   adding   4.5   per   cent   for  domestic   (including    QantasLink),    and   4.3   per   cent   in   international    capacity   during   the   second   half.       This  includes   the  return   of  the  A380   fleet  to  full  program  by  March   2011.     QFuture   QFuture   is   the   key   business   change   program   within   Qantas,   designed   to   position   the   airline   for   profitable   growth.   It   involves   transformational   change   across   the   airline,   with   total   benefits   of   $1.5   billion   targeted   over   the  3  years   FY10   to  FY12   to  underpin  unit  cost  reduction  and  margin   improvement.     For  the  half-­‐year,   benefits   of  $173  million  have  been  achieved   (including   IT).  The  majority   of  the  benefits   were   contributed   by   the   Commercial,   Customer   &   Marketing   and   Engineering   divisions   of   the   Qantas   segment.   Qantas  is  also  on  track  to  achieve   the  FY11  target  of  $500  million  and  the  $1.5  billion  in  benefits   over  three  years.     Jetstar     December   December   $  Change   %  Change   2010   2009   Total   Revenue   $M   1,346   1,131                            215                          19   Underlying  EBIT   $M   143   121                                  22                          18   Seat  Factor   %   79.6   80.2     (0.6)pts     Jetstar   achieved   a   record   result   for   the   period,   with   an   Underlying   EBIT   of   $143   million,   an   18   per   cent   increase  on  the  prior  corresponding  period.     Jetstar   increased  domestic  capacity   by  20  per  cent  and  international  capacity  by  18  per  cent,  resulting   in  a  net   capacity   increase   of  19  per  cent  versus  the  prior  corresponding  period.  Yield  improvements  and  a  15  per  cent   increase   in  passenger  numbers   versus   the  prior  corresponding  period  have  resulted   in  an  increase   in  Jetstar’s   revenue  of  $215   million   (19  per  cent).     Jetstar  has  also  achieved   continuing   improvements  in  unit  cost.  Unit  cost  (excluding   fuel)  has  fallen  2  per  cent   compared  to  the  previous  corresponding  period.     Jetstar’s   record   result   reflects   its   status   as   one   of   the   fastest   growing   airlines   in   Asia,   the   world’s   largest   aviation   market.   Operations  now  span  two  continents   and  four  countries,   with  379  flights  per  day  and  growing.  This   growth   will  continue   with  the  delivery   of  15  B787s   from  late  2012.     Qantas   Frequent  Flyer       $ %         Total   Underlying   Normalisation   Normalised     1     Normalised   EBIT  is  a  non-­‐statutory   measure  which  restates  redemption   revenue  to   the   fair   value  of   awards  redeemed   (removing  the   impact  of   the   change  in  accounting   estimate)   and  recognises   the   marketing   revenue  when  a  point  is  sold.  This  creates  a  comparable  basis   for   the   presentation   of   results.     Qantas   Frequent   Flyer   achieved   an   Underlying   EBIT   of   $189   million,   which   was   $32   million   higher   than   the   prior  corresponding  period   and  Normalised  EBIT   growth   of  36  per  cent.     Qantas     Frequent     Flyer’s     result    reflects     positive     growth     in    new    members     driven    by    the    development     of   products   and  services  with  key  business   partners.   Membership  has  increased   12  percent  on  the  prior   corresponding  period   to  7.5  million   members.Billings   increased   by   9   per   cent   compared   to   the   prior   corresponding   period,   driven   by   capacity   increases  across   the  flying   businesses  and  additional  revenue  from  new  members.     The   development   of   the   Woolworths   partnership   in   particular   has   contributed   incremental   airline   revenue   as   well  as  growth  in  Woolworths’  billings   as  the  program   matures.   These  outcomes   highlight   the  value  of  Qantas’   portfolio   of  businesses,   and   especially   Qantas   Frequent   Flyer,   in   maximising   the   returns   generated   from   the  core   flying   brands.       8  
  •     Qantas   Freight     December   December   $  Change   %  Change   2010   2009   Total   Revenue   $M   545   494                              51                                        10   Underlying  EBIT   $M                                            41                                            17                              24   141   Load   Factor   %   60.3   59.9     0.4pts     Qantas   Freight’s     Underlying     EBIT     of     $41     million     is     more     than     double     the     $17     million     from     the     prior   corresponding  period.     Qantas   Freight’s   result  reflects   a  recovery   in  economic   activity  from  Global  Financial   Crisis  lows  as  well  as  stronger   volumes   and  yields,  principally   on  key  China/US   routes.  Yield  has  improved   by  12  per  cent  (excluding  foreign   exchange)  due  to  market   recovery  and  higher   fuel  surcharges.     The  domestic   express   freight  market   has  also  improved,  resulting   in  higher  earnings   from  the  joint  venture   businesses  Australian  air  Express  and  Star   Track   Express.     Statutory  Result     $M   December  2010   December  2009   $Change       Non-­‐Recurring  Items   417   267   150   Ineffectiveness  and  Non-­‐designated   Derivatives  relating  to  other  reporting   (50)   (48)   (2)   periods         (45)       (129)       84     Statutory  PBT         322       90       232         Statutory  PBT  has  improved  to  $322   million   from  $90  million.     Statutory     PBT     includes     ineffectiveness     and     non-­‐designated     derivative     losses     relating     to     other     reporting   periods.     Non-­‐recurring  items   included  in  the  half-­‐year  statutory  result   are:     loss  on  disposal  and  other   transaction  costs   relating   to  the  Jetset   Travelworld  Group   merger   of  $29  million     profit   on  the  sale  of  the  DPEX   Group   of  $5  million     provisions  for  freight   regulatory  fines  and  third  party   actions   of  $26  million   9  
  •  10.0  Appendix  2  10.1  “Qantas  Profit  Soars  But  Misses  Mark”     Qantas profit soars but misses mark February 17, 2011     Update Qantas has posted a more than four-fold increase in first-half net profit as it recovered from one of the worst downturns in aviation history but did not reinstate an interim dividend as expected.   Qantas shares had their best day since June 2009, rising 13 cents, or 5.4 per cent, to $2.52. The airline was the second-best performing stock on the market.   The airline predicted materially higher 2011 earnings as yields return to pre-financial crisis levels but warned of adverse impacts from high fuel prices, recent floods in Queensland state and a Rolls-Royce engine explosion which forced it to ground its fleet of A380 aircraft last year.   "Qantas remains in discussions with Rolls-Royce in relation to the compensation for the economic loss incurred. No agreement has been reached at this stage," the airline said in a statement.   Net profit for the six months to December 31 was $241 million compared to $58 million a year earlier, Qantas said. The figures fell short of analyst expectations for $284 million, according to the consensus of three forecasts. Underlying pre-tax profit rose 56 per cent to $417 million. This included a $55 million impact from lost revenues and costs after it grounded its fleet of A380 aircraft.   It also forecast an additional impact of $25 million in the second-half from the A380 problems.   Yields were expected to be higher in the second half of the current fiscal year, while capacity was expected to increase by 11 per cent in the same period compared to the first half.   Qantas did not declare an interim dividend, contrary to some analyst expectations.   Solid position   Qantas chief executive Alan Joyce said the result built on the company’s 2010 full-year performance and showed it had emerged from the global financial crisis in a ‘‘solid position’’.   ‘‘The Qantas Group has delivered a strong result and is, again, one of the few airlines to remain consistently profitable and continue to hold an investment grade credit rating,’’ Mr Joyce said.   ‘‘With half-year underlying profit up more than 56 per cent year-on-year, all parts of the group performed well, with Jetstar and Qantas Frequent Flyer delivering record half-year profits and Qantas Airline’s performance significantly improving.’’   In a statement, Qantas said the general operating environment continued to improve.   ‘‘Forward bookings indicate yields in the second half of FY11 (financial 2011) will be higher than the same period in FY10, noting that the first half is typically a stronger revenue period due to seasonal factors,’’ Qantas said.   ‘‘The group expects to increase capacity in the second half of FY11 by 11 per cent compared to the same period in FY10, while maintaining flexibility.’’     From February 14, 2011 underlying fuel costs for the second-half of financial 2011 are estimated to increase to around $2 billion due to higher forward market jet fuel prices and increased flying.   10   ii  
  •     Fuel surcharges, fare increases and hedging are being used to mitigate the impact of fuel price rises.   However, the airline said the Queensland floods were estimated to impact second-half of 2011 underlying profit before tax by up to $55 million. Cyclone Yasi in North Queensland, meanwhile, is estimated to impact second-half 2011 underlying profit before tax by up to $15 million. Qantas estimates major disruptions to its A380 fleet will have an impact of $25 million in the second-half in addition to the $55 million in the first-half of financial 2011.   ‘‘Qantas remains in discussions with Rolls-Royce in relation to compensation for the economic loss incurred,’’ the company said.   ‘‘No agreement has been reached at this stage.   ‘‘Any compensation will be recognised in the group’s underlying PBT (profit before tax) in the relevant period.’’   Given the first half result, underlying profit before tax for the full-year is expected to be ‘‘materially stronger’’ than financial 2010, Qantas said.   ‘‘However, changes in fuel prices, foreign exchange rates, general trading conditions and the impact of significant weather events could rapidly impact earnings,’’ Qantas said. "It is therefore not possible to provide a more specific forecast at this time given the volatility and uncertainty of the aviation market." Mr Joyce said the groups response to the A380 Rolls-Royce engine failure, and subsequent temporary gra.mding of the Qantas A380 fleet in November showed the company to be "flexible, adaptable and resilient". Qantas was well positioned to capitalise on the improving global aviation environment and opportunities in both the premium and leisure sectors, he said. While domestic business travel continues to recover and domestic leisure market conditions continue to be highly competitive, Jetstar remained "well placed" as the low fare leader. He said demand on key international routes was improving but the international environment remained "challenging".     11  
  • 11.0  Appendix  3           iii  
  •                    
  •  12.0  Appendix  4  11.1  “International  Passengers  By  Major  Airlines”      Source:  Australian  Government  (2010)                           iv  
  •  13.0  Appendix  5    QANTAS  AIRWAYS  DATA  CALCULATION   Closing   All  Order   Return  on   Share   Company   Cumulative   Date   Index   Index   Price   Return   Residuals   Residual   10-­‐Mar-­‐11   4791.3 2.28   9-­‐Mar-­‐11   4863.2   0.008081099   2.34    -­‐0.004273504     -­‐1.24%     -­‐0.012354603   8-­‐Mar-­‐11   4902.5 -­‐0.001346252   2.33   -­‐0.021459227   -­‐2.01%   -­‐0.024709206   7-­‐Mar-­‐11   4895.9 0.012806634   2.28   0.01754386   0.47%   -­‐0.044822182   4-­‐Mar-­‐11   4958.6 -­‐0.011253176   2.32   -­‐0.004310345   0.69%   -­‐0.040084956   3-­‐Mar-­‐11   4902.8 -­‐0.000917843   2.31   -­‐0.012987013   -­‐1.21%   -­‐0.033142125   2-­‐Mar-­‐11   4898.3 0.004511769   2.28   0.021929825   1.74%   -­‐0.045211295   1-­‐Mar-­‐11   4920.4 0.000447118   2.33   0.004291845   0.38%   -­‐0.02779324   28-­‐Feb-­‐11   4922.6 0.000467233   2.34   0.017094017   1.66%   -­‐0.023948512   25-­‐Feb-­‐11   4924.9 -­‐0.004832585   2.38   -­‐0.021008403   -­‐1.62%   -­‐0.007321728   24-­‐Feb-­‐11   4901.1 0.007039236   2.33   0.034334764   2.73%   -­‐0.023497546   23-­‐Feb-­‐11   4935.6 0.002370532   2.41   0.041493776   3.91%   0.003797982   22-­‐Feb-­‐11   4947.3 0.008812888   2.51   0   -­‐0.88%   0.042921225   21-­‐Feb-­‐11   4990.9 0.007052836   2.51   0.011952191   0.49%   0.034108337   18-­‐Feb-­‐11   5026.1 -­‐1.98961E-­‐05   2.54   -­‐0.007874016   -­‐0.79%   0.039007693   17-­‐Feb-­‐11   5026 -­‐0.001472344   2.52   -­‐0.051587302   -­‐5.01%   0.031153573   16-­‐Feb-­‐11   5018.6 0.000159407   2.39   0   -­‐0.02%   -­‐0.018961385   15-­‐Feb-­‐11   5019.4 0.000796908   2.39   0   -­‐0.08%   -­‐0.019120792   14-­‐Feb-­‐11   5023.4 -­‐0.010510809   2.39   0   1.05%   -­‐0.0199177   11-­‐Feb-­‐11   4970.6 0.00625679   2.39   0.012552301   0.63%   -­‐0.00940689   10-­‐Feb-­‐11   5001.7 -­‐0.001319551   2.42   -­‐0.004132231   -­‐0.28%   -­‐0.003111379   9-­‐Feb-­‐11   4995.1 -­‐0.002402354   2.41   0.008298755   1.07%   -­‐0.005924059   8-­‐Feb-­‐11   4983.1 -­‐0.003772752   2.43   0   0.38%   0.00477705   7-­‐Feb-­‐11   4964.3 -­‐0.00110791   2.43   -­‐0.008230453   -­‐0.71%   0.008549802   4-­‐Feb-­‐11   4958.8 -­‐0.007965637   2.41   0.008298755   1.63%   0.00142726   3-­‐Feb-­‐11   4919.3 -­‐0.004350212   2.43   -­‐0.037037037   -­‐3.27%   0.017691652   2-­‐Feb-­‐11   4897.9 -­‐0.009371363   2.34   0.012820513   2.22%   -­‐0.014995173   1-­‐Feb-­‐11   4852 -­‐0.000412201   2.37   0.012658228   1.31%   0.007196704   31-­‐Jan-­‐11   4850 0.004639175   2.4   0.008333333   0.37%   0.020267133   28-­‐Jan-­‐11   4872.5 0.007080554   2.42   0.004132231   -­‐0.29%   0.023961291   27-­‐Jan-­‐11   4907 -­‐1   2.43   -­‐1   0.00%   0.021012968           v  
  •  14.0  Appendix  6    VIRGIN  BLUE  AIRWAYS  DATA  CALCULATION   All  Order   Return  on   Closing   Company   Cumulative   Date   Index   Index   Share  Price   Return   Residuals   Residual   10-­‐Mar-­‐11   4791.3 0.345 9-­‐Mar-­‐11   4863.2   0.008081099   0.36   -­‐0.013888889     -­‐2.20%     -­‐0.021969988   8-­‐Mar-­‐11   4902.5 -­‐0.001346252   0.355 -­‐0.014084507   -­‐1.27%   -­‐0.043939976   7-­‐Mar-­‐11   4895.9 0.012806634   0.35 0.042857143   3.01%   -­‐0.056678231   4-­‐Mar-­‐11   4958.6 -­‐0.011253176   0.365 -­‐0.01369863   -­‐0.24%   -­‐0.026627722   3-­‐Mar-­‐11   4902.8 -­‐0.000917843   0.36 -­‐0.041666667   -­‐4.07%   -­‐0.029073176   2-­‐Mar-­‐11   4898.3 0.004511769   0.345 0.028985507   2.45%   -­‐0.069822   1-­‐Mar-­‐11   4920.4 0.000447118   0.355 0   -­‐0.04%   -­‐0.045348262   28-­‐Feb-­‐11   4922.6 0.000467233   0.355 0.028169014   2.77%   -­‐0.04579538   25-­‐Feb-­‐11   4924.9 -­‐0.004832585   0.365 0   0.48%   -­‐0.018093598   24-­‐Feb-­‐11   4901.1 0.007039236   0.365 0.04109589   3.41%   -­‐0.013261013   23-­‐Feb-­‐11   4935.6 0.002370532   0.38 0.039473684   3.71%   0.020795641   22-­‐Feb-­‐11   4947.3 0.008812888   0.395 0   -­‐0.88%   0.057898793   21-­‐Feb-­‐11   4990.9 0.007052836   0.395 0.012658228   0.56%   0.049085905   18-­‐Feb-­‐11   5026.1 -­‐1.98961E-­‐05   0.4 0   0.00%   0.054691297   17-­‐Feb-­‐11   5026 -­‐0.001472344   0.4 -­‐0.025   -­‐2.35%   0.054711193   16-­‐Feb-­‐11   5018.6 0.000159407   0.39 -­‐0.012820513   -­‐1.30%   0.031183537   15-­‐Feb-­‐11   5019.4 0.000796908   0.385 0   -­‐0.08%   0.018203617   14-­‐Feb-­‐11   5023.4 -­‐0.010510809   0.385 0.012987013   2.35%   0.017406709   11-­‐Feb-­‐11   4970.6 0.00625679   0.39 0.012820513   0.66%   0.040904531   10-­‐Feb-­‐11   5001.7 -­‐0.001319551   0.395 0.012658228   1.40%   0.047468254   9-­‐Feb-­‐11   4995.1 -­‐0.002402354   0.4 -­‐0.025   -­‐2.26%   0.061446033   8-­‐Feb-­‐11   4983.1 -­‐0.003772752   0.39 0.025641026   2.94%   0.038848388   7-­‐Feb-­‐11   4964.3 -­‐0.00110791   0.4 0.025   2.61%   0.068262165   4-­‐Feb-­‐11   4958.8 -­‐0.007965637   0.41 0   0.80%   0.094370076   3-­‐Feb-­‐11   4919.3 -­‐0.004350212   0.41 -­‐0.024390244   -­‐2.00%   0.102335713   2-­‐Feb-­‐11   4897.9 -­‐0.009371363   0.4 0   0.94%   0.082295681   1-­‐Feb-­‐11   4852 -­‐0.000412201   0.4 -­‐0.0125   -­‐1.21%   0.091667044   31-­‐Jan-­‐11   4850 0.004639175   0.395 0.025316456   2.07%   0.079579246   28-­‐Jan-­‐11   4872.5 0.007080554   0.405 0.012345679   0.53%   0.100256526   27-­‐Jan-­‐11   4907 -­‐1   0.41 -­‐1   0.00%   0.105521651             vi  
  •  15.0  Appendix  7    SKYWEST  AIRWAYS  DATA  CALCULATION   Closing   All  Order   Return  on   Share   Company   Cumulative   Date   Index   Index   Price   Return   Residuals   Residual   10-­‐Mar-­‐11   4791.3 0.51   9-­‐Mar-­‐11   4863.2   0.015006366   0.51     0     -­‐1.50%     -­‐0.015006366   8-­‐Mar-­‐11   4902.5 0.008081099   0.51   0   -­‐0.81%   -­‐0.030012731   7-­‐Mar-­‐11   4895.9 -­‐0.001346252   0.51   0   0.13%   -­‐0.03809383   4-­‐Mar-­‐11   4958.6 0.012806634   0.51   0   -­‐1.28%   -­‐0.036747578   3-­‐Mar-­‐11   4902.8 -­‐0.011253176   0.52   0.019607843   3.09%   -­‐0.049554212   2-­‐Mar-­‐11   4898.3 -­‐0.000917843   0.5   -­‐0.038461538   -­‐3.75%   -­‐0.018693193   1-­‐Mar-­‐11   4920.4 0.004511769   0.49   -­‐0.02   -­‐2.45%   -­‐0.056236889   28-­‐Feb-­‐11   4922.6 0.000447118   0.51   0.040816327   4.04%   -­‐0.080748658   25-­‐Feb-­‐11   4924.9 0.000467233   0.51   0   -­‐0.05%   -­‐0.04037945   24-­‐Feb-­‐11   4901.1 -­‐0.004832585   0.5   -­‐0.019607843   -­‐1.48%   -­‐0.040846682   23-­‐Feb-­‐11   4935.6 0.007039236   0.44   -­‐0.12   -­‐12.70%   -­‐0.05562194   22-­‐Feb-­‐11   4947.3 0.002370532   0.44   0   -­‐0.24%   -­‐0.182661176   21-­‐Feb-­‐11   4990.9 0.008812888   0.44   0   -­‐0.88%   -­‐0.185031709   18-­‐Feb-­‐11   5026.1 0.007052836   0.46   0.045454545   3.84%   -­‐0.193844596   17-­‐Feb-­‐11   5026 -­‐1.98961E-­‐05   0.48   0.043478261   4.35%   -­‐0.155442887   16-­‐Feb-­‐11   5018.6 -­‐0.001472344   0.48   0   0.15%   -­‐0.11194473   15-­‐Feb-­‐11   5019.4 0.000159407   0.48   0   -­‐0.02%   -­‐0.110472386   14-­‐Feb-­‐11   5023.4 0.000796908   0.46   -­‐0.041666667   -­‐4.25%   -­‐0.110631793   11-­‐Feb-­‐11   4970.6 -­‐0.010510809   0.47   0.02173913   3.22%   -­‐0.153095368   10-­‐Feb-­‐11   5001.7 0.00625679   0.47   0   -­‐0.63%   -­‐0.120845428   9-­‐Feb-­‐11   4995.1 -­‐0.001319551   0.48   0.021276596   2.26%   -­‐0.127102218   8-­‐Feb-­‐11   4983.1 -­‐0.002402354   0.48   0   0.24%   -­‐0.104506071   7-­‐Feb-­‐11   4964.3 -­‐0.003772752   0.46   -­‐0.041666667   -­‐3.79%   -­‐0.102103717   4-­‐Feb-­‐11   4958.8 -­‐0.00110791   0.45   -­‐0.02173913   -­‐2.06%   -­‐0.139997631   3-­‐Feb-­‐11   4919.3 -­‐0.007965637   0.45   0   0.80%   -­‐0.160628851   2-­‐Feb-­‐11   4897.9 -­‐0.004350212   0.45   0   0.44%   -­‐0.152663215   1-­‐Feb-­‐11   4852 -­‐0.009371363   0.45   0   0.94%   -­‐0.148313002   31-­‐Jan-­‐11   4850 -­‐0.000412201   0.47   0.044444444   4.49%   -­‐0.138941639   28-­‐Jan-­‐11   4872.5 0.004639175   0.475   0.010638298   0.60%   -­‐0.094084993   27-­‐Jan-­‐11   4907 0.007080554   0.475   0   -­‐0.71%   -­‐0.088085871             vii  
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