Qantas posts best result, may pay regular dividends

Qantas could reintroduce regular dividend payments after its best first-half profit result in its 95-year history.

Qantas CEO says a buyback is a more efficient way to deliver returns. Picture: Renee Nowytarger.

Qantas could be on its way to reintroducing regular dividend payments for the first time since 2009 after the company delivered its best first-half profit result in its 95-year history.

The nation’s dominant airline celebrated its record-breaking pre-tax profit of $921 million yesterday with the announcement of a new pilot recruitment program, fast in-flight internet access and, importantly for its shareholders, a $500m share buyback.

The buyback — which will begin next month and conclude by August — means Qantas has committed more than $1 billion in capital returns to shareholders in the past 12 months, following its 23c-a-share distribution last year.

Mr Joyce told The Australian Qantas would continue to return “significant” sums of capital to shareholders as long as its cashflows — which generated $1.4bn in operating cash and $770m in free cash — remained strong, but said he was also eager to see a regular dividend reintroduced.

“We don’t want to switch the dividend on and then have to switch it off again. We want to be in a position where we have the reliability to pay it continuously,” Mr Joyce said.

“We want to get in a position where we are returning to shareholders on a regular basis.”

Qantas has not paid a regular dividend since 2009 and lacks the franking credits to hand over a meaningful dividend to shareholders.

But Mr Joyce indicated that that could change as the company continued to whittle away its tax losses of almost $2bn, a hangover from its writedown-heavy $2.8bn loss in 2014.

“As we make money like we are we eat through the tax losses, particularly those from 2014, (and will begin) paying tax again, and out of that we will build up franking credits and then it will be ­efficient to pay a dividend,” Mr Joyce said.

Mr Joyce said Qantas had the ability to pay a 9c fully franked dividend now, but the board preferred to fund the buyback, which he said was a more efficient way to deliver returns. “A lot of Australian shareholders do not like unfranked dividends because it’s not tax-effective for them. So we also look at (other ways) of capital return that (are) tax-effective,” he said.

“We are never in the category of a progressive dividend company. We are always in the position where we look at the surplus cash, we look at our balance sheet, we look at the environment we are operating in and we return the surplus cash to shareholders. If that’s a significant dividend or a significant buyback, it is. If it’s not, it’s not. That’s the way our shareholders view it and that’s the way we view it.”

Mr Joyce said Qantas’s ability to deliver regular capital returns would hinge on the success of the airline’s transformation program, which has extracted $1.36bn in cost savings over the past two years and is targeting another $190m in the remainder of the 2016 financial year.

That transformation program continued to reap bottom-line benefits in the six months to December 31 as Qantas extracted another $261m in cost cuts. The cost-cutting program has helped recast its expense base and return to profitability, and Mr Joyce said it would continue in the year ahead as the airline consolidated call centres, reconfigured aircraft to add more seats and updated its revenue management system.

Qantas smashed analyst consensus estimates with its 151 per cent surge in pre-tax profit to $921m as it banked big savings in its aggressive cost-cutting program and saved close to $450m on fuel prices.

The carrier posted a statutory profit of $983m and grew revenue 5 per cent to $8.5bn.

The continued rout in oil prices (a key driver for the cost of jet fuel) continued to be a massive boon for Qantas, which saved $448m in the half thanks to its hedging.

But Mr Joyce swatted away suggestions that the falling fuel price was the main reason for the airline’s profits.

“If it was due to fuel I think every airline in the world would be benefiting equally.

“ I think I’ve used the stats that Qantas has made more money than Air New Zealand, Singapore Airlines, Virgin and Etihad put together, and our expectations for the (next) half (are that) that’s not going to be too far off that again,” Mr Joyce said.

Despite the strong result, Qantas shares were battered by investors, shedding 5 per cent to $3.79. Analysts blamed an overnight rise in oil prices.

“You have to look at the share price over a long period of time and since 2014 Qantas has had the highest TSR (total shareholder return) of any company on the ASX and the highest of any airline among global peers during that time,” Mr Joyce said.