Qantas half year results reveal airline group in good shape for battle with Qatar-backed Virgin

Qantas has revealed how it plans to refresh a tired domestic fleet with just 28 new aircraft on order, as CEO Vanessa Hudson delivered another bumper profit.

Qantas is in prize-fighter shape for the looming battle with a Qatar-backed Virgin Australia, after delivering its second biggest half year profit on record, a thumping $1.39bn, and paying its first dividend in six years.

The result coincided with an announcement on a major cabin refurbishment, that will keep 42 Boeing 737s flying alongside 28 new Airbus A321XLRs for years to come.

The underlying profit for the six months to December 31, was up 6 per cent on the previous corresponding period and only $40m short of the airline’s best ever half year result of $1.43bn in 2023.

Statutory profit was $923m, up from $869m a year ago, thanks to ongoing strong demand for both premium and low cost travel and a near 10 per cent increase in passengers to 28 million.

Many of those were carried by low fares partner Jetstar, which was the indisputable star of the group, recording a 35 per cent increase in underlying earnings to $439m.

Qantas chief executive Vanessa Hudson travelled to the group’s Melbourne maintenance hangar for the results announcement. Picture: NewsWire / Luis Enrique Ascui

The budget airline’s growth was attributed to its fleet renewal which added more seats to Jetstar’s network, and cost-of-living pressures prompting travellers to seek out cheap airfares.

Qantas Domestic and International posted marginal increases in earnings to $647m and $327m respectively, while Qantas Loyalty suffered a 5.5 per cent decline to $255m, attributed to the cost of setting up new frequent flyer reward program Classic Plus.

For the first time since 2019, Qantas announced a fully franked dividend of 16.5c a share, plus a special dividend of 9.9c a share to be paid on April 16.

Qantas CEO Vanessa Hudson continued her preference for making results announcements outside of the boardroom, travelling to the group’s Melbourne maintenance hangar for the occasion.

In a case of remarkable timing, Treasurer Jim Chalmers chose the same day to announce the Foreign Investment Review Board’s approval of the Qatar-Virgin partnership, to help the smaller airline compete more evenly with Qantas, and return to long haul international flying.

Ms Hudson insisted Qantas welcomed competition and had not opposed Virgin’s sale of a 25 per cent stake to Qatar, adding “today is about looking after our customers and continuing with the investments we’re making”.

“We feel really confident in being able to compete against Qatar and Virgin,” she said.

“We compete against 52 international carriers and we feel really focused.”

Qantas will pull out existing cabins in 42 of its 737s and replace with next generation seats and bigger overhead bins in a major refurbishment. Picture: Qantas

She told assembled staff and media, having a strong business meant being able to invest in customers and employees, with tens of millions of dollars to be spent renewing the interior of 42 Boeing 737 aircraft, to ensure they remained fresh for years to come.

The move addressed the issue of what some saw as a disconnect between Qantas’ new aircraft order and its domestic fleet renewal plan.

Currently Qantas has firm orders for only 28 A321XLRs to replace the 75 B737s used on domestic routes and short haul international.

Ms Hudson said the plan to operate a mix of XLRs and 737s had been in development for some time, with the goal of using the same cabin product in both.

“We want our customers when they step onto a 737 or an XLR, not to be able to tell the difference,” said Ms Hudson of the floor to ceiling cabin refresh.

“That’s going to start as quickly as possible, so again it reinforces the investment we’re making in our fleet, but we’re also going to make sure that we care for all of our aircraft, and make sure that they are cleaned, that they are maintained incredibly well.”

Qantas is set to breathe new life into its Boeing 737 fleet with a cabin refurbishment of 42 aircraft. Picture: James D. Morgan/Getty Images

The 737s in line for cabin overhauls are between 10 and 17 years old, and would not be operated beyond what was considered their “normal life”, she added.

Investors reacted favourably to the results announcement, with shares closing 3.4 per cent higher at $9.20.

Analysts noted the results were in line with guidance and welcomed the second half guidance of ongoing strong travel demand and increased international and domestic capacity.

“Overall we see this as a solid result with an outlook that may calm some nerves around demand into 2025,” said UBS analyst Andre Fromyhr.

Owen Birrell of RBC Capital Markets noted Qantas Loyalty guidance had been downgraded from earnings growth of “at least 10 per cent” to “around 10 per cent year on year”.

A higher fuel bill in the second half was considered a “moderate negative” by Citi analyst Samuel Seow but the reintroduction of a dividend was positive, as well as a special dividend in the place of another share buyback.

Market analyst at online trading platform eToro, Josh Gilbert, said it appeared Ms Hudson was “striking the right balance between profits and keeping passengers happy”.

“It’s important not to underestimate the mammoth task the new CEO had on her hands, and the job she has done is reflected in the share price, which is up 70 per cent in the last year,” said Mr Gilbert.

“The airline is opening its purse once again. Capital expenditure is growing at a solid rate, pushing net debt higher as its fleet ages and reaches retirement age, while improving brand perception. However investors should see spending on new customer initiatives and a shiny fleet as runway for growth.”

After 18 months in the role, Ms Hudson said she remained highly motivated and supported by her team.

“That’s not to say job done, there is always more to do and we’re going to be a leadership team that doesn’t become complacent and that always listens and always learns when we need to because we’re not always also going to get it right,” she said.

Originally published as Qantas half year results reveal airline group in good shape for battle with Qatar-backed Virgin