Qantas reports surge in half-year profits and resumes dividends
Qantas (ASX:QAN) has posted a significant rise in half-year profits, demonstrating continued momentum in the airline’s post-pandemic recovery. The company reported an underlying profit before tax of $1.39 billion, an 11 per cent increase compared with the same period last year. Statutory profits also climbed by 6 per cent, reaching $923 million.
The company reported underlying profit before tax (underlying PBT) of $1,385 million for first half 2024/2025, a $140 million increase compared to first half 2023/2024. The group’s statutory profit before tax was $1,320 million, an increase of $75 million compared to first half 2023/2024, and statutory profit after tax was $923 million. Investors should note statutory profit includes the increase in legal provision concerning the ground handling outsourcing Federal Court case that was not included in underlying PBT.
Statutory earnings per share was 59.9 cents per share, group operating margin was 12 per cent, operating cash flow was $2.07 billion, and net capital expenditure was $1.43 billion.
Fleet upgrade: A costly but necessary step
The big issue for this company will be its forthcoming fleet upgrade. Qantas has one of the oldest fleets in the world. And keep in mind new planes cost a lot more than old planes. Therefore, the depreciation of old planes on the company’s accounts, instead of a provision for new planes, means the reported profits consistently understates the actual cost of running an airline.
Since June 30, 2024, the company added six Airbus A321 Long Range and two A320 neo planes to its Jetstar fleet and added eight smaller planes to its QantasLink fleet. But the big upgrades are still to come.
Cash flow and financial position
The company’s cash balance rose by $626 million but interest bearing liabilities also rose by $589 million. On a net basis, the company generated just $37 million in additional cash, however, we have also to consider any capital raised or shares bought back, and any dividends paid. No dividends were paid in the half (although one has just been declared in the current half – see below) but buybacks amounted to $431 million. Our estimated ‘business cash flow’ therefore amounted to $468 million.
That’s a positive sign and one that arrives after the purchase of new planes. Qantas however has 127 planes in its fleet, including 75 737-800s, 10 A380s and 38 A330s. When it comes time to replace these, capex will rise and the significant cash flow demands are likely to be supported with debt and or equity raisings
Jetstar’s strong performance boosts results
A highlight of the results was the performance of Jetstar, Qantas’ low-cost subsidiary, which recorded a 54 per cent jump in its underlying domestic earnings to $269 million for the six months to December 31. Management attributes much of Jetstar’s success to the efficiency gains of eight aforementioned newly acquired Airbus aircraft, which increased capacity and supported network expansion.
Resumption of dividends marks a recovery milestone
Qantas declared its first dividend since the onset of the COVID-19 pandemic. The combined payout of $400 million – including a $250 million base dividend and a $150 million special dividend – is being reported as a notable milestone in the carrier’s recovery.
While Chief Executive Officer Vanessa Hudson regards the dividend as a key indicator of Qantas’ ongoing turnaround, I suspect little growth in dividends without a commensurate increase in debt or shareholders capital in future years.
Qantas will need to address the urgency of refreshing its ageing fleet. With deliveries of new Airbus aircraft delayed and passenger numbers trending upward, the airline will begin completely refitting more than half of its 75 Boeing 737s starting in 2027 to ease capacity constraints. Meanwhile, the shift from 737s to larger Airbus planes is expected to generate higher margins and maintain a competitive edge over rivals but at what cost?
The CEO noted, “Investing in our fleet is one of the most significant ways we can transform the flying experience for our customers.” And it will also be significant for shareholders. Depending on timing, additional debt and equity will be required if dividends are to be maintained.
Balancing growth with financial discipline
The issue for investors to watch is the timing of aircraft purchases. If debt is to be maintained at reasonable levels, and dilutive capital raisings avoided, operating cash flows will need to be used for the task. For that to occur the company will need to keep customers coming back (that’s what frequent flyer programs are for) even as the fleet ages.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
