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annual report 2006
attention to detail
Qantas Annual Report 2006

Table of contents

  • Page 1
    Qantas Annual Report 2006 attention to detail annual report 2006

  • Page 2

  • Page 3
    ... small. page 3 page 11 page 19 page 22 page 25 page 26 page 33 page 36 page 41 page 45 page 68 Report from the Chairman and Chief Executive Officer Qantas Jetstar Fleet Qantas Engineering Associated Businesses Community Board of Directors Corporate Governance Statement Performance Summary Financial...

  • Page 4
    2

  • Page 5
    report from the chairman and chief executive officer Qantas was named one of the world's top airlines in the prestigious Skytrax World Airline Awards, the world's largest airline passenger survey. We have held the number two ranking in 2005 and 2006 while some strong competitors experienced a fall ...

  • Page 6
    ... the business." Geoff Dixon, Chief Executive Officer Despite the difficult operating conditions, the company's fundamentals were strong, with good revenues and operating cash ï¬,ows, improved gearing, world-class customer service, the right aircraft for the future and a new airline in Jetstar that...

  • Page 7
    ...our latest customer developments - including new international product and ï¬,agship Qantas Club lounges in Sydney and Melbourne - during 2007. Our enhanced customer service experience will be fully implemented when Qantas' A380 ï¬,ights commence. Jetstar presents a major growth opportunity, and one...

  • Page 8
    ... have increased dramatically, and online Frequent Flyer redemption bookings have grown to more than 70 per cent; improved recovery of customer service costs; international fare simplification; process efficiencies in engineering; and ground handling productivity initiatives. "The Qantas Group...

  • Page 9
    Qantas Annual Report 2006 7

  • Page 10
    ...exibility needed for companies, like Qantas, that operate in highly competitive and rapidly changing global markets. We have announced that we will employ staff on Australian Workplace Agreements where that is the right approach. This has already happened in two of our businesses - Jetstar, with its...

  • Page 11
    ..., AO, as a Non-Executive Director of the Board on 1 July 2006. James was Chief Executive Officer and Managing Director of Qantas between 1993 and 2001. In his time as Chief Executive, James led Qantas through its transition from a government-owned company to a fully privatised business. His depth of...

  • Page 12
    10

  • Page 13
    ...nes the value-based market, Qantas is firmly focused on growing premium business and leisure markets." Peter Gregg, Chief Financial Officer and Executive General Manager Strategy International Qantas international services currently account for 31 per cent of all ï¬,ights departing Australia each...

  • Page 14
    ... until June 2006, are now non-stop. Five services a week between Cairns and Singapore, which operated under the Australian Airlines brand, are now Qantas services via Darwin. Product Developments • Installation of the Skybed International Business product was Melbourne and London (via Hong Kong...

  • Page 15
    ... Qantas Group. Air New Zealand: Qantas and Air New Zealand signed a commercial agreement in April 2006 to work together on network, schedule, pricing and marketing initiatives for trans-Tasman operations. The Tasman Networks Agreement, which extends to the airlines' value-based subsidiaries Jetstar...

  • Page 16
    ... extra seats added on a number of routes, including between Perth and Sydney, Brisbane and Melbourne. "Qantas domestic services offer two-class aircraft, inï¬,ight meals and entertainment and a comprehensive range of associated products and services for both business and leisure travellers. These...

  • Page 17
    ... Operations Centre was Product Developments • A substantial investment program is underway to increase opened in Sydney in August 2005, bringing together operational decision makers from across the Qantas Group to monitor and manage ï¬,ight operations, help deliver on-time performance - a key...

  • Page 18
    ...support for regional Australia through the delivery of sustainable air services and the employment of more than 1,000 people, many of whom are based outside capital cities in centres such as Cairns, Mildura, Newcastle and Tamworth." John Borghetti, Executive General Manager Qantas Regional Australia...

  • Page 19
    Two Strong Brands Qantas and Jetstar Qantas Regional Qantas Annual Report 2006 17

  • Page 20
    18

  • Page 21
    ... 550 positions by mid-2007, with the expansion of international operations. Within five years, Jetstar will operate a ï¬,eet of 60 narrow and wide body aircraft across its domestic and international networks." Alan Joyce, Chief Executive Officer Jetstar • • Qantas Annual Report 2006 19

  • Page 22
    ... of Jetstar's low-fare services, more than one million • • passengers have passed through Avalon Airport west of Melbourne, making it Australia's fastest growing domestic airport. The airline currently operates around 130 weekly ï¬,ights from Avalon to Adelaide, Brisbane, Perth and Sydney...

  • Page 23
    ... to earn Frequent Flyer points and Status Credit points on JetFlex and StarClass fares and redeem award points on Jetstar ï¬,ights; and access to Qantas Club lounges for Qantas Club members. Jetstar Asia Qantas is a major shareholder in Orangestar Pte Limited, which owns and operates value-based...

  • Page 24
    ... discipline in Qantas to choose the right aircraft The Qantas Group has a well-earned reputation as an industry leader in ï¬,eet management - from selecting new aircraft to creating the best mix of aircraft types to meet diverse operational and commercial demands. Fleet Strategy The Airbus A380 and...

  • Page 25
    ... Naming The Qantas Group's program of naming aircraft after Australian towns, cities and regions is being extended to Australian aviation pioneers for the new A380 ï¬,eet. The first A380 will be named in honour of 91 year-old aviatrix Nancy Bird Walton, one of Australia's first female commercial...

  • Page 26
    24

  • Page 27
    ...jobs in Australia saw the number of Australian sites for wide body aircraft work reduced from three to two, with the closure of Sydney B747 Heavy Maintenance in May 2006. B747 work was transferred to Qantas' multi-line facility at Avalon in Victoria, giving this operation sufficient scale to achieve...

  • Page 28
    ... Officer and Executive General Manager Strategy Freight The freight division of Qantas and its related joint venture interests are an important contributor to the Group's earnings. Qantas Freight markets and sells the underï¬,oor belly space on scheduled international services and operates scheduled...

  • Page 29
    ... of the Perth Freight Terminal was completed Joint Ventures Qantas and Australia Post work closely on two jointly controlled entities: • in November 2005. • Qantas Freight was appointed as the General Sales Agent and Australian air Express sells the belly space on Qantas domestic services and...

  • Page 30
    ... operations - Qantas Flight Catering Limited (QFCL) and Caterair Airport Services Pty Limited (Caterair) - which are leaders in the large-scale ï¬,ight catering industry. QFCL has centres in Adelaide, Brisbane, Melbourne, Perth and Sydney and Caterair operates centres in Cairns and Sydney. Qantas...

  • Page 31
    Qantas Annual Report 2006 29

  • Page 32
    ... of Qantas Club lounge facilities in Sydney and Melbourne, as well as the key A380 ports of Los Angeles and London. • New airport operations were established in Beijing, San Francisco Haycomp, has developed the Eagle Lifter, a device that assists with the transfer of customers between an airline...

  • Page 33
    ...a market leader in special holiday packages further enhanced in December 2005, when the service was expanded to allow customers to book Australian and New Zealand hotel accommodation more than 14 days in advance. ReadyRooms is unique in that it is the only site offering Qantas Frequent Flyer points...

  • Page 34
    32

  • Page 35
    ... Qantas looks at opportunities to support the arts, sport, community events and charity - a commitment that goes back decades. Sharing the Spirit Qantas marked the second anniversary of its community program, Sharing the Spirit, in February 2006. Qantas' five key charities - CanTeen, CARE Australia...

  • Page 36
    ..., the Art Gallery of New South Wales, the Queensland Performing Arts Centre and the Sydney Theatre Company. Qantas also supports many community organisations such as Clean Up Australia, Landcare, National Australia Day Council, National Breast Cancer Foundation of Australia and the Prime Minister...

  • Page 37
    ... ï¬,ight planning processes to ensure the correct amount of fuel is carried, identifies more efficient Air Traffic Control procedures and reduces use of auxiliary power units by using airport ground power. • The Green Team, formed in February 2006, is a group of Qantas Environment Environmental...

  • Page 38
    ... development, revenue management, ï¬,eet planning, cabin crew, customer service, product development and airline alliances. Before joining Qantas, Mr Dixon was Director of Marketing and Industry Sales at Ansett Australia and General Manager of Marketing and Corporate Affairs at Australian Airlines...

  • Page 39
    ... Investor Relations, Strategy, Economics, IT Services, Shared Services and Strategic Procurement. Previously Mr Gregg was Deputy Chief Financial Officer and Group Treasurer at Qantas. He was also Treasurer of Australian Airlines and has worked for the Queensland Government in various risk management...

  • Page 40
    ... of Business (Accounting). Patricia Cross Independent Non-Executive Director Patricia Cross was appointed to the Board in January 2004. She is a Member of the Qantas Audit Committee and Qantas Remuneration Committee. Mrs Cross is a Director of Wesfarmers Limited, National Australia Bank Limited and...

  • Page 41
    ... Executive General Manager Associated Businesses Group General Manager Strategy and Fleet Chief Executive Officer Jetstar Chief Risk Officer Deputy Chief Financial Officer John Borghetti Kevin Brown David Cox Grant Fenn Simon Hickey Alan Joyce Rob Kella Colin Storrie Qantas Annual Report 2006...

  • Page 42
    40

  • Page 43
    ... and corporate policies (including the Qantas Code of Conduct & Ethics); • setting and reviewing strategic direction and approving the annual operating budget; • overseeing the Qantas Group, including its control and accountability systems; • monitoring the operating and financial performance...

  • Page 44
    ...; • unauthorised public statements; • conflict of interest; • use of inside information; and • Qantas Employee Share Trading Policy (Insider Trading). A copy of the Qantas Code of Conduct & Ethics is available on the Corporate Governance section of the Qantas website (http://www.qantas. com...

  • Page 45
    ... been reported to the Board to ensure complete transparency in relation to the services provided; and the declaration required by section 307C of the Corporations Act confirming independence has been received from KPMG." THE BOARD RECOGNISES AND MANAGES RISK The businesses operated by Qantas are...

  • Page 46
    .../about/corporateGovernance). Qantas also has formal policies relating to its legal and other obligations to all legitimate stakeholders. These include areas such as safety, service standards, occupational health and safety, employment practices, staff and contractor training, fair trading, consumer...

  • Page 47
    ... 2006 $M Sales and other income Net passenger revenue Net freight revenue Tours and travel revenue Contract work revenue Other Sales and other income Expenditure Manpower and staff related Selling and marketing Aircraft operating - variable Fuel Property Computer and communication Tours and travel...

  • Page 48
    ...2006 34,075 90,899 118,070 77.0 11.05 34,832 216 3.5 7.9 Passengers carried Revenue passenger kilometres (RPKs) Available seat kilometres (ASKs) Revenue seat factor Passenger yield (passenger revenue per RPK) Average full-time equivalent employees Aircraft in service at balance date Return on total...

  • Page 49
    ... Gearing is the ratio of the book value of the Qantas Group's net debt (short and long-term plus non-cancellable operating leases less the fair value of hedges relating to debt and cash and cash equivalents) to the book value of total equity. DISCUSSION AND ANALYSIS OF THE CASH FLOW STATEMENT For...

  • Page 50
    ... Dividends Segment Information Earnings per Share Events Subsequent to Balance Date Notes to the Cash Flow Statements Non-Director Related Parties Impact of Adopting A-IFRS Change in Accounting Policy Directors' Declaration Independent Audit Report Shareholder Information Qantas Group Five-Year...

  • Page 51
    ... Qantas Group during the course of the year were the operation of international and domestic air transportation services, the provision of time definite freight services, the sale of international and domestic holiday tours and associated support activities including information technology, catering...

  • Page 52
    ... BY THE MEMBERS OF THE BOARD - 1 JULY 2003 TO 30 JUNE 2006 Margaret Jackson Qantas Airways Limited Australia and New Zealand Banking Group Limited Billabong International Limited John Fairfax Holdings Limited Southcorp Limited (formerly Southcorp Holdings Limited) Geoff Dixon Qantas Airways Limited...

  • Page 53
    ... Accountants in Australia in 1997. Janine Rolfe resigned as Assistant Company Secretary on 3 March 2006. DIRECTORS' INTERESTS AND BENEFITS Particulars of Directors' interests in the issued capital of Qantas at the date of this Report are as follow: Shares Director Margaret Jackson Geoff Dixon...

  • Page 54
    ...' Report for the year ended 30 June 2006 DIRECTORS' INTERESTS AND BENEFITS CONTINUED Peter Gregg Deferred Shares held in trust under: - 2002 Executive Director Long-Term Incentive Plan - 2004/05 Executive Director Performance Share & Performance Rights Plan - 2005/06 Executive Director Performance...

  • Page 55
    ...August 2006. An additional 345,000 Rights were approved for allocation to Executive General Managers. On 22 August 2006, a grant of Rights to the Chief Executive Officer and Chief Financial Officer was recommended to be put to shareholders for approval at the 2006 AGM. Qantas Annual Report 2006 53

  • Page 56
    ... Group and reference to where they have been incorporated into the Qantas Annual Report is set out below: Requirement Corporations Act - Remuneration Policy - elements of remuneration for each required individual Australian Accounting Standards Board (AASB) 2 Share-based Payment and AASB 124 Related...

  • Page 57
    ...in key roles or other participants who have been identified as high potential Executives. Rights granted under this Plan are subject to a performance hurdle, being Total Shareholder Return (TSR) in comparison to a basket of listed global airlines and the largest Australian listed public companies as...

  • Page 58
    ... direct family members or parties are entitled to a number of free trips for personal purposes. The present value of these entitlements is accrued over the expected service of the individual. Eligibility for new participants is generally restricted to members of the Qantas Executive Team. The...

  • Page 59
    ... (Sen Mgr LTI) Qantas Long-Term Executive Incentive Plan (QLTEIP) Post employment End of service payments Travel entitlements Description SHORT-TERM EMPLOYEE BENEFITS Non-Executive Directors Executive Directors Executives Rationale Fixed Annual Remuneration Cash FAR is the...

  • Page 60
    ...' Report for the year ended 30 June 2006 DIRECTOR AND EXECUTIVE REMUNERATION DISCLOSURES (AUDITED) CONTINUED Description SHORT-TERM EMPLOYEE BENEFITS CONTINUED Rationale Travel Entitlements KMP and their eligible beneficiaries are entitled to receive a number of international and domestic trips...

  • Page 61
    ...of Qantas in comparison to: • companies with ordinary shares included in the S&P/ASX 100 Index excluding Qantas in relation to one-half of the Rights; and • a basket of global listed airlines comprising Air France-KLM, Air New Zealand, AMR Corporation (American Airlines), British Airways, Cathay...

  • Page 62
    ... acceleration of the transformation program over the coming plan period. Senior Manager Long-Term Incentive Plan1 Certain Executives were awarded a number of deferred shares subject to a four-year holding lock provided the Executive remains employed by the Qantas Group. These shares will be held on...

  • Page 63
    ...,395) for Mr Codd and $69,555 (2005: $55,666) for Mrs Cross. 2 Includes payments for services rendered as a Director of Qantas Superannuation Limited from 14 November 2005 to 30 June 2006. 3 Mr Dixon's FAR for the year was $2,160,000 from 1 July 2005 to 31 December 2005 and $2,310,000 from 1 January...

  • Page 64
    ...any performance related remuneration. REMUNERATION OF KEY MANAGEMENT EXECUTIVES FOR THE YEAR ENDED 30 JUNE 2006 Short-Term Employee Benefits Key Management and Highest Remunerated Executives Post Employment Benefits Other LongTerm Benefits ShareBased Payment4 Termination Benefits3 Total Cash...

  • Page 65
    ... of performance related remuneration. To understand the target annual reward mixes of each of the Executives, refer to the unaudited Executive Remuneration Philosophy and Objectives on page 54. In accordance with the Corporations Regulations 2M.3.03 and Schedule 5B the following information is...

  • Page 66
    .... The PSP outcomes are driven by performance against the achievement of a Balanced Scorecard relating to Customer, Operational, People and Financial performance (medium-term incentive plan). TSR (including dividends, changes in the Qantas share price and return of capital if applicable) is used for...

  • Page 67
    ...the entitlement relates. Post employment, the Chairman is entitled to two international trips and six domestic trips per year of service and all other Non-Executive Directors are entitled to one international trip and three domestic trips per year of service. Executive Directors The key contract and...

  • Page 68
    ...end of service payment for Mr Borghetti is six months FAR that is subject to him remaining in employment with Qantas until 31 December 2007. Travel entitlements Key Management Executives and eligible beneficiaries are entitled to between two and four international and six and 12 domestic trips per...

  • Page 69
    ... Financial Report and Directors' Report have been rounded to the nearest one hundred thousand dollars unless otherwise indicated. Signed pursuant to a Resolution of the Directors: Margaret Jackson Chairman Sydney, 28 August 2006 Geoff Dixon Chief Executive Officer Qantas Annual Report 2006 67

  • Page 70
    ... 1,066.5 Net passenger revenue Net freight revenue Tours and travel revenue Contract work revenue Other Sales and other income EXPENDITURE 9,571.6 759.9 707.8 484.9 1,039.7 12,563.9 2 13,646.7 Manpower and staff related Selling and marketing Aircraft operating - variable Fuel Property Computer...

  • Page 71
    ... Receivables Other financial assets Net receivables under hedge/swap contracts Inventories Assets classified as held for sale Other Total current assets NON-CURRENT ASSETS 8 9 10 Receivables Other financial assets Net receivables under hedge/swap contracts Investments accounted for using the...

  • Page 72
    70 Issued Capital Treasury Shares Hedge Reserve Fair Value Reserve Retained Earnings Minority Interest Total Equity Employee Compensation Reserve Asset Revaluation Reserve Foreign Currency Translation Reserve QANTAS GROUP Notes $M $M $M $M $M $M $M $M $M $M 5,840.3 (821.9) 5,018.4 689.3 - - - - ...

  • Page 73
    ... Share-Based payments Recognition of effective cash ï¬,ow hedges on capitalised assets Effective portion of changes in fair value of cash ï¬,ow hedges Dividends to members Statements of Changes in Equity for the year ended 30 June 2006 Balance as at 30 June 2006 Qantas Annual Report 2006...

  • Page 74
    ... of non-current assets was $412.2 million (2005: $18.8 million) in relation to 19 (2005: one) aircraft. The rights to these aircraft were sold prior to delivery of the aircraft to a lessor and leased back via operating lease. 3 During the year, 55,333,681 (2005: 52,474,143) shares were issued under...

  • Page 75
    ...ficant Accounting Policies Qantas Airways Limited (Qantas) is a company limited by shares incorporated in Australia whose shares are publicly traded on the ASX and which is subject to the operation of the Qantas Sale Act. The consolidated Financial Report of Qantas for the year ended 30 June 2006...

  • Page 76
    ...in which the Qantas Group has significant influence, but not control, over the financial and operating policies. The consolidated Financial Statements includes the Qantas Group's share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant...

  • Page 77
    ...INSTRUMENTS Current Period Policy Qantas is subject to foreign currency, interest rate, fuel price and credit risks. Derivative financial instruments are used to hedge these risks. It is Qantas policy not to enter into, issue or hold derivative financial instruments for speculative trading purposes...

  • Page 78
    ... assets' carrying value) and receipt is virtually certain. Other Revenue Other revenue includes revenue from aircraft charter and leases, property income, Qantas Club membership fees, frequent ï¬,yer revenue relating to other carriers, freight terminal and service fees, commission revenue, age...

  • Page 79
    ...current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. 1 The tax-consolidated group also includes the partnership between Qantas and AAL Aviation Limited and between Qantas Flight Catering Limited and AAL Aviation Limited. Qantas Annual Report...

  • Page 80
    ... respect to goodwill is not reversed. (P) INVESTMENTS Current Accounting Policy The investment in Air New Zealand Limited (Air New Zealand) is classified as being available-for-sale and is stated at fair value, with any resultant gain or loss recognised directly in equity, except for impairment...

  • Page 81
    ... and passengers uplifted. Revenue in relation to points which it is considered will not be redeemed are recognised as net passenger revenue on the sale of the points. Members of the Qantas Frequent Flyer Program also accumulate points by travelling on qualifying Qantas and partner airline services...

  • Page 82
    ... above accounting policy. The calculation estimates the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of any plan assets is deducted. The discount rate is...

  • Page 83
    ... at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in profit or loss, even when there is a revaluation. The same applies to gains and losses on subsequent re-measurement. Qantas Annual Report 2006 81

  • Page 84
    ... (gain)/loss Net gain on disposal of aircraft, engines and spares Net loss on disposal of property, plant and equipment Bad and doubtful debts Restructuring - Redundancy costs - Other Cancellable operating leases Change in accounting estimates - Frequent Flyer deferred revenue - long service leave...

  • Page 85
    ...before related income tax expense Income tax using the domestic corporate tax rate of 30% Add/(less) adjustments for: Non-assessable income - Deferred lease benefits - Tax offset for franked dividends received - Non-taxable dividends - Share of associates' and jointly controlled entities' net profit...

  • Page 86
    ... the year ended 30 June 2006 5. Auditors' Remuneration Qantas Group 2006 $000 Audit services Auditors of Qantas - KPMG Australia Audit and review of Financial Reports Other regulatory audit services 2,585 80 2,665 Other services Auditors of Qantas - KPMG Australia Other assurance services Financial...

  • Page 87
    ... for the year ended 30 June 2006 7. Receivables Qantas Group CURRENT Qantas 2005 $M 2006 $M 1,023.8 3.5 1,020.3 2005 $M 966.6 4.7 961.9 2006 $M 1,056.8 4.8 1,052.0 Trade debtors Less: impairment losses 1,009.2 6.1 1,003.1 Trade debtors Related parties - controlled entities - associates...

  • Page 88
    ... in Thai Air Cargo Company Limited is classified as held for sale as the Qantas Group's investment was transferred to other shareholders at book value in August 2006. 2 Included in this amount are land and buildings which were placed on the market before 30 June 2006 with contracts exchanged in July...

  • Page 89
    ... Statements for the year ended 30 June 2006 12. Property, Plant and Equipment Qantas Group NON-CURRENT Qantas 2005 $M 2006 $M 2005 $M 2006 $M Freehold land - owned At cost 65.6 65.6 Leasehold land At cost Less: accumulated amortisation 1.8 0.2 1.6 Total land at net book value 67.2 0.4 - 0.4 68...

  • Page 90
    ... cost Less: accumulated depreciation 677.9 301.3 376.6 Aircraft spare parts - leased At cost Less: accumulated amortisation 25.6 7.8 17.8 Total aircraft spare parts At cost Less: accumulated depreciation and amortisation Total aircraft spare parts at net book value 703.5 309.1 394.4 717.0 324.2 392...

  • Page 91
    ...year ended 30 June 2006 2006 $M QANTAS GROUP Opening Written Down Value Additions Disposals Transfers Transferred to Assets Classified as Held for Sale Depreciation and Amortisation Other1 Closing Written Down Value Reconciliations Freehold land - owned Leasehold land Total land Buildings...

  • Page 92
    ... Opening Written Down Value Transferred to Assets Classified as Held for Sale Closing Written Down Value 2006 $M QANTAS Additions Disposals Transfers Depreciation and Amortisation Other1 Reconciliations Freehold land - owned Total land Buildings - owned Buildings - leased Total buildings...

  • Page 93
    ... - 2006 $M QANTAS GROUP Opening Written Down Value 111.6 47.3 160.0 318.9 Additions - - 45.3 45.3 Transferred to Assets Classified as Held for Sale - (11.8) - (11.8) Amortisation - - (42.6) (42.6) Other 0.4 - 1.5 1.9 Closing Written Down Value 112.0 35.5 164.2 311.7 Goodwill Airport landing...

  • Page 94
    ... Qantas Flight Catering Group's current market share. Qantas The recoverable amount of Qantas CGU is based on value in use calculations. Those calculations use cash flow projections based on actual operating results and the five-year business outlook approved by management and endorsed by the Board...

  • Page 95
    ... year ended 30 June 2006 14. Deferred Tax Assets and Liabilities Asset QANTAS GROUP Inventories Property, plant and equipment Interest-bearing liabilities Other financial assets/liabilities Provisions Foreign exchange gains and losses Revenue received in advance Other items Tax value of loss carry...

  • Page 96
    ... DURING THE YEAR 2006 $M QANTAS GROUP Inventories Property, plant and equipment Interest-bearing liabilities Other financial assets/liabilities Provisions Foreign exchange gains and losses Revenue received in advance Other items Tax value of loss carry-forwards recognised Opening Balance...

  • Page 97
    Notes to the Financial Statements for the year ended 30 June 2006 15. Payables Qantas Group CURRENT Qantas 2005 $M 2006 $M 2005 $M 2006 $M Trade creditors Related parties - controlled entities - associates and jointly controlled entities Other parties - 18.7 1,687.4 1,706.1 Other creditors and ...

  • Page 98
    ....9 469.0 Dividends Employee benefits - annual leave - long service leave - staff redundancy Frequent Flyer Onerous contracts Insurance and other NON-CURRENT Employee benefits - long service leave - other - superannuation Frequent Flyer Onerous contracts Make good on property leases Insurance and...

  • Page 99
    ... present value of the Qantas Groups' obligation for the related current service cost. Balance at 1 July Provisions made during the year Payments made during the year Balance at 30 June Make good on property leases The Qantas Group has certain property leases that require the property to be returned...

  • Page 100
    ... per share at shareholders' meetings. In the event of winding-up, Qantas ordinary shareholders rank after all creditors and are fully entitled to any residual proceeds on liquidation. 19. Reserves Qantas Group 2006 $M Employee compensation reserve Hedge reserve Fair value reserve Asset revaluation...

  • Page 101
    ...leases aircraft, buildings and plant and equipment under finance leases with expiry dates between one and 18 years. Most finance leases contain purchase options exercisable at the end of the lease term. The Qantas Group has the right to negotiate extensions on most leases. Qantas Annual Report 2006...

  • Page 102
    ...under operating leases with expiry dates between one and 36 years. The Qantas Group has the right to negotiate extensions on most leases. 22. Capital Expenditure Commitments $M Capital expenditure commitments contracted but not provided for in the Financial Statements: Aircraft Building works Other...

  • Page 103
    ... alleged price fixing in the air cargo market, particularly relating to fuel and other surcharges, the US Department of Justice (DOJ) has served subpoenas to produce documents on a number of cargo operators. As part of this investigation a subpoena was served on Qantas Freight in the USA in May 2006...

  • Page 104
    ...Opening defined benefit obligation Current service cost Interest cost Actuarial (gains)/losses Exchange differences on foreign plans Benefits paid Closing defined benefit obligation CHANGES IN THE FAIR VALUE OF PLAN ASSETS 1,789.0 140.8 96.2 98.5 (17.8) (63.8) 2,042.9 Opening fair value of plan...

  • Page 105
    ... all employees including members of the defined benefit section. The Qantas Group expects to contribute 13.0 per cent to its superannuation plans in the 2007 financial year. The economic assumptions used by the actuary to make the funding recommendations were a long-term investment earning rate of...

  • Page 106
    ... Executive Officer Jetstar James Strong, AO was appointed as a Non-Executive Director effective 1 July 2006. KEY MANAGEMENT PERSONNEL REMUNERATION The aggregate remuneration of the KMP of the Qantas Group and Qantas is set out below: Qantas Group 2006 $ Short-Term Employee Benefits Post-Employment...

  • Page 107
    ... 2006 PERFORMANCE SHARE PLAN (PSP) Details of entitlements over shares in Qantas provided as remuneration during the year to each Executive Director and Key Management Executive are set out below. For more information on the operation of the PSP, see page 58. KEY MANAGEMENT PERSONNEL Grant Date...

  • Page 108
    ... year ended 30 June 2006 25. Key Management Personnel and Executive Equity Benefits continued PERFORMANCE RIGHTS PLAN (PRP) Details of Rights over Qantas shares and vesting criteria for each Executive Director and Key Management Executive are set out below. For more information on the operation...

  • Page 109
    ... number of Qantas Rights provided as remuneration under the Exec Director LTI to each Executive Director is set out below. No Rights were granted under this Plan in the year ended 30 June 2006. For more information on the operation of the Exec Director LTI, see page 60. Number of Performance Rights...

  • Page 110
    ..., related party to Mrs Cross, is a Partner of Allens Arthur Robinson. Mr Meadows performs no work for Qantas. No legal fees were paid to Allens Arthur Robinson Group during the year (2005: $240). All transactions between the Qantas Group and Allens Arthur Robinson are conducted on normal commercial...

  • Page 111
    ...at the date of grant using a Monte-Carlo Valuation Methodology. The weighted average fair value of Rights granted during the year was $2.44 (2005: $2.37). Monte-Carlo Valuation Inputs into the Models Weighted average share value Expected volatility Dividend yield Risk-free interest rate 2006 3.57 16...

  • Page 112
    ...volume weighted average price of Qantas shares as traded on the ASX for the seven calendar days up to and including the date of allocation. Expected dividends are not taken into account when calculating the fair value. For further detail on the operation of the PSP, see page 58. SENIOR MANAGER LONG...

  • Page 113
    ...year ended 30 June 2006 26. Particulars in Relation to Controlled Entities Qantas Group Ownership Interest Ref 738 Leasing 1 Pty Limited 738 Leasing 2 Pty Limited AAL Aviation Limited Star Handling Services Pty Limited Australian Airlines Express Courier Pty Limited ARANS Superannuation Pty Limited...

  • Page 114
    ... Services Pty. Limited Caterair Airport Services (Sydney) Pty Limited Airport Infrastructure Finance Pty. Limited Waruda Holdings Pty Limited Cairns Wholesale Bakery and Patisserie Pty Limited Qantas Information Technology Ltd Qantas Superannuation Limited QF 738 Leasing 5 Pty Limited QF 738 Leasing...

  • Page 115
    ....2 2005 $M 889.4 220.8 668.6 957.5 - (352.9) 1,273.2 Profit before related income tax expense Income tax expense Profit for the year Retained earnings at 1 July Impact of initial adoption of AASB 132 and AASB 139 Dividends to members Retained earnings at 30 June Qantas Annual Report 2006 113

  • Page 116
    ... liabilities Net payables under hedge/swap contracts Provisions Deferred tax liabilities Revenue received in advance Deferred lease benefits/income Total non-current liabilities Total liabilities Net assets Equity Issued capital Treasury shares Reserves Retained earnings Total equity 2,856.5 1,219...

  • Page 117
    ... Name Air Pacific Limited Hallmark Aviation Services LP HT & T Travel Philippines Inc. Holiday Tours and Travel (Thailand) Limited Holiday Tours and Travel Vietnam Joint Venture Company Jupiter Air Oceania Limited TET Limited Thai Air Cargo Company Limited 1 Amount of Investment Qantas Group 2006...

  • Page 118
    ... INVESTMENTS IN ASSOCIATES Carrying amount of investments in associates at 1 July Investments in associates acquired during the year Share of net profit of associates Dividends received from associates Reclassification of Thai Air Cargo Company Limited to assets classified as held for sale Carrying...

  • Page 119
    ...: Qantas Group Ownership Interest Name Australian air Express Pty Limited Harvey Holidays Pty Ltd Jet Turbine Services Pty Limited Star Track Express Holdings Pty Limited Total jointly controlled entities 1 This investment was formerly classified as an associate and was held through the legal entity...

  • Page 120
    ... interest rate, foreign currency, fuel price and credit risks. The Qantas Group manages these risk exposures using various financial instruments, using a set of policies approved by the Board. Qantas Group policy is not to enter, issue or hold derivative financial instruments for speculative trading...

  • Page 121
    ...approved by the Board. For the year ended 30 June 2006, Other financial assets and liabilities includes derivative financial instruments used to hedge foreign currency totalling $51.8 million (net asset). These are recognised at fair value in accordance with AASB 139. Qantas Annual Report 2006 119

  • Page 122
    ...$M Contracts to hedge future foreign currency payments Contracts to hedge future aviation fuel payments Contracts to hedge future interest payments Contracts to hedge future capital expenditure payments Qantas Group Less than 1 Year (62.0) (169.9) (13.6) 5.1 (240.4) Related deferred tax charge Total...

  • Page 123
    ... the prevailing market price of Air New Zealand Limited shares at balance date. The net fair value of forward foreign exchange and fuel contracts is determined as the unrealised gain/loss at balance date by reference to market exchange rates and fuel prices. The net fair value of interest rate swaps...

  • Page 124
    ... reporting system changes to transition Qantas to a segmented model are currently under development. Disclosure of segment information is provided as follows: • Qantas and Jetstar as the Qantas Group's Flying Businesses, which are supported by Qantas Engineering, Airports and Qantas Freight...

  • Page 125
    ... $M 2006 $M 2005 $M 2006 $M 2005 $M 2006 $M 2005 $M 2006 $M Qantas Holidays Qantas Flight Catering Consolidated ANALYSIS BY BUSINESS SEGMENTS 2005 $M Sales and other income 11,241.1 440.2 707.8 174.8 - (941.1) (941.1) - - - - 24.4 - - - 377.3 552.1 - 24.3 (0.1) 1 External segment revenue 287...

  • Page 126
    ...the Financial Statements for the year ended 30 June 2006 31. Segment Information continued Passenger, freight and other services revenue from domestic services within Australia is attributed to the Australian geographic region. Passenger, freight and other services revenue from inbound and outbound...

  • Page 127
    ... domestic air freight business, Express Freighters Australian Pty Limited, to commence operations from October 2006. This business will wet lease B737-300 aircraft to Australian air Express, a jointly controlled entity under a 12 year contract. The Directors declared a fully franked final dividend...

  • Page 128
    ... per cent of Caterair Airport Services (Sydney) Pty Limited on 22 October 2004 for a purchase price of $14.5 million. As a result of this acquisition, additional goodwill on acquisition of $6.8 million was recognised by the Qantas Group. FINANCING FACILITIES The total amount of committed financing...

  • Page 129
    ... Qantas Flight Catering Holdings Limited and controlled entities and Snap Fresh Pty Limited provide airline catering and related services to Qantas, Australian Airlines and QantasLink; • Qantas codeshares on certain Jetstar services for inbound international passengers and Qantas Frequent Flyers...

  • Page 130
    ... Express Group on an investment loan; • Qantas provides treasury services to Australian Air Express, Air Pacific and Orangestar Investment Holdings Pte Limited (Orangestar); • Qantas has sub-leased aircraft from Orangestar; • Qantas has seconded employees and provided various support services...

  • Page 131
    ...1 July 2005 $M (Dr)/Cr Total $M Standard1 (A) AASB 118 Revenue (B) AASB 119 Employee Benefits (C) AASB 117 Leases Comment A-IFRS required the revenue on the sale to third parties of rights to have Qantas award points allocated to members of the Frequent Flyer program, deferred and recognised when...

  • Page 132
    ...1 July 2005 $M (Dr)/Cr Total $M Standard1 (A) AASB 118 Revenue (B) AASB 119 Employee Benefits (C) AASB 117 Leases Comment A-IFRS required the revenue on the sale to third parties of rights to have Qantas award points allocated to members of the Frequent Flyer program, deferred and recognised when...

  • Page 133
    ...4,242.2 CURRENT ASSETS Refs Cash and cash Receivables1 Other financial assets Net receivable under hedge/swap contracts Inventories Other F Total current assets NON-CURRENT ASSETS equivalents1 Receivables Other financial assets Net receivable under hedge/swap contracts Investments accounted for...

  • Page 134
    ...Statements for the year ended 30 June 2006 36. Impact of Adopting A-IFRS continued Qantas Group Previous GAAP ...hedge/swap contracts A,B,F Provisions2,3 E4 Deferred tax liabilities5 Revenue received in advance A Deferred lease benefits/income Total non-current liabilities Total liabilities Net assets...

  • Page 135
    ...EQUITY Refs E,G F F Issued capital Treasury shares Employee compensation reserve Hedge reserve Fair value reserve Asset revaluation reserve Foreign currency translation reserve Retained earnings Equity attributable to members of Qantas Minority interest in controlled entities Total equity EQUITY...

  • Page 136
    ...- (84.9) Net passenger revenue1 Net freight revenue Tours and travel revenue Contract work revenue Other1 Sales and other income EXPENDITURE Manpower and staff related Selling and marketing Aircraft operating - variable Fuel Property Computer and communication Tours and travel Capacity hire Other...

  • Page 137
    ... (94.8) Net passenger revenue1 Net freight revenue Tours and travel revenue Contract work revenue Other1 Sales and other income EXPENDITURE Manpower and staff related Selling and marketing Aircraft operating - variable Fuel Property Computer and communication Tours and travel Capacity hire Other...

  • Page 138
    ... for the year ended 30 June 2006 36. Impact of Adopting A-IFRS continued (A) FREQUENT FLYER ACCOUNTING (C) LEASED ASSETS The Qantas Group receives revenue from the sale to third parties of rights to have Qantas award points allocated to members of the Qantas Frequent Flyer program. Under previous...

  • Page 139
    ...costs for the year ended 30 June 2005 results in a $8.7 million increase in aircraft depreciation and operating costs. Software Development Costs Under A-IFRS, software development costs that meet the criteria to be recognised as internally generated intangible assets are capitalised. At the date of...

  • Page 140
    ...' hedging strategy for foreign exchange revenue, capital expenditure, fuel and interest rate exposures. The changes in fair value of the non-intrinsic component of an option may cause periods of volatility in the Income Statement for Qantas. Aviation Fuel AASB 139 permits hedge accounting for all...

  • Page 141
    ... Other assets Investments accounted for using the equity method Other investments Property, plant and equipment Payables Interest-bearing liabilities Other financial liabilities Net hedge/swap payable Deferred tax liabilities Deferred lease benefits Issued capital Hedge reserve Fair value reserve...

  • Page 142
    ... June 2006 and of their performance as represented by the results of their operations and their cash flows, for the year ended on that date; and (b) the remuneration disclosures that are included on pages 57 to 66 of the Remuneration Report in the Directors' Report comply with Australian Accounting...

  • Page 143
    ... Airways Limited is in accordance with: (a) the Corporations Act 2001, including: i. giving a true and fair view of Qantas' and Qantas Group's financial position as at 30 June 2006 and of their performance for the financial year ended on that date; and ii. complying with Australian Accounting...

  • Page 144
    ...236 141,508 % of Issued Shares 0.91 10.61 4.18 5.84 78.46 100.00 100,001 and Total 1 7,422 shareholders hold less than a marketable parcel of shares in Qantas Airways Limited. ON-MARKET BUY-BACKS There is no current on-market buy-back. TWENTY LARGEST SHAREHOLDERS Ordinary Shares Held 481,968,046...

  • Page 145
    ... high Share price - low Share price - closing Weighted average number of ordinary shares OPERATIONAL STATISTICS Qantas Passengers carried Revenue passenger kilometres (RPKs) Available seat kilometres (ASKs) Revenue seat factor Revenue freight tonne kilometres (RFTKs) Australian Airlines Passengers...

  • Page 146
    ... number of paying passengers carried, multiplied by the number of kilometres flown. Revenue Seat Factor Percentage of total passenger capacity actually utilised by paying passengers. Sustainable Future Program (SFP) Urgent Issues Group (UIG) NOTICE OF MEETING The 2006 AGM of Qantas Airways Limited...

  • Page 147
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