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A New Era
Annual Report 2007

Table of contents

  • Page 1
    A New Era Annual Report 2007

  • Page 2
    ...54 Directors' Report 06 Report from the Chairman 72 Financial Statements and Notes & the Chief Executive Officer 134 Shareholder Information 10 Qantas 18 Jetstar 22 Portfolio Businesses 30 Sustainability 40 Board of Directors 44 2007 Corporate Governance Statement 135 Qantas Group Five Year Summary...

  • Page 3
    ..., fierce competition, aircraft delivery delays and record fuel prices. During this period Qantas continued to uphold its commitment to safety, reliability, technical innovation, professionalism, customer service, the communities it serves and to being Australian. Qantas and its people remain focused...

  • Page 4
    ... diverse needs of our customers. To achieve this, we are investing extensively in the most advanced aircraft, complemented by innovative product and training to enable our people to deliver excellent service. The Qantas Group will take delivery of the world's finest new aircraft, the A380 and B787...

  • Page 5
    ...and assets assets in related in related but but distinct distinct markets markets suchsuch as loyalty, as loyalty, freight freight and and aircraft. aircraft. These These parts parts of our of our business business represent represent substantial substantial growth growth opportunities opportunities...

  • Page 6
    ... Revenue +11.0 per cent to $15.2 billion Profit before tax +53.8 per cent to $1.0 billion Net cash held +15.9 per cent to $3.4 billion Earnings per share +11.5 cents to 36.4 cents Full year dividends per share +8.0 cents to 30.0 cents a share Sales and other income ($M) 07 06 05 04* 03* 15,165...

  • Page 7
    ... Highlights 36.4 million passengers carried The Qantas Group operated 6,335 services per week to 140 destinations in 37 countries 3.3 million+ Frequent Flyer reward seat redemptions Achieved emission savings of 130,000 tonnes Dividends (cents per share) 07 06 05 04 03 30.0 22.0 20.0 17.0 17...

  • Page 8
    Margaret Jackson Chairman Geoff Dixon Chief Executive Officer 6 Qantas | Annual Report 2007

  • Page 9
    ... Qantas remained focused on long-term growth, developing an innovative two brand strategy and investing billions of dollars in fleet, product and customer service, while also working hard to attack inefficiencies, change work practices and lower our cost base. Today, we are in a new global operating...

  • Page 10
    ... recovery of customer service costs, process efficiencies and productivity initiatives. Portfolio Business Opportunities The Qantas Group's related businesses - including freight, catering and holidays - each have leading positions in their own markets. The Group continues to search for new ways to...

  • Page 11
    ... the business travel market and will grow capacity on trunk and regional routes when it starts taking delivery of a new fleet of regional jets. The Singapore-based low cost carrier Tiger Airways has also arrived as a new domestic competitor for both Qantas and Jetstar. On most international routes...

  • Page 12
    ..., provides 2,000 services a week to 49 Australian destinations. Internationally, Qantas operates around 750 flights a week to destinations in Asia Pacific, the Americas, Europe and Africa. New Fleet New Products Qantas New Routes Qantas Highlights International Qantas unveiled new state-of-the...

  • Page 13
    Qantas | Annual Report 2007 11

  • Page 14
    ... air travellers from over 90 countries. Qantas International experienced a strong year, with positive operating conditions expected to continue into 2008. The airline added capacity on growth routes including the United States of America, the United Kingdom, China, Hong Kong and South Africa. Qantas...

  • Page 15
    ...-the-art range of Marc Newson designed aircraft seats, interiors, product enhancements and a new Premium Economy cabin for its fleet of 20 new A380s being delivered from August 2008. First lounge New Marc Newson designed First lounges opened in Sydney and Melbourne. Qantas | Annual Report 2007 13

  • Page 16
    ...regional centres. Australian domestic routes are operated by a mix of Qantas, QantasLink regional and value-based Jetstar services. The service mix is tailored to meet market needs, allowing the Group to best match capacity and demand to each market and providing flexibility to increase capacity and...

  • Page 17
    ... In October 2006, Qantas launched a new online check in service allowing Qantas Domestic and QantasLink passengers to check in for their flight before arriving at the airport. Customers can check in for same day return flights, choose their preferred seat and print their own boarding passes from any...

  • Page 18
    ... fleet to 49 aircraft and allow for greater service frequency and capacity increases on key regional routes in Western Australia, the Northern Territory and north Queensland. It has also created a total of more than 120 jobs in Alice Springs, Cairns, Darwin and Perth. Network Developments New...

  • Page 19
    ... customers in 2006/07. As well as working with Qantas Group airlines, Qantas Holidays markets travel packages for other airlines under the Viva! Holidays brand. Qantas Holidays is in the process of transitioning its business to increase its focus on online services and inbound traffic, in line...

  • Page 20
    ... people to experience air travel. Jetstar carried over 7.6 million passengers in the 2006/07 year and holds over 15 per cent of the Australian domestic market. Jetstar spread its wings in 2007, commencing services to long-haul international destinations. Low cost domestic flights Jetstar Low cost...

  • Page 21
    ... Low Cost Airline and Best Cabin Staff Australia/New Zealand in 2007. International expansion Successfully launched international low cost operations, with eight destinations by September 2007. Allocated seating and low fare commitment Introduction of allocated seating on all domestic services and...

  • Page 22
    ... international operations, future expansion opportunities include two stage B787 flying from Australia to Europe via Asia. Domestic Jetstar now operates around 1,050 short-haul services each week to 20 Australian destinations. Since June 2006, Jetstar has operated an all-A320 fleet of 24 aircraft...

  • Page 23
    Jetstar Product • Jetstar became the first Australian airline to allow customers to pre-select their seat at the time of fare purchase for all domestic and international flights. • Jetstar commenced allocated seating on domestic services from October 2006. • Jetstar introduced StarClass on its...

  • Page 24
    ...of essential services to Qantas, QantasLink and Jetstar, these portfolio businesses are all important parts of Qantas' operations in their own right and are essential components of the Qantas Group's growth strategy. Catering Flight Training Airports Qantas Engineering Qantas Freight Enterprises...

  • Page 25
    Portfolio Businesses Highlights Freight Qantas Freight Enterprises continues to grow its international air cargo business particularly in the Asia Pacific region. Engineering Qantas Engineering is one of the largest industrial organisations in Australia, with around 6,000 people employed at its ...

  • Page 26
    ... operations and over 50 per cent from Asian points of sale. Qantas Freight Enterprises continues to invest in its Australian International Air Cargo Terminal businesses to deliver improved services to its customers. • In late 2006, the Sydney Freight Terminal underwent a multi-million dollar...

  • Page 27
    ...Hong Kong Honolulu Chicago Toledo New York Los Angeles Bangkok Sao Paolo Melbourne Sydney Auckland Christchurch Partnerships Three more dedicated freighters joined the Australian air Express fleet, providing domestic freight and mail services. Freighters Dedicated freighter aircraft operations...

  • Page 28
    ..., Brisbane, Melbourne and Sydney operating to world best practice standards. Approximately 90 per cent of Qantas' aircraft heavy maintenance continues to be carried out in Australia. The remainder, which is generally overflow work or work on aircraft types where the volume is low, including new...

  • Page 29
    ... now operate from Qantas terminals in Brisbane, Gold Coast, Melbourne, Perth and Sydney, in addition to valet, car hire and traveller services. • Qantas relocated its Bangkok operations to the city's new Suvarnabhumi International Airport when it officially opened in September 2006. • Work is...

  • Page 30
    ... are leaders in flight catering. QFCL has centres in Adelaide, Brisbane, Melbourne, Perth and Sydney and Caterair operates centres in Cairns and Sydney. Qantas' frozen meal facility, Snap Fresh Pty Limited, operates in Brisbane. Together these facilities employ around 3,800 people. In 2006/07, the...

  • Page 31
    ...value, which is reflected in Qantas' yield premium and market share. More than three million Frequent Flyer seats were redeemed in 2006/07. During the year, Qantas announced the establishment of a separate Group Loyalty segment to manage the Qantas Frequent Flyer Program. A dedicated management team...

  • Page 32
    ... society is long standing. We aim to maximise the positives and minimise negatives. To provide visibility over our progress, this year Qantas introduces sustainability information which has been independently reviewed. This can be found on page 136. Community Security Fleet Safety Environment 30...

  • Page 33
    ... operational fuel efficiency. Safety certification In 2006/07, Qantas achieved the internationally recognised IATA Operational Safety Audit Certification. $100 million on security Qantas spent more than $100 million on equipment and infrastructure for domestic checked baggage screening, closed...

  • Page 34
    ... 2006, the Qantas Group introduced a Workplace Giving program as a simple and tax-effective way for Qantas employees to make regular donations to any of 47 nominated groups or to their own preferred charity. Groups supported by this initiative include Amnesty International, Australian Red Cross...

  • Page 35
    ... supported A Helping Hand, a special assistance program that provided 100 return flights for drought-stricken Australian farming families to holiday in New Zealand. The airline was the inaugural major sponsor of the new National Rugby League team, the Jetstar Gold Coast Titans and is also community...

  • Page 36
    ... fuel efficient flight path may decrease carbon dioxide emissions but may increase the number of people exposed to aircraft noise. Qantas applies a co-ordinated sustainable development approach as a key element of risk management. Qantas is committed to actively manage its operations and growth in...

  • Page 37
    .... Qantas and Jetstar will also use the program to offset the emissions generated by staff work travel and ground transport operations. To launch the program, the Group will fund a Fly Carbon Neutral Day and offset the emissions from all of its international and domestic flights over a 24 hour period...

  • Page 38
    ... helped airlines like Qantas deliver world class products. Fleet Strategy Qantas has always selected its aircraft from the most technologically advanced models available, taking into consideration key factors such as safety, passenger comfort, cost, and fuel consumption and matching them to customer...

  • Page 39
    ...-9s will cater for international capacity growth, new routes and replacement over time of the Group's existing B767-300 fleet. The first 15 B787-8s will be operated by Jetstar on international routes from the second half of 2008, with Qantas scheduled to begin operating the aircraft in March 2011...

  • Page 40
    ...facilities and equipment and extends to contractors and other suppliers. The program has prevented thousands of injuries and related suffering as well as contributed to increased productivity and a reduction in operating costs. Flight safety monitoring Qantas aircraft are fitted with recorders that...

  • Page 41
    ... at any time' is the Lost Time Injury Frequency Rate (LTIFR). The Qantas Group has reduced this rate by 80 per cent over the last five years through: • management leadership; • implementation of strategic and operational OHS business plans through a hierarchy of safety committees; • regular...

  • Page 42
    ... management, fleet 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. He has also worked...

  • Page 43
    ... Group in Australia and overseas. Mr Clifford was formerly a Member of the Coal Industry Advisory Board of the International Energy Agency for a number of years and its Chairman from 1998 to 2000. He was previously a Director of New Orleans-based Freeport-McMoRan Copper & Gold Inc. Mr Clifford holds...

  • Page 44
    ... Accountants in Australia, a Certified Practicing Accountant and a Fellow of the Australian Institute of Company Directors. Mr Hounsell is a former Senior Partner of Ernst & Young and Chief Executive Officer and Country Managing Partner of Arthur Andersen. He holds a Bachelor of Business (Accounting...

  • Page 45
    ... In 2006 Mr Strong was made an Officer of the Order of Australia. Age: 63 Executive Team Geoff Dixon Chief Executive Officer Peter Gregg Chief Financial Officer and Executive General Manager Strategy John Borghetti Executive General Manager Qantas Kevin Brown Executive General Manager People David...

  • Page 46
    ... Directors, have extensive commercial experience and bring independence, accountability and judgment to the Board's deliberations to ensure maximum benefit to stakeholders including shareholders, customers, suppliers, employees, government regulators and members of communities where Qantas operates...

  • Page 47
    ... of customers - where goods or services supplied by the Qantas Group exceed $100 million per annum. Qantas, as the principal Australian airline, has commercial relationships with most, if not all, major entities in Australia. As such, in determining whether a Non-Executive Director is independent...

  • Page 48
    ... unauthorised public statements; • conï¬,ict of interest; • use of inside information; and • Qantas Employee Share Trading Policy (Insider Trading). A copy of the Qantas Code of Conduct and Ethics is available on the Corporate Governance section of the Qantas website: (http://www.qantas.com.au...

  • Page 49
    ... the conduct of the audit. The Board Recognises and Manages Risk The businesses operated by Qantas are complex and involve a range of strategic, operational, financial and legal risks. Recognising this, the Board has established a sound system of risk oversight and management and internal control...

  • Page 50
    ... Manager Internal Audit has access to the Audit Committee and Board as required. Qantas Recognises the Legitimate Interests of Stakeholders The Board has a formal code of conduct and ethics which is available on the Corporate Governance section of the Qantas website: (http://www.qantas.com.au...

  • Page 51
    ... Increase/ (Decrease) 2006 $M % Qantas Group Income Statement 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 Aircraft operating variable Fuel Selling and marketing...

  • Page 52
    ... foreign exchange rate movements) and a 3.4 point increase in seat factor to 80.6 per cent. Capacity decreased by 1.4 per cent reï¬,ecting the transfer of some trans-Tasman and domestic ï¬,ying to Jetstar, offset by the new Q400 turboprop aircraft within QantasLink. • Jetstar recorded a PBT...

  • Page 53
    ...nancing of non-current assets in the prior year of $627.8 million relates to the sale and operating leaseback of nine B737-800 aircraft and seven Jetstar A320 aircraft. • Net payments for investments of $32.1 million reï¬,ected investments in DPEX Transport Group, Kilda Express and the remaining...

  • Page 54
    Financial Report

  • Page 55
    ... Audit Report Shareholder Information Qantas Group Five Year Summary Sustainability Information (including Independent Review Report) Financial Calendar Glossary Notice of Meeting Registered Office 10. Other Investments 11. Property, Plant and Equipment 12. Intangible Assets 13. Deferred Tax Assets...

  • Page 56
    ...Activities The principal activities of the 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...

  • Page 57
    Directors' Report for the year ended 30 June 2007 Directorships of Listed Companies Held by the Members of the Board - 1 July 2004 to 30 June 2007 Margaret Jackson Qantas Airways Limited Australia and New Zealand Banking Group Limited Billabong International Limited Flexigroup Limited John Fairfax ...

  • Page 58
    ... Plan (15 August 2007) Entitlements awarded under the Qantas Long-Term Executive Incentive Plan3 1 Includes pre-tax sacrifice of cash incentive in respect of the 2005/06 year into 307,000 deferred shares. 2 While these Rights vest on the tenth anniversary of the date of award, Mr Dixon may call...

  • Page 59
    Directors' Report for the year ended 30 June 2007 Directors' Interests and Benefits continued Peter Gregg Deferred Shares held in trust under: - 2004 Executive Director Performance Share & Performance Rights Plan - 2005 Executive Director Performance Share & Performance Rights Plan - 2006 Executive...

  • Page 60
    ...the year ended 30 June 2007 Rights Performance Rights Plan 2007 Number 2006 Number Rights outstanding as at 1 July Rights granted Rights lapsed Rights vested Rights outstanding as at 30 June The following Rights were outstanding at 30 June 2007: Number of Rights1 Testing Period Grant Date Value at...

  • Page 61
    ... Short-term Medium-term Customer Long-term Operational People Financial Set with reference to role, market and experience Group Financial Target Balanced Scorecard Target Total Shareholder Return Targeted incentives and retention arrangements for a small number of key Executives, based on the Board...

  • Page 62
    ... profit before related income tax expense (PBT) adjusted for approved restructuring costs, changes in accounting policy and the profit impact of A-IFRS ineffective derivatives. The selection of PBT reï¬,ects the use of this measure as a key budget and financial measure both at Group and segment...

  • Page 63
    ... health and safety using Australian standards for calculating Lost Time Injury Frequency Rate (LTIFR). Financial performance uses an internal unit cost measure. The Balanced Scorecard performance criteria aims to align Executive remuneration with the key value drivers for the Qantas Group...

  • Page 64
    ... if the Executive is guilty of gross misconduct. The grant dates and number of Rights awarded to Key Management Personnel is outlined on page 109. Employee Share Ownership Plan To encourage greater share ownership, an Employee Share Ownership Plan was approved by the Board at its July 2006 Meeting...

  • Page 65
    ... for new participants is generally restricted to members of the Qantas Executive Team. Legacy Plans 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 remained employed by the Qantas Group...

  • Page 66
    ... Performance Cash Plan Performance Share Plan Performance Rights Plan Retention Plan 2002 Executive Director Long-Term Incentive Plan/ Senior Manager Long-Term Incentive Plan Qantas Long-Term Executive Incentive Plan End of service payments (discontinued) Travel entitlements Short-term...

  • Page 67
    ... for the KMP during the year ended 30 June 2007: Remuneration of Directors for the Year Ended 30 June 2007 Short-Term Employee Benefits Cash FAR $ Cash Incentives $ Non-Cash Benefits $ Total $ End of Service $ Post Employment Benefits Superannuation $ Travel $ Total $ Other Long-Term Benefits...

  • Page 68
    ...-Term Employee Benefits Key Management and Highest Remunerated Executives Cash FAR $ Cash Incentives $ Non-Cash Benefits $ Post Employment Benefits End of SuperService annuation $ $ Total Year Total $ Travel $ Total $ $ $ $ $ John Borghetti, EGM Qantas 2007 1,119,474 1,380,000 2006...

  • Page 69
    ... in any year and any leave not taken at termination will be reï¬,ected in their termination benefit. Performance Related Remuneration Cash-Based PSP, RP & Sen Mgr LTI2 Equity-Based FAR & Other1 Total Remuneration Components as a Proportion of Total Remuneration PCP PRP Total Geoff Dixon Peter...

  • Page 70
    ...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 the PRP (long-term incentive plan). Relationship Between Cash Incentives and Qantas...

  • Page 71
    ... 12 months by Qantas. As disclosed in the 2006 Remuneration Report, end of service payments under Mr Gregg's previous employment contract were cancelled and the entitlements of 36 months FAR plus $395,000 under that contract were not paid. As announced at the time, on signing his current contract of...

  • Page 72
    ... year, the Board has approved an increase to target cash incentive for Mr Borghetti from 50 per cent to 65 per cent of FAR and for other executives in the Key Management Personnel group from 40 per cent to 55 per cent of FAR. Environmental Obligations (Unaudited) The Qantas Group's operations...

  • Page 73
    ... code of professional conduct in relation to the audit. KPMG Martin Sheppard Partner Sydney, 27 August 2007 Rounding Qantas is a company of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in this Financial Report and Directors...

  • Page 74
    Income Statements for the year ended 30 June 2007 Qantas Group Qantas 2006 $M 2007 $M 2006 $M Sales and Other Income Net passenger revenue Net freight revenue Tours and travel revenue Contract work revenue Other Sales and other income Notes 2007 $M 11,911.9 902.5 767.5 434.3 1,149.5 2, 30 15,165...

  • Page 75
    ....1 1,194.2 473.5 297.3 14.7 69.1 5,027.9 Non-current Assets Receivables Other financial assets Investments accounted for using the equity method Other investments Property, plant and equipment Intangible assets Deferred tax assets Other Total non-current assets Total assets 30 7 27 10 11 12 13 372...

  • Page 76
    ... M $ Qantas Group Balance as at 1 July 2005 Profit for the year Own shares acquired Shares vested to employees Share-based payments Transfer of hedge reserve to the Income Statement Recognition of effective cash ï¬,ow hedges on capitalised assets Effective portion of changes in fair value of cash...

  • Page 77
    ... M $ Qantas Balance as at 1 July 2005 Profit for the year Own shares acquired Shares vested to employees Share-based payments Transfer of hedge reserve to the Income Statement Recognition of effective cash ï¬,ow hedges on capitalised assets Effective portion of changes in fair value of cash ï¬,ow...

  • Page 78
    Cash Flow Statements for the year ended 30 June 2007 Qantas Group Qantas 2006 $M 2007 $M 2006 $M Cash Flows from Operating Activities Cash receipts in the course of operations Cash payments in the course of operations Interest received Interest paid Dividends received Income taxes paid Net cash ...

  • Page 79
    ... 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 as described in the Corporate Governance Statement. The consolidated Financial Report of Qantas for the year ended...

  • Page 80
    ... Australian dollars at foreign exchange rates prevailing at the dates the fair value was determined. Translation of Foreign Operations Assets and liabilities of foreign operations are translated at the rates of exchange prevailing at balance date. The Income Statements of foreign controlled entities...

  • Page 81
    ... entities are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment. This policy was adopted for the first time this year following changes to AASB 139 Financial Instruments: Recognition and Measurement. The new policy...

  • Page 82
    ...classified as operating cash ï¬,ows. (K) Tax Consolidation Qantas is the head entity in the tax consolidated group comprising Qantas and all of its Australian wholly-owned entities and partnerships.1 The implementation date of the tax consolidations system for the tax consolidated group was 1 July...

  • Page 83
    ..., the tax sharing agreement limits, subject to any ASIC Class Order, the joint and several income tax related liability of the wholly-owned entities of the tax consolidated group in the case of default by Qantas. An appropriate impairment charge is made if the carrying amount of a non-current asset...

  • Page 84
    ...amortisation rates and residual values are reviewed annually and reassessed having regard to commercial and technological developments and the estimated useful life of assets to the Qantas Group and the long-term ï¬,eet plan. Leased and Hire Purchase Assets Leased assets under which the Qantas Group...

  • Page 85
    ... of this liability is based on remuneration wage and salary rates that the Qantas Group expects to pay as at balance date including related on-costs, such as workers' compensation insurance, superannuation and payroll tax. Employee Share Plans The fair value of equity-based entitlements granted to...

  • Page 86
    ... Qantas (as the trust acts as Qantas' agent). Accordingly, repurchased shares held by the trust are recognised as treasury shares and deducted from equity. (X) Cash and Cash Equivalents Cash and cash equivalents includes cash at bank and on hand, cash at call and short-term money market securities...

  • Page 87
    Notes to the Financial Statements for the year ended 30 June 2007 2. Income Qantas Group Qantas 2006 $M 2007 $M 2006 $M 2007 $M Sales and Other Income Dividend revenue - associates and jointly controlled entities - other parties Liquidated damages Net gain on disposal of investment Net gain on ...

  • Page 88
    ... and reversal of temporary differences Entities acquired Adjustments for prior years Benefit of tax losses recognised 65.3 1.8 (75.1) 3.4 (4.6) Total income tax expense in the Income Statement Comprising: Australian income tax expense Overseas income tax expense 312.5 310.4 2.1 312.5 189...

  • Page 89
    ... to the Financial Statements for the year ended 30 June 2007 5. Auditors' Remuneration Qantas Group 2007 $000 2006 $000 Qantas 2007 $000 2006 $000 Audit services Auditors of Qantas - KPMG Australia audit and review of Financial Reports other regulatory audit services Overseas KPMG firms audit...

  • Page 90
    ...'s investment in Air New Zealand. The cash was received on 2 July 2007. Non-current sundry debtors of the Qantas Group also includes the present value of liquidated damages recognised as income during the year of $97.7 million (2006: $104.4 million) resulting from the delay in delivery of aircraft...

  • Page 91
    ... 11.8 14.7 1 The investment in Thai Air Cargo Company Limited was transferred to other shareholders at book value in August 2006. 2 Included in this amount were land and buildings which were placed on the market before 30 June 2006 with contracts exchanged in July 2006 on a delayed settlement basis...

  • Page 92
    ...Property, Plant and Equipment Qantas Group 2007 $M 2006 $M Qantas 2007 $M 2006 $M Freehold land - owned At cost 71.9 71.9 65.6 65.6 47.1 47.1 47.1 47.1 Leasehold land At cost Less: accumulated amortisation - - - 1.8 0.2 1.6 67.2 - - - 47.1 - - - 47.1 Total land at net book value Buildings...

  • Page 93
    ... amortisation Total property, plant and equipment at net book value 20,823.8 8,515.5 12,308.3 19,766.2 7,391.2 12,375.0 18,594.0 7,623.9 10,970.1 17,650.2 6,562.7 11,087.5 1 Qantas leases out freighter aircraft under long-term operating leases as disclosed in Note 20. The value of leased assets...

  • Page 94
    ... the year ended 30 June 2007 11. Property, Plant and Equipment continued 2007 $M Opening Written Down Value Transferred from/(to) Assets Classified as Held for Sale Closing Written Down Value Qantas Group Reconciliations Freehold land - owned Leasehold land Total land Buildings - owned Buildings...

  • Page 95
    ... year ended 30 June 2007 11. Property, Plant and Equipment continued 2007 $M Opening Written Down Value Transferred from/(to) Assets Classified as Held for Sale Closing Written Down Value Qantas Reconciliations Freehold land - owned Total land Buildings - owned Buildings - leased Total buildings...

  • Page 96
    ....2 197.6 Total intangible assets 365.9 Transferred to Assets Classified as Held for Sale Qantas Group 2007 $M Opening Written Down Value Additions Entities Acquired Amortisation Other Closing Written Down Value Goodwill Airport landing slots Software Total intangible assets 2006 $M 112...

  • Page 97
    ... business plan approved by management and endorsed by the Board. Cash ï¬,ows for a further six years have been extrapolated using a 2.5 per cent per annum growth rate out to 2016. This growth rate reï¬,ects the mature nature of the airline catering industry and Qantas Flight Catering Group's current...

  • Page 98
    ... amounts be remitted. Unrecognised deferred tax assets Deferred tax assets have not been recognised with respect to the following items: Qantas Group 2007 $M 2006 $M Qantas 2007 $M 2006 $M Tax losses - New Zealand operations 16.3 13.7 8.4 11.6 Deferred tax assets have not been recognised with...

  • Page 99
    ... Statements for the year ended 30 June 2007 13. Deferred Tax Assets and Liabilities continued Movement in temporary differences during the year Qantas Group 2007 $M Opening Balance Recognised in Income Recognised in Equity Entities Acquired Closing Balance Inventories Property, plant and equipment...

  • Page 100
    Notes to the Financial Statements for the year ended 30 June 2007 14. Payables Qantas Group Qantas 2006 $M 2007 $M 2006 $M Current Trade creditors Associates and jointly controlled entities Other parties 2007 $M 1.8 672.8 674.6 18.7 578.0 596.7 - 1,388.6 1,985.3 1.4 521.3 522.7 308.3 1,107.3 ...

  • Page 101
    Notes to the Financial Statements for the year ended 30 June 2007 16. Provisions Qantas Group Qantas 2006 $M 2007 $M 2006 $M Current Dividends Employee benefits - annual leave - long service leave - staff redundancy Frequent Flyer Onerous contracts Insurance, legal and other 2007 $M 2.2 322.9 ...

  • Page 102
    ... plan to some employees. This provision represents the present value of the Qantas Group's obligation for the related current service cost. Balance as at 1 July Payments made Balance as at 30 June Make good on leased assets The Qantas Group has leases that require the asset to be returned...

  • Page 103
    ... Executives in relation to equity compensation plans. At 30 June 2007, 9,335,407 (2006: 6,628,357) shares were held in trust and classified as treasury shares. 18. Reserves Qantas Group 2007 $M 2006 $M Qantas 2007 $M 2006 $M Employee compensation reserve Hedge reserve Fair value reserve Asset...

  • Page 104
    ... shares vest in the employee. No gain or loss is recognised in the Qantas Group Income Statement on the purchase, sale, issue or cancellation of Qantas' own equity instruments. Hedge reserve The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash...

  • Page 105
    ... 838.0 The Qantas Group leases aircraft, buildings and plant and equipment under operating leases with expiry dates between one and 35 years. The Qantas Group has the right to negotiate extensions on most leases. As lessor Qantas leases out freighter aircraft under long-term operating leases with...

  • Page 106
    ... of major international banks and other AAA rated counterparties, the Qantas Group may be required to make payments under these guarantees. Qantas and certain controlled entities have entered into asset value underwriting arrangements with lenders under certain aircraft secured financings. These...

  • Page 107
    ... Statements for the year ended 30 June 2007 23. Superannuation Qantas Group Qantas 2006 $M 2007 $M 2006 $M Changes in the present value of the defined benefit obligation Opening defined benefit obligation Current service cost Interest cost Actuarial gains Exchange differences on foreign plans...

  • Page 108
    ... Qantas Group Principal actuarial assumptions at balance date (expressed as weighted averages per annum) Discount rate Expected return on plan assets Future salary increases 2007 % 2006 % 2007 % 2006 % 6.3 7.7 3.0 5.8 7.0 3.2 6.3 7.7 3.0 5.8 7.0 3.2 The expected long-term rate of return...

  • Page 109
    ...Executive Equity Benefits Details of Key Management Personnel The Key Management Personnel (KMP) of the Qantas Group during the year were: Margaret Jackson, AC, Chairman Geoff Dixon, Chief Executive Officer Peter Gregg, Chief Financial Officer and EGM Strategy Paul Anderson, Non-Executive Director...

  • Page 110
    ... Plan (RP) Details of entitlements over shares in Qantas provided as remuneration during the year to an Executive Director and each Key Management Executive are set out below. For more information on the operation of the RP, see page 62. Value as at Grant Date Balance as at 30 June 2006 Number...

  • Page 111
    ... the year ended 30 June 2007 24. 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 112
    ... as remuneration under the Exec Director LTI is set out below. No Rights were granted under this Plan in the year ended 30 June 2007. For more information on the operation of the Exec Director LTI, see page 63. Key Management Personnel Peter Gregg Grant Date Balance as at 30 June 2006 Number of...

  • Page 113
    ... Group purchased wine totalling $106,000 (2006: nil) from Toolangi Vineyards, for use on Qantas International Business Class services. All transactions were conducted on normal commercial arms length terms. Publishing and Broadcasting Limited (PBL) and its controlled entities, including Consolidated...

  • Page 114
    ... date of grant using a Monte-Carlo Valuation Methodology. The weighted average fair value of Rights granted during the year was $2.92 (2006: $2.44). Monte-Carlo Valuation Methodology Inputs into the models Weighted average share value Expected volatility Dividend yield Risk-free interest rate 2007...

  • Page 115
    ... Statements for the year ended 30 June 2007 24. Key Management Personnel and Executive Equity Benefits continued Share-based payment continued Performance Share Plan The PSP delivers deferred shares to employees upon the achievement of a Balanced Scorecard relating to Customer, Operational, People...

  • Page 116
    ... the year ended 30 June 2007 25. Particulars in Relation to Controlled Entities Qantas Group Ownership Interest Ref ABN/ACN Country of Incorporation 2007 % 2006 % 738 Leasing 1 Pty Limited 738 Leasing 2 Pty Limited AAL Aviation Limited Star Handling Services Pty Limited Australian Airlines Express...

  • Page 117
    ... to the Financial Statements for the year ended 30 June 2007 25. Particulars in Relation to Controlled Entities continued Qantas Group Ownership Interest Ref ABN/ACN Country of Incorporation 2007 % 2006 % Kurrajong Limited Mitokal Pty. Limited QH Tours Ltd Holiday Tours and Travel Pte Ltd Jetabout...

  • Page 118
    ...the Financial Statements for the year ended 30 June 2007 25. Particulars in Relation to Controlled Entities continued Qantas Group Ownership Interest Ref ABN/ACN Country of Incorporation 2007 % 2006 % QF A332 Leasing 4 Pty Limited QF A332 Leasing 5 Pty Limited QF A332 Leasing 6 Pty Limited QF A333...

  • Page 119
    ... for sale Other Total current assets Non-current Assets Receivables Other financial assets Investments accounted for using the equity method Other investments Property, plant and equipment Intangible assets Deferred tax assets Other Total non-current assets Total assets Current Liabilities Payables...

  • Page 120
    ... Pty Limited Total associates Air transport Resort accomodation Passenger handling services Tours and travel Tours and travel Tours and travel Freight services Tours and travel Freight services Reservations systems Fiji Fiji United States of America Philippines Thailand Vietnam Australia Thailand...

  • Page 121
    Notes to the Financial Statements for the year ended 30 June 2007 27. Investments Accounted for Using the Equity Method continued Qantas Group 2007 $M 2006 $M Results of associates Revenues Profit before related income tax expense Income tax expense Share of net profit of associates 228.8 16.6 ...

  • Page 122
    ... Express Pte Limited Orangestar Investment Holdings Pte Limited Star Track Express Holdings Pty Limited Total jointly controlled entities Air cargo Tours and travel Maintenance services Freight services Air transport Express road freight Australia Australia Australia Singapore Singapore Australia...

  • Page 123
    ... to the Financial Statements for the year ended 30 June 2007 27. Investments Accounted for Using the Equity Method continued Qantas Group Commitments Share of jointly controlled entities' capital expenditure commitments contracted for Share of jointly controlled entities' non-capital expenditure...

  • Page 124
    ...year ended 30 June 2007 28. Financial Instruments continued (A) Interest rate risk continued Fixed Rate Maturing in: Weighted Average Interest Rate % pa Less than 1 Year $M More than 5 Years $M NonInterestBearing $M 2006 Interest earning financial assets Cash and cash equivalents Aircraft security...

  • Page 125
    ... travel agents through industry programs; and • other financial asset counterparties - the Qantas Group restricts its dealings to counterparties that have acceptable credit ratings. Should the rating of a counterparty fall below certain levels, internal policy dictates that approval by the Board...

  • Page 126
    ... market price of Air New Zealand shares at balance date. This investment was disposed during the year ended 30 June 2007. 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...

  • Page 127
    ...ts to the business. Financial reporting system changes to transition Qantas to a segmented model are currently under development. Disclosure of segment information is provided as follows: • Qantas; • Jetstar; • Qantas Holidays; and • Qantas Flight Catering. Qantas | Annual Report 2007 125

  • Page 128
    ...Income tax expense Profit for the year Depreciation and amortisation Non-cash expenses Assets Segment assets Investments accounted for using the equity method Total assets Liabilities Total liabilities Payments for property, plant and equipment 2006 $M Qantas Jetstar Qantas Qantas Flight Holidays...

  • Page 129
    ... 13,823.9 Other income Tours and travel revenue Contract work revenue Other unallocated Sales and other income Finance income Total income 767.5 434.3 201.5 15,165.7 244.0 15,409.7 For the year ended 30 June 2007, the principal assets of the Qantas Group comprised the aircraft ï¬,eet, all except...

  • Page 130
    ... assets Increase/(decrease) in trade and other payables Increase in provisions Increase/(decrease) in current tax liabilities Increase in revenue received in advance (Decrease)/increase in deferred lease benefits Increase in deferred tax liabilities Net cash from operating activities Qantas Group...

  • Page 131
    ...continued Qantas Group Entities acquired during the year Consideration Less: cash acquired Payment for controlled entities, net of cash acquired Net assets Receivables Inventories Investments accounted for using the equity method Property, plant and equipment Goodwill Payables Current tax liability...

  • Page 132
    ... provide freight capacity to Qantas; • 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...

  • Page 133
    ...Limited (Australian air Express); • Qantas leases aircraft, domestic freight capacity and sub-leases certain property to Australian air Express; • Qantas codeshares on certain Air Pacific services for which it pays capacity hire costs; • Australian air Express and the Star Track Express Group...

  • Page 134
    ... of the financial position of Qantas and the Qantas Group as at 30 June 2007 and of their performance as represented by the results of their operations and their cash ï¬,ows, for the year ended on that date; (b) the Financial Report also complies with International Financial Reporting Standards as...

  • Page 135
    ...the Income Statements, Statements of Changes in Equity and Cash Flow Statements for the year ended on that date, a description of significant accounting policies and other explanatory notes 1 to 34 and the Directors' Declaration of both Qantas and the Qantas Group comprising Qantas and the entities...

  • Page 136
    ...Custodians Pty Limited Credit Suisse Securities (Europe) Ltd Pan Australian Nominees Pty Ltd Tasman Asset Management Ltd Bond Street Custodians Limited UBS Wealth Management Australia Nominees Pty Ltd Suncorp General Insurance Ltd Argo Investments Limited Ordinary Shares Held % of Issued Shares 395...

  • Page 137
    Qantas Group Five Year Summary for the years ended 30 June Share Information Dividends per share Share price - high Share price - low Share price - closing Weighted average number of ordinary shares (basic) Unit 2007 2006 2005 2004 2003 cents $ $ $ M 30.0 5.83 2.93 5.60 1,976.8 22.0 4.17 ...

  • Page 138
    ... the Australian community by transporting both people and freight. Australia is to most of the world, a long-haul destination, for which air is the most utilised form of transport. Australia is reliant on air transport to support business, time sensitive freight and importantly, the tourism industry...

  • Page 139
    ... Excellence as a New South Wales finalist in the People Management category. People The Qantas Group is one of the largest employers in Australia with over 35,000 staff, 91 per cent of whom are Australian residents. In excess of $3 billion per year is spent on wages, salaries and related employee...

  • Page 140
    ... Qantas places a very high priority on Safety and Health. All Qantas Group airlines carry physician kits, have first aid trained cabin crew and offer a 24 hours seven days per week inï¬,ight medical advisory service. Qantas International, Qantas Domestic and Jetstar International A330 aircraft...

  • Page 141
    ... management and internal control systems are included in a separate letter we have received from management. Review approach We have conducted an independent review of the Performance Data set out on pages 136 to 138 of the Annual Report for the year ended 30 June 2007, for Qantas Group's operations...

  • Page 142
    ... Weeks of Average Earnings Required to Pay for Return Sydney - Bangkok - London airfare 2006 and 2007 (on page 137); • Lost Time Injury Frequency Rate 2007 (on page 138); • Number of Full-time Equivalent Employees 2007 for Flying Businesses (Qantas, Jetstar), Portfolio Businesses (Airports and...

  • Page 143
    ... to reduce the weight of the aircraft to the maximum landing weight. Fuel Spills The accidental spillage of aviation fuel material at airport sites. Goods and Services Tax (GST) International Air Transport Association (IATA) Lost Time Injury (LTI) A work related injury (or illness) that resulted in...

  • Page 144
    Qantas Airways Limited ABN 16 009 661 901 Qantas Centre Level 9, Building A 203 Coward Street Mascot NSW 2020 Australia Telephone (612) 9691 3636 Facsimile (612) 9691 3339 qantas.com visit our website for the current share price and shareholder news.