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CHAIRMAN’S
REPORT1
The year to 30 June 2014 was among the
most challenging Qantas has faced.
Underlying fuel costs reached a new
record of $4.5 billion, up $253 million
from 2012/2013. And capacity growth
ahead of demand led to a deterioration
in yield and passenger loads which saw
revenue decline by $550 million.
This was the culmination of a period in
which the Australian aviation market
has been one of the most world’s most
competitive.
I acknowledge that the 2013/2014
result – an Underlying Loss Before Tax
of $646million – was unsatisfactory.
But I believe Qantas is taking the right
actions to secure an earnings recovery,
strengthen its financial position and
shape a profitable, sustainable future.
Shareholders have been patient and
supportive throughout a volatile period.
As we continue the necessary reform
of the business, we remain focused on
building long-term shareholder value in
everything we do.
Accelerated Transformation
The accelerated Qantas Transformation
program announced in December
2013 – targeting $2 billion in benefits to
2016/2017 – is commensurate to the size
of the challenge.
This is one of the biggest change
programs seen in the aviation industry,
building on the considerable progress
made with transformation from 2009
through to 2013. It is already delivering
results – with $204 million of benefits
in the second half of 2013/2014 – and
momentum will build throughout
2014/2015.
Change on this scale cannot be achieved
without an impact on employees. I
recognise that this has been a difficult
time for the Group’s people. They
have responded magnificently to the
challenges we face and deserve great
credit for our progress to date, as well as
for Qantas’ ongoing excellence in service,
safety and operational performance.
Structural Review
Following a wide-ranging review of the
structure of the Qantas Group, the Board
has given approval for the establishment
of a new holding structure and corporate
entity for Qantas International.
This step – following the partial repeal
of the Qantas Sale Act – creates the
long-term option for Qantas International
to source external investment and
participate in partnership opportunities
in the global aviation market.
While there are no other changes to
the core structure of the Group, we will
continue to assess options to sell non-
core assets to generate cash for debt
reduction.
Financial Position
The Group has strong liquidity of
$3.6billion, including $3 billion in cash.
At 30 June 2014, the Group was free cash
flow neutral after delivering a resilient
$1.1billion in operating cash flow.
Debt-to-EBITDA peaked in 2013/2014 and
further debt reduction will be enabled by
positive net free cash flow as we move
forward with the accelerated Qantas
Transformation program.
A series of refinancing transactions in
the unsecured markets has extended
the Group’s debt maturity profile, while
capital expenditure has been reduced
in line with financial performance,
prioritising Group fleet simplification.
Board Renewal
Qantas Board renewal is an ongoing
priority.
I would like to thank Peter Cosgrove for
his significant contribution over almost
nine years as a Director and congratulate
him on his richly-deserved appointment
as Governor-General.
In the past 12 months the Board has been
strengthened by the additions of Maxine
Brenner and Jacqueline Hey and, looking
forward, we will assess the need for
further new appointments as required.
In the meantime, all our Directors
continue to make a strong and active
contribution to Board deliberations.
Shaping Qantas’ Future
The actions taken in 2013/2014 have
better equipped Qantas to build long-
term shareholder value, provide world-
class service, serve the Australian
community, and shape its future in the
21st century aviation industry.
I thank all the Group’s employees,
shareholders, customers and partners
for their support throughout the year.
As we continue the
necessary reform
of the business, we
remain focused on
building long-term
shareholder value in
everything we do.
1 For explanations of non-statutory measures, see the Review of Operations section in this report.
2 Total annual cash benefit, realised one year after completion of initiative.
03
QANTAS ANNUAL REPORT 2014