Qantas boss Vanessa Hudson lauds Jetstar, sells Airbus future as budget carrier underwrites earnings rise

Budget carrier Jetstar has powered a lift in Qantas Group earnings as the dominant Australian player slowly pimps up and replaces its ageing fleet of Flying Kangaroos.

With Jetstar providing almost one-third of Qantas Group’s December half profit, executives lauded the success of new Airbus A321LR and A320neo jets in growing the no-frills carrier’s network and fuel efficiency.

Qantas Group chief executive Vanessa Hudson said Australians were travelling in increasing numbers domestically and internationally on Jetstar despite cost-of-living pressures.

“We’re really proud of the role Jetstar plays in this market in bringing low fares to Australians,” Ms Hudson said. “Being able to grow Jetstar with new fleet that is efficient gives us the ability to offer those fares.”

She made the comments after Qantas unveiled a 6 per cent higher December half net profit of $923 million on the back of revenue rising 9 per cent to $12.13 billion and a bumper performance by Jetstar.

The group’s in-house measure of underlying profit before tax was up by 11 per cent to $1.39 billion, underwritten by Jetstar’s underlying profit from domestic operations soaring 54 per cent to $269m. Jetstar’s international underlying profit was up 13 per cent to $170m.

Profits from Qantas-branded domestic and international services were flat as it embarks on a slower and costlier process of replacing its old Boeing fleet with fuel-efficient Airbus jets.

Yet the airline’s shares closed almost six per cent higher on Thursday after Ms Hudson and her financial lieutenant Rob Marcolina explained the Qantas modernisation.

The group has taken delivery of just five new A220 aircraft to replace QantasLink’s fleet of 20 Boeing 717s, and is awaiting delivery of another 24 of the Airbus planes. Meanwhile, it is using various aircraft to service the busy WA resources sector.

It will take a decade to replace the Qantas Boeing 737s with 28 bigger Airbus A321XLRs.

The long delivery time made it necessary for the group to also unveil plans to upgrade the cabins of 42 Boeing 737s to maintain the status of the Qantas offering after years of ruthless cost-cutting. The cabins will be styled to resemble A321XLR interiors.

Mr Marcolina said the fleet modernisation for the Qantas brand was more complicated than at Jetstar. The budget carrier was a big user of the classic Airbus A320 and its pilots were being trained in other Airbus aircraft.

“In the Qantas environment with the 717, we’re going from Boeing to Airbus,” he said, warning this change in aircraft manufacturer was a big contributor to fleet transition costs.

Ms Hudson warned Qantas would face the same extra costs in training pilots when the transition from Boeing 737s to Airbus A321XLRs stepped up. The first A321XLR is due for delivery in June.

But Ms Hudson said Qantas would enjoy better fuel efficiency, more range and more capacity as the Boeing fleet was replaced.

“The benefits will come, but slower,” she said. “The importance of getting to scale is what enables us to build our network.”

Ms Hudson said the success of the Perth to London and Rome direct flights had illustrated the demand the premium and point-to-point travel.

Qantas has ordered 12 long-haul Airbus A350-100, the first of which Qantas expects to have delivered late next year. It wants to offer flights direct from the east coast of Australia to premium destinations such as London and New York.

The latest Qantas Group profit result indicates it needs the Airbus efficiency boost, with the Qantas international operation underlying profit measure up just 1.5 per cent to $327m despite revenue jumping 6.4 per cent to $4.62b. These figures include the freight division.

The underlying profit from Qantas’s domestic operations rose just 0.9 per cent to $647m despite revenue being up 6.7 per cent to $4.01b.

The group’s loyalty program profits were down 5.5 per cent to $255m.