Qantas Groups Market Update – September 2023

On 25 September 2023, The Qantas Group (ASX: QAN) released a significant market update, shedding light on its increased investments in customer improvements, the continued resilience of travel demand, and the effects of soaring fuel prices. Here's a breakdown of the key highlights:

Customer Improvements

• Additional AU$80 Million Investment: The Qantas Group is committing an extra AU$80 million to enhance the customer experience in FY24, supplementing the previously allocated AU$150 million. These funds will come from profits.
• Addressing Pain Points: The added investment will target customer pain points with initiatives like bolstering contact center resources and training, expanding seat availability for Frequent Flyer point redemptions, enhancing recovery support during operational issues, revising long standing policies for fairness, and elevating in-flight catering quality.
• Accelerated Initiatives: Ongoing projects, such as the re-platforming of the Qantas app, will be expedited to provide quicker benefits to customers.

Demand Levels

• Strong Travel Demand: The travel demand remains robust, with conditions in the first quarter of FY24 mirroring those of the previous quarter.
• Upcoming Passenger Numbers: Qantas and Jetstar are poised to transport over 4 million passengers during the September/October school holidays and football finals period, an increase from 3.7 million passengers in the same period last year.
• Customer Priorities: Recent survey data indicates that travel ranks as a top spending priority among Qantas Frequent Flyers for the next six months, ahead of entertainment, renovations, and homewares.

Fuel, FX, and Fares

• Fuel Price Surge: Fuel prices have surged by approximately 30 percent since May 2023, with a 10 percent spike in August. Factors include higher oil prices, increased refiner margins, and a weaker Australian dollar.
• Impact on Costs: The Group expects a AU$200 million increase in its 1H24 fuel bill, with an additional AU$50 million impact due to non-fuel related foreign exchange changes.
• Adjusting Costs: The Group will closely monitor fuel prices and may adjust settings to balance higher costs with maintaining affordable travel.

Capacity and Network Update

• International Expansion: Through new aircraft deliveries and wet-leasing arrangements, Qantas and Jetstar plan to increase international capacity by 12 percentage points by year-end, equivalent to nearly 50 additional flights per week. This includes resuming Sydney-Shanghai services, introducing Brisbane-Wellington and Brisbane-Honiara routes, and a new Jetstar service from Brisbane to Tokyo.
• Steady Domestic and International Capacity: Capacity estimates for 1H24 remain largely unchanged from late August 2023.

Financial Framework

• Strong Financial Position: The Qantas Group maintains a robust financial position, including manageable debt levels and healthy revenue.
• Share Buyback: The on-market share buyback of up to AU$500 million, initiated in August 2023, is 10 percent complete. Shareholder approval will be sought at the upcoming AGM to potentially expand the buyback headroom in line with the Financial Framework.

Qantas Group continues to navigate a dynamic market environment with a focus on enhancing customer satisfaction, managing rising costs, and expanding its network, underpinned by its solid financial standing.

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