Finnair and QANTAS Airways have entered into a long-term agreement, in which Finnair first leases two Airbus A330 aircraft with crew (wet lease) to QANTAS for a period of two years, and after the wet lease period, dry leases (aircraft lease with no crew) two of its A330s to QANTAS for a period of 2.5 years, starting in 2025. The wet lease of the first aircraft will start in October 2023, and the wet lease of the second aircraft will start in early 2024.
The agreement with QANTAS is a part of Finnair’s determined efforts to ensure the optimal use of its A330 fleet, which is range-limited in its deployment in Finnair’s own long-haul operations due to the closure of Russian airspace. The agreement with QANTAS concludes the optimization of Finnair’s fleet following the Russian airspace closure.
During the wet lease period, the aircraft will be deployed in QANTAS’ network on routes from Sydney and Singapore as well as Sydney and Bangkok. Finnair pilots will fly scheduled Finnair flights from Helsinki to Singapore and from Helsinki to Bangkok; then, they will continue flying scheduled QANTAS flights between Singapore, Bangkok and Sydney before returning to their home base in Helsinki.
The cabin crew are provided by Finnair partners based in Singapore and Bangkok, and the aircraft maintenance is performed by Finnair partners at the QANTAS destinations.
Finnair has secured sufficient pilot resources to match its fleet size, including the aircraft leased to QANTAS. The QANTAS agreement does not impact the number of cabin crew at Finnair, as they are fully deployed in other operations.
The collaboration supports the efficient and profitable deployment of Finnair’s A330 fleet. Since the closure of the Russian airspace, Finnair has built a geographically more balanced network, as avoiding the Russian airspace lengthened the flight times between Finnair’s Helsinki hub and its Asian destinations.
Top Copyright Photo: Finnair Airbus A330-302 OH-LTR (msn 1067) MUC (Gunter Mayer). Image: 960551.
The Qantas Group has announced several updates to its fleet plan, designed to help restore capacity faster and meet strong demand from leisure travel, resources and domestic freight markets.
As announced last year, the Group has orders and purchase right options for up to 299 narrowbody aircraft and firm orders for 12 widebody aircraft with Airbus to update and grow its fleet over the next decade and beyond.
Four of those aircraft have already been delivered and nine more are expected to arrive this year[1] in addition to three Boeing 787s, but rolling delays of up to six months for other aircraft are expected over the next couple of years due to global supply chain issues.
Photo: QANTAS Airways
Core to the changes announced today is the decision to acquire several mid-life A320-family aircraft for freight and resources customers to help offset these delays. Once the delayed aircraft are delivered, the Group has the option to retire or retain the aircraft they were originally designed to replace, depending on market conditions.
In summary, the changes are:
Five mid-life A319/320 aircraft to support the growth of the resources market in Western Australia, for delivery in FY24.
Three additional mid-life A321P2F aircraft to accelerate renewal of Qantas Freight fleet, for delivery in FY25 and FY26.
Two additional A320s for Jetstar Asia as demand across Asia rebounds, for delivery in mid calendar year 2023. This will bring its total fleet size back up to nine aircraft.
Options for up to 12 additional E190 aircraft to be wet leased from Alliance Airlines to provide increased capacity and network connectivity in the domestic market.
Exercising nine existing purchase right options for A220 aircraft, for delivery in FY26 and FY27 as part of ‘Project Winton’ deal with Airbus.
The investment in additional fleet is accounted for as part of the increase in Qantas’ FY23 and FY24 capital expenditure, announced in the Group’s first half 2023 results today.
Photo: QANTAS Airways
CEO COMMENTARY
Qantas Group CEO Alan Joyce said: “We’re at the start of a major update of the Qantas Group fleet that will unlock a lot of benefits. The aircraft we have on order will help us lower emissions, expand our network, create new jobs and ultimately serve our customers better.
“Aircraft manufacturers are seeing the same supply chain delays as a lot of other industries and we’ve been told that some of our deliveries will be pushed back by up to six months.
“When you combine the delays with the sustained growth in travel demand that we’re seeing, we need to find other ways to lift capacity in the short and medium term.
“Wet leasing more aircraft from Alliance Airlines will provide a very rapid injection of extra capacity domestically, but with plenty of flexibility to adjust that over time depending on what is happening in the market.
“The arrival of new narrowbody aircraft into Jetstar, in particular, was creating a pipeline for existing aircraft to be used for freight and resources markets. Given the new aircraft are delayed, we’ll buy a number of second hand A319/320s to make sure we can still meet demand from our customers.
“Jetstar Asia shrank during the pandemic but with travel in Asia rebounding, now is the right time to put two aircraft back in.
“We’re fortunate to have the scale and the balance sheet to make these decisions, as well as a lot of flexibility in our fleet plan to make adjustments as we need to.”
The full Qantas Group 1H23 financial results announcement can be read here.
[1] 7 x A321LRs for Jetstar; 2 x A220s for Qantas Domestic.
$1 billion COVID recovery plan on track for completion by end of FY23.
On-market share buy-back of up to $500 million announced.
Material improvement in operational performance and customer satisfaction.
Ongoing investment in lounges, technology and customer experience.
Update to fleet plan including converting nine purchase right options into firm orders for Airbus A220s.
More than one million sale fares released today by Jetstar and Qantas.
20,000 non-executive staff rewarded with $500 travel credit; recovery bonuses now up to $11,500 each in cash and shares[1].
After three years and $7 billion in statutory losses due to the pandemic, the Qantas Group has returned to profit with a record result for the first half of FY23.
The Group earned $1.43 billion Underlying Profit Before Tax to 31 December 2022, which is 49 per cent higher than the prior first half record result achieved in FY18. Statutory Profit After Tax was $1.0 billion.
The drivers of this result were consistently strong travel demand, higher yields and cost improvements from the Group’s $1 billion recovery program that is nearing completion. Total operating margin was 16 per cent and came despite significantly higher fuel prices.
A $200 million investment[2] in operational resilience – including holding some aircraft in reserve and rostering more backup crew – delivered a significant improvement in operational performance for customers. Qantas has been the most on-time major domestic airline for five months in a row.
The strong financial position means the Group can reinvest, particularly in fleet and customer experience, as well as rewarding employees and shareholders.
CEO COMMENTS
Qantas Group CEO Alan Joyce said: “This is a huge turnaround considering the massive losses we were facing just 12 months ago.
“When we restructured the business at the start of COVID, it was to make sure we could bounce back quickly when travel returned. That’s effectively what’s happened, but it’s the strength of the demand that has driven such a strong result.
“Fares have risen because of higher fuel costs, but also because supply chain and resourcing issues meant capacity hasn’t kept up with demand. Now those challenges are starting to unwind, we can add more capacity and that will put downward pressure on fares.
“In terms of overheads, we expect the costs we’re carrying from the extra operational buffer will start unwinding from this half and into next financial year.
“Our people have been absolutely central to our recovery and that’s why we’re so pleased to be in a position to reward them with up to $11,500 in cash and shares, and why we’ve given them another $500 staff travel credit today.
“Returning to profit means we can get back to reinvesting for our customers, which is clear from the network, fleet and lounge announcements we’ve made, and from the Project Sunrise cabins we’re previewing. Importantly for our investors, this also sets us up to deliver long term shareholder value,” added Mr Joyce.
GROUP DOMESTIC
Group Domestic delivered Underlying EBIT of $915 million, with flying increasing from 86 per cent of pre-COVID capacity in 2H22 to 94 per cent during the half.
Qantas’ domestic operations delivered $785 million and Jetstar’s $130 million, with margins of 22 per cent and 11 per cent respectively.
Leisure demand continued to lead the recovery, which the Group is well-placed to serve through both its premium and budget brands. Corporate and SME travel demand remained strong.
GROUP INTERNATIONAL AND FREIGHT
Group International delivered Underlying EBIT of $511 million as capacity almost doubled from 31 per cent of pre-COVID capacity in 2H22 to 60 per cent during the half. Two routes were re-opened and seven new routes were started, which represented a major logistical effort in port readiness and training after a long period of shutdown in most countries.
Qantas Freight continued to deliver earnings well above pre-COVID levels. While international yields are softening with the return of more capacity to the market, a permanent increase in e-commerce domestically has created a structural shift in freight volumes and earnings.
QANTAS LOYALTY
Qantas Loyalty delivered $1 billion in revenue and Underlying EBIT of $220 million for the half, a 73 per cent increase on 1H22, and is on track to reach the top end of the $425 million to $450 million range for its full year target. Key drivers were the rebound in travel combined with growth in partners and products across the Loyalty portfolio.
There was a 40 per cent increase in bookings made via the rebooted Qantas Holidays and Hotels[3]; a record number of points earned on credit cards; and a doubling of revenue from online holiday package website, TripADeal[4].
There was also a 14 per cent increase in the number of Qantas health insurance customers and, with the return of international travel, a tripling in the number of travel insurance policies compared with 1H22.
More than 3 million flights were taken using Qantas Points in the half, which is a doubling of activity compared with 1H22. The total number of Frequent Flyer members grew to 14.7 million, representing an increase of approximately 1 million in 12 months.
INVESTING FOR CUSTOMERS
The Group has announced several major investment streams to improve customer experience over the short and longer term.
A $100 million expansion of domestic and international lounges over three years (see separate announcement), in addition to three new and upgraded lounges opening during calendar 2023.
A 50 per cent increase in Frequent Flyer Classic Reward seats on international services through to the end of calendar 2023.
Progressive renewal of the Qantas and Jetstar fleets.
Ongoing improvements in catering, in-flight entertainment, customer-facing apps and staffing levels.
Opening up new routes, including Auckland-New York, Sydney-Seoul, Melbourne-Dallas and Sydney-Rarotonga.
Qantas has today unveiled prototypes of First and Business Class suites that will be fitted to its Airbus A350 aircraft from late 2025. Offering a new level of luxury, privacy and clever use of space, these interiors have been designed with Project Sunrise in mind, which will see Qantas fly direct from the east coast of Australia to New York and London. (See separate release and images.)
REWARDING OUR PEOPLE
Our people have been fundamental to the Group’s recovery. In recognition, around 20,000 non-executive employees are on track to receive up to 1,000 Qantas shares, currently valued at around $6,500 dollars. They are also eligible for a $5,000 cash recovery boost.
As a further thank you announced today, non-executive employees will receive a $500 credit for staff travel, which is already heavily discounted because of its standby nature, and a 20 per cent employee discount for any stay booked through Qantas Hotels. This follows significant improvements to the staff travel scheme and an ‘always on’ discount of 25 per cent on commercial fares.
The Group expects its FY23 wages bill to be more than $4 billion, including significant investment in non-executive pay increases as part of its wages policy.
FARES
Average domestic and international fares remain above pre-COVID levels in Australia and in all major markets. The key drivers are:
A 65 per cent increase in the price of fuel[5], which is a combination of higher oil costs, a stronger US dollar in which fuel is bought, and higher refiner margins.
Less capacity from all airlines due to supply chain issues (including delayed delivery of new aircraft), maintenance bottlenecks as the global fleet of widebody aircraft return from storage and efforts to improve operational performance after challenging restarts.
High levels of demand as people prioritise travel.
The factors that have constrained capacity are gradually easing and forecasts show domestic and international flying into Australia continuing to grow through the rest of the calendar year. This additional supply will put downward pressure on fares.
While average prices are about 20 per cent higher than 2021, there is still significant value available to consumers, especially when purchasing well in advance and outside of peaks.
Qantas and Jetstar today released more than one million sale fares, with discounted seats to almost every Australian city and regional town on the domestic network. (See separate release.) This is the ninth Qantas or Jetstar network-wide sale in the past six months.
FINANCIAL FRAMEWORK AND SHAREHOLDER RETURNS
As at 31 December 2022, the Group had liquidity of $5.4 billion, including $4.1 billion in cash. Net debt fell to $2.4 billion at the end of the half, down from $3.9 billion at last results and well below the target range[6].
The acceleration of balance sheet repair has enabled the Board to make the following decisions:
A return to shareholders of up to $500 million in the form of an on-market share buy-back[7], due to commence in March 2023. This follows a $400 million share buy-back completed in December 2022 at an average price of $5.78.
Buying up to $300 million of Qantas shares on-market to fund employee entitlements under the recovery and retention plan, ahead of expected vesting in August 2023. This is instead of issuing new shares and therefore avoids the 2.4 per cent dilution of existing shareholders that would have otherwise occurred.
Rephasing the Group’s long-term capital expenditure pipeline associated with new aircraft orders in the years ahead on commercially beneficial terms. As a result, forecast capex in FY23 will increase by up to $400 million to between $2.6 and 2.7 billion.
The Group expects to remain below its target net debt range by the end of FY23, accounting for these decisions.
FLEET UPDATE AND SUSTAINABILITY
Qantas is at the start of the biggest fleet renewal program in its history, with up to 299 aircraft (including purchase right options) spread over 10-plus years. Twelve new aircraft are due to be delivered to Qantas and Jetstar by the end of this calendar year[8]. The fleet plan contains substantial flexibility but, overall, the Group expects to receive an average of one new plane every three weeks for the next three years.
Supply chain and design certification issues have created manufacturing delays for all airlines, but the Group has been able to effectively limit these to less than six months with Airbus.
Five mid-life Airbus A319/320 aircraft to be sourced for Network Aviation to meet continued demand growth from resources clients in Western Australia.
Options for up to 12 additional E190s to be wet leased to QantasLink from Alliance Airlines.
Nine purchase right options for A220-300 aircraft for the domestic fleet to be exercised, taking the total number of A220s on firm order to 29. These additional aircraft will arrive during FY26 and FY27.
Two mid-life A320s for Jetstar Asia, to be based in Singapore, following the downsizing of its fleet during COVID to seven aircraft.
Three additional Airbus A321P2F freighters to help Qantas Freight meet demand with more efficient aircraft.
These changes allow the Group to maintain required capacity despite manufacturer delays to new aircraft, and do not materially impact overall capital expenditure.
Fleet renewal is a key pillar of the Group’s progress towards its interim emissions reduction target of 25 per cent by 2030[9]. These new aircraft burn up to 25 per cent less fuel than the models they replace.
Sustainable Aviation Fuel is another key pillar, with a target of increasing this to 10 per cent of the Group’s total fuel mix by 2030. The Group currently has agreements in place to source SAF from the UK and US and is working with federal and state government to generate supply in Australia.
OUTLOOK
A summary of the Group’s key planning assumptions is outlined below, with more detail available in our investor presentation.
Travel demand expected to remain strong throughout FY23 and into FY24.
Group Domestic capacity to increase to from 94 per cent to 103 per cent[10]through 2H23.
Group International capacity to increase from 60 per cent to 81 per cent[11] through 2H23.
Fares expected to moderate during 2H23 as capacity increases but will remain significantly above FY19 levels.
Fuel cost for FY23 expected to be $4.8 billion, with hedging in place.
Depreciation and amortisation for FY23 expected to be $1.8 billion; net financing costs expected to be $0.2 billion.
[1] Total value will depend on Qantas share price at time of vesting.
QANTAS Airways CEO issued this Op-Ed on the condition of his airline:
Photo: Wikipedia
As the CEO of Qantas, people are always keen to tell you how they think the airline is doing. Whatever their feedback is, I always see it first and foremost as a reflection of the strong connection Australia has with the national carrier.
To be honest, we know that connection has been tested at times.
Six months ago, a lot of people felt we’d let them down and the figures showed why. Almost half our flights were late, our rate of misplaced bags had more than doubled and we were cancelling up to 7 per cent of our schedule.
Perception wise, it didn’t help that this came after some controversial restructuring decisions to make sure we survived COVID. And it didn’t matter that airlines around the world had the same problems as travel restarted. If your flight to the Gold Coast just got cancelled, it doesn’t make you feel any better if the delays are worse in Amsterdam.
Knowing that we were routinely letting customers down was hugely disappointing for everyone at Qantas. It’s the exact opposite of our culture.
Last August, we apologised and promised to fix it. And almost every week after that, things improved.
It’s a huge credit to our people that the data now shows Qantas is back to its best.
We’ve been the most on-time of the major domestic airlines for five months in a row. Our service levels – bags, cancellations, catering and the call centre – are back to what customers expect from us. And we’re working to make it better.
As this turnaround was happening, people were talking to me less about flight delays and more about higher fares.
The two are related. In order to make our operations more reliable, we had to reduce our flying to give us more buffer. We have more aircraft and crew on standby to step-in to deal with the supply chain and sick leave issues that remain. Less supply and lots of demand meant fares went up.
Higher fares also reflect inflation in general and higher fuel prices in particular, which are up 65 per cent in the past six months compared with pre-COVID. Naturally, that flows through to how much you pay for a flight.
There’s not much we can do about the cost of things like fuel but the fact our operations have stabilised means we can steadily put capacity back in. Domestically, we’re almost back to 100 per cent of pre-COVID flying levels. Internationally, we’ll be at around 80 per cent by the middle of the year and we’ve recently seen most of our competitors announce a major ramp up in their capacity, so you can expect to see fares trend down, keeping in mind we’re all paying more for most things at the moment.
That said, there are still a lot of good value fares, with regular sales and lower prices if you’re able to plan ahead.
More recently, the conversation has been about Qantas air returns.
These have received a huge amount of attention because we had several in quick succession, but despite the hype, they are actually a symptom of strong safety systems.
Our pilots always err on the side of caution because that’s what we train them to do. If an onboard system isn’t working the way it should, they will often decide to land rather than pressing on to the destination. I congratulate them for doing that and encourage them to keep doing it. And despite the obvious inconvenience, I think most of our customers do, too.
Globally, the industry sees well over 10,000 air returns a year. Looking at our data, there’s no change from our average rate of turn backs before and after COVID, which for Qantas is around 60 a year or 1 per 2,000 flights. Our regional arm QantasLink has more, at over 200 a year, because they have more flights and it makes more sense to return to a major city than fly on to a remote town that doesn’t have the same level of technical support.
If you’re flying on an aircraft that has an issue, it’s not because it’s not well looked after. It’s because they are incredibly complex pieces of equipment with many layers of redundancy.
Our approach to engineering hasn’t changed since pre-COVID. We’re the only major airline group that does heavy maintenance in Australia and no one invests more in training engineers here than we do. There are multiple safeguards for everything that happens in-and-around an aircraft, which is critical because no one is perfect. And that is ultimately why aviation in this country is so safe.
We will always put safety before schedule. But as the figures and our record shows, Qantas is back to delivering on both.
A much-loved part of @Qantas’ history, today we salute the Queen of the Skies as @BoeingAirplanes delivers the last of its iconic jumbo jets.
While the aircraft will still grace the skies for decades to come, today marks the end of an era for global aviation.#ThankYou747pic.twitter.com/I48Fofv41N
