Dreamliners need to prove their worth before Qantas orders more
Qantas chief Alan Joyce says the airline will need to see further improvement in its international business before it can justify ordering more Boeing Dreamliners.
The first of eight 787-9 Dreamliners it has on order landed in Australia earlier this month, but Mr Joyce on Friday said shareholders expected the "game-changing" aircraft to prove their worth.
His comments came Qantas chairman Leigh Clifford on Friday defended his chief executive's bumper $25 million pay packet in 2017, which was bolstered by shares Mr Joyce was issued three years ago and which vested after his successful execution of the airline's $2 billion turnaround plan.
"It was the quadrupling of the share price that determined the full amount – now I think that's an excellent outcome for the shareholders," Mr Clifford said.
The company's remuneration reported was voted up by an overwhelming majority, as was the election of Wesfarmers' outgoing CEO and AFL chairman Richard Goyder to the airline's board.
Qantas has purchase rights and options on 45 more Dreamliners, which will come up over the next three years.
The light-weight, long-haul aircraft will initially serve the Melbourne-Los Angeles, and new non-stop Perth-London routes, and allow Qantas to retire five of its ageing 747-400s.
International remains one of the toughest areas of Qantas' business, even as the group's financial fortunes have recovered in recent years.
International delivered a $327 million underlying profit last financial year - an improvement from a $497 million loss in 2014, but still less than the airlines' domestic operations, its low-cost carrier Jetstar and loyalty businesses.
Mr Joyce said while international competition would heat up in the second half of this financial year, he expected a "significant" improvement in the business in 2019.
"That then gives us the permission to invest more capital into those aircraft and grow the network," he told investors at the airline's annual general meeting in Melbourne on Friday.
"We have a commitment to making sure we do pace our capital expenditure, and for us, that capital expenditure has to fit in to the returns the business is making.
"All things being equal, if we continue this fantastic performance … we will be able to afford more 787s, more replacement of our domestic fleet and aircraft."
Mr Joyce said Qantas had been talking to Boeing about its mooted twin-aisle "middle of the market" aircraft as a replacement for Qantas' workhorse 737 domestic jets.
However, he said replacing its domestic fleet would not happen until the completion of Project Sunrise, its plan to fly non-stop from Australia's east coast to New York or London, which is not expected until 2022.
On Thursday, Qantas revealed its revenue had risen 5.1 per cent in the first quarter compared to the same period last year, but warned fuel costs and international competition would crimp earnings growth in the second half.
Despite this, UBS analyst Simon Mitchell said Qantas was on track to deliver its highest profit before tax of $1.55 billion, up from $1.4 billion last year and its record $1.53 billion in 2016.
Qantas' shares fell 5.5 per cent on Friday to close at $5.96 following its warnings of a softer second half. The stock has more than doubled in value over the past year.
wow, talk about an article all over the place.