Qantas to Buy Dreamliners, Return Capital as Profit Rebounds

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Qantas Airways Ltd. said it would buy eight Boeing Co. Dreamliners and return A$505 million ($371 million) to shareholders as it posted its strongest full-year earnings since Alan Joyce took the helm in 2008.

Earnings before tax and one-time items were A$975 million in the 12 months ended June 30, Qantas said in a statement Thursday. That compares with a A$646 million loss a year earlier, and was narrowly below analyst estimates.

The result, buoyed by Joyce’s cost cutting and an easing of competition, vindicates a quadrupling in the airline’s share price since it plunged to a record low in December 2013 amid a market share war with Virgin Australia Holdings Ltd. The new Dreamliners will allow the carrier to retire five older 747s and open up new routes, the company said.

“It’s better on pretty much every measure,” Evan Lucas, a market strategist at IG Ltd. in Melbourne, said by phone after the announcement. “The Dreamliners mean, particularly into Asia, there will be many routes they haven’t offered before.”

Qantas shares rose 2.1 percent to A$3.84 at 10:05 a.m. in Sydney, marking a 303 percent rise from the record low 95.25 Australian cents. They have gained 62 percent this year, outstripping the 1.3 percent decline in the S&P/ASX 200 index.

Capital Return

The result means Qantas has earned more money before tax and one-time items in the past year than in the preceding six of Joyce’s tenure. The earnings missed the A$982 million average profit of 11 analyst estimates compiled by Bloomberg.

Qantas will return 23 Australian cents per share in early November and reduce the number of shares on issue to increase the value of existing stock, it said Thursday. That marks the third time Qantas has returned cash to shareholders since Joyce took over.

He hasn’t promised shareholders a dividend since 2009, when he proposed 6 Australian cents a share alongside a A$500 million equity raising. In 2012, Qantas announced it would buy back A$100 million in shares after raising cash from cutting an earlier Dreamliners order.

The new Dreamliners will be delivered from the 2017 calendar year. “Their incredible range and fuel-efficiency will create new possibilities for our network,” Joyce said in the statement.

The airline has 50 options and purchase rights for Dreamliners, worth as much as $12.86 billion at Boeing’s list prices.

Reduced Competition

Qantas has benefited from a weaker Australian dollar that’s reduced competition from international airlines on routes into the country. The easing of its market share battle with Virgin Australia has also allowed domestic ticket prices to rise.

“The domestic aviation market looks set for a recovery,” Cameron McDonald, an analyst with Deutsche Bank AG in Melbourne, wrote in a July 31 note to clients.

It’s set to receive A$535 million from Sydney Airport Ltd. in return for handing back its lease on Terminal 3 about four years early. The deal will result in a A$210 million capital gain in the year ending June 2016, Qantas said Tuesday.

Earnings before interest, tax and one-time items at Qantas’s domestic unit rose to A$480 million, from A$30 million a year earlier, while the international division posted its first annual profit since at least 2011 with Ebit of A$267 million before items, compared to a A$497 million loss in 2014.

Loyalty Program

The measure at the Qantas loyalty frequent-flier unit rose 10 percent A$315 million and was A$230 million at budget carrier Jetstar.

Yield -- a measure of revenues per passenger, per kilometer flown -- rebounded to 10.4 Australian cents, while the fuel bill dropped 13 percent to A$3.9 billion.

“Higher loads and increasing yields are the sweet spot of aviation,” Anthony Moulder, an analyst with Citigroup Inc. in Sydney, said in a Aug. 10 note to clients. “We regard the current dynamics as very attractive.”

The company’s cost-cutting program delivered A$894 million of benefits during the year, Qantas said Thursday. They’ve saved about A$1.1 billion so far out of a A$2 billion total, Qantas said.