Qantas tips $550 million reduction in fuel costs for 2014/15

The details were published in a slide presentation senior Qantas management, including chief executive Alan Joyce, delivered to the financial community during the company’s investor day on Tuesday.

The Qantas group’s fuel costs were expected to dip below $4 billion in 2014/15, a reduction of at least $550 million from $4.5 billion in 2013/14. The total cost of fuel was tipped to come in between $3.92 billion and $3.95 billion.

Moreover, Qantas said its hedging program meant fuel costs were expected to be be no worse in 2015/16 and had the potential to reduce even further.

The outlook for fuel had improved slightly since February, when Qantas said during its first half results presentation it expected fuel costs to be “no more than $4.0 billion at current prices”.

Meanwhile, the slide presentation said Qantas expected to achieve $875 million in savings from its transformation program by the end of 2014/15. The forecast was unchanged from February.

Qantas said all targets to date had been met or exceeded, while the most challenging initiatives had been front-loaded. The company also had “high visibility” on the $1.125 billion in savings still to be realised in 2015/16 and 2016/17 as part of its three-year, $2 billion transformation program.

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The program also included the loss of 5,000 jobs. Qantas said 4,000 jobs would have been cut by the end of 2014/15.

Qantas said it was on track to reduce net debt, including operating lease liabilities measured on a constant currency basis, by the previously announced target of $1 billion by the end of 2014/15.

And the airline said it expected to return to an “optimal capital structure” by the end of the current financial year.

Qantas said the reduction in net debt, lower fuel prices and the ongoing cost reductions meant the airline group was “well placed” for the board to consider shareholder returns, with the extent and timing dependent on prevailing operating conditions and outlook.

“The group will remain disciplined with capital allocation, delivering sustainable returns to shareholders alongside investment in growth, by maintaining its optimal capital structure,” Qantas said.

Qantas was expected to announce a bumper full year net profit when it hands down its 2014/15 financial results in August, with market consensus sitting somewhere north of $600 million as the airline group benefitted from lower fuel prices, a more benign domestic market and slower capacity growth on international routes into and out of Australia.

News of the $550 million fuel benefit and encouraging outlook sent Qantas’s share price to its highest level since 2008 on Tuesday, with the stock sitting at $3.62 in afternoon trade, a gain of nine per cent on the day.