Qantas Airways Limited (QAN) Earnings Call Transcript & Summary

Good morning and welcome to the Financial Year 2023 Results Investor and Analyst Briefing. My name is Filip Kidon and I am the Head of Investor Relations for the Qantas Group. I'll now hand over to our CEO, Alan Joyce; and our CFO, Vanessa Hudson, to take you through the results. Thank you.

Thank you very much, everybody. And can I, first of all, acknowledge the traditional custodians of the land on which we meet, the Gadigal people of the Eora Nation and pay my respects to elders, past and present. Thank you for joining us for the Qantas Financial year '23 Results Briefing. I'm joined as Filip said, by our CFO, Vanessa Hudson; and the incoming CEO, Vanessa Hudson, not 2 people, the same person. And she's going to be helping me get through this presentation and answer the questions at the end. And as always, we're joined by members of the GMC, our Group Management Committee. And let me introduce the people that are here. There's John Gissing, who's Head of QantasLink, as Safety and a few other things. There's Olivia Wirth, who's the CEO of Qantas Loyalty; Andrew David, who has been the CEO of the Qantas airlines, is currently CEO of Qantas Domestic. And Andrew will be helping us and John with anything that's happened in the past to talk about what's happened in the financial year '23. We've also got Rob Marcolina, who's Head of People, IT and Strategy and is the incoming CFO. And so Rob will cover questions related to the IT, strategy and transformation. We have Andrew McGinnis, who's Head of Government Affairs and Corporate Affairs. And so if there's any questions on government issues, Andrew can help on that. We have Andrew Finch, who's Company Secretary and Head of the Office of the CEO, which covers a number of different areas. Andrew Parker, all the Andrews are sitting together and elegantly. And Andrew Parker, who's our Chief Sustainability Officer, I'm happy to talk about the amazing progress we've made in that area, particularly around this various fleet order. Markus Svensson, who is taking over -- is currently the Chief Customer Officer but in September, at the end of September is taking over as the CEO of Qantas Domestic. And Markus will be talking about anything going forward or related to the Domestic business. We have Steph Tully, who's the CEO of the Jetstar Group; and we have Cam Wallace who in July took over as the CEO of Qantas International. Cam will be talking about any future issues related to demand and activity like that. So I hope that isn't too complex and let's see how that works. And if everybody sort of keeps to their land that will be good. Our format for today will be consistent with previous investor briefings. I'm going to give some opening remarks and then we're going to leave plenty of time for questions. So this morning, the Qantas Group reported an underlying profit before tax of $2.47 billion for the financial year 2023. The statutory profit after tax was $1.74 billion and earnings per share were $0.96. Our surveys have constantly shown that consumers are prioritizing travel over other categories and the results today are a testimony of that. All of our flying businesses performed well with strong travel demand underpinning performance. Both Qantas Domestic and Qantas International achieved operating margins in excess of their targets and Jetstar Domestic had a record second half as its operational performance significantly improved and is on track to meet its targets. Qantas Loyalty also had an exceptional year supported by membership growth, a large uplift in hotels and holiday bookings and strong performance from financial services. The business delivered above the top end of its guidance range. Supported by the recovery of international flying and the completions of a recovery plan, operating cash flows were also very strong at $5.1 billion. The strong cash flow performance supported growth in fleet investments with 10 new aircraft delivered during the year and substantial progress in payments made to Airbus for future deliveries. Coupled with shareholders' returns of $1 billion, it resulted in net debt at $2.9 billion at the end of the year. This is almost $2 billion, along pre-COVID levels and almost $1 billion below our targeted range. With liquidity at over $10 billion, the group's balance sheet remained exceptionally strong. Five years ago, we set ambitious targets for our financial year '24. With the completion of our $1 billion recovery plan, we are well on our way to achieving this with parts of our portfolio already there. Qantas Loyalty is expected to meet its target by the end of the calendar year, 6 months ahead of target. And as we outlined at our Investor Day, this will represent a step change in profitability at the Qantas Group. Another key theme at our Investor Day was sustainability. New aircraft technology is key to reducing our emissions. But we do know that, that's not enough. That's why we recently announced our $400 million climate fund. Today, we're doubling down to announce we have secured access for up to 500 million liters of sustainable aviation fuel as part of our widebody fleet renewal program with both Airbus and Boeing. And I think that gets us to up to 90% of our 2030 commitments in SAF. There is more to do, especially in relation to an Australian SAF industry. But this puts the group in a very strong position with the potential to meet that 90% of our targets for that year. Turning to our business results. Qantas Domestic achieved underlying EBIT of $1.27 billion, led by strength in corporate and SME, continued strength in resource market as well as in the leading domestic operational performance, supporting a strong NPS recovery. Jetstar Domestic delivered underlying EBIT of $255 million and operating margin of 11%. With over 9 million fares sold below $100 in financial year '23, the Jetstar Group continues to offer market-leading, low-fare travels for all of our customers. Group International delivered an underlying EBIT of over $1 billion, supported by cost transformation, a step change in freight and strong travel demand. Qantas Loyalty delivered underlying EBIT of $451 million with record points earned, bookings in hotels, holidays and tourists almost doubling. And our fast-growing Qantas Business Reward program, now capturing 1 in 5 Australian small and medium-size enterprises. Recovering and moving to new levels of profitability means we can continue to invest in our future. Today, we announced the final piece of our long-term jet fleet plan, replacing our A330s and ultimately, our A380s. In particular, the Board has approved firm orders of 24 new widebody aircraft for Qantas, a mix of A350s and Boeing 787s. The first of these new aircraft will arrive in financial year '27 to replace our A330s over several years. Our A380s still have a lot of life left in them, especially given the cabin upgrades, which we're getting amazing feedback from our customers. But as part of the pipeline we're building, they will be replaced by Airbus A350-1000s from about financial year '32 onwards. Like the narrowbody renewal we announced last year, we have negotiated options and purchase rights, which we can draw down as needed for further replacement of aircraft or for future growth. Importantly, our financial framework will continue to guide our decision-making. And the phasing of these orders, coupled with flexibility to shift deliveries gives us confidence that we can be funded within our debt range and through earnings while we continue to return money to our shareholders. And on that note, I am pleased to announce the Board has approved a further on market buyback of up to $500 million. Turning to the outlook. The group is seeing strong trading conditions into the first half of financial year '24. And we're seeing strong intent to travel continue. The group's dual brand strategy and our loyalty membership continue to uniquely position our portfolio to navigate the macroeconomic conditions. While fares have been moderating, the recent increases in fuel prices are expected to be offset and the group maintains flexibility to adjust capacity settings, if needed. Our investor slides include further information on intake trends and key financial assumptions for financial year '24. Our people have absolutely been critical to this recovery. In the middle of the pandemic, we announced incentives to help retain the talent we needed to secure our recovery and our future growth. With the recovery now complete, more than 21,000 of our people will share an around $340 million in shares and bonuses. Our customers have also been crucial to our recovery, sticking with us through a challenging restart when not everything went to plan across the entire aviation industry. The best we can thank them, is to deliver the standards that they rightly expect and we invest our profits to keep improving their experience and that's what we're doing. This is my last full year results as Qantas Group CEO. There's going to be a whole sea of balloons and confetti that are going to fly at the end of this.

Just get ready.

It's been an extremely challenging period, but I'm pleased to say that the future of the national carrier is in very solid ground. The group's financial stability is clear. We're in the strongest financial position we've ever been. Our balance sheet is the strongest that it's been in decades and it's set up to remain strong. We've taken $1 billion in costs and there's been a structural change to our earnings to deliver a new level of profitability. Put simply, we can afford to invest and grow, especially in new fleet while still delivering returns to shareholders. And I know that from November, Vanessa will be a very safe pair of hands to lead all this going forward, to provide the leadership drive and foresight to make the most of the opportunities ahead for the Qantas Group. So thank you, and we'll now open it to questions.

Your first question comes from Jakob Cakarnis with Jarden Australia.

Can I just focus on the change to the guidance at the group domestic level for capacity into '24, please? It's been just a minor recalibration there. Can we just get maybe Markus and Steph to talk to what they're seeing in that reduced capacity, please?

Yes. Let's go to -- do you want to go Markus first and then Steph?

Yes. I can start. A great name, by the way. Good question. So just -- let's be very clear, domestic demand is very strong. So we're seeing our leisure intakes, group leisure intake at 132% intakes every week, pre-COVID levels. And for Qantas Domestic, business purpose travel is 107%. So demand remains very strong. And even if you look at the business purpose demand, yes, you can unpack it and see resources, construction, government is well above pre-COVID levels. When you look at other sectors, like the financial services, consulting, manufacturing, in the revenue terms above pre-COVID levels, in terms of passenger gross or RPK we are still behind. And we know that because the same day travel is not coming back or has not come back to the levels of pre-COVID. Having that said, though, if you look at our business purpose demand, where we at, a couple of years ago, we said, when people were out there saying it's going to be half, it's never going to come back, we said it's going to be about 87%, we are well ahead of that. So our demand is strong. When it comes to capacity, I'll just quickly touch upon that and I'll hand over to Steph. What you're seeing in domestic capacity is the dynamic model and the strength of our business model. We have a dual brand, where we have capacity between Qantas and Jetstar. But also for the Qantas Group, the ability to move capacity from domestic to international. So for example, we moved some domestic capacity to international. We are updating Sydney-Denpasar to [ 9330 ] We're putting on a double daily Melbourne-Singapore. So we have that ability to move capacity around. Having that said, we do operate in a high fuel environment. So I'll let Steph talk a little bit more about Jetstar.

I think just to echo what Markus said, what we're seeing at the low fares, price sensitive end of the market is incredibly strong demand environment, week after week, record intakes, well over 130% of what we were getting in FY '19. So the demand environment for leisure travel, we genuinely think there's been a structural change to that and that people will never ever not be planning a holiday again after a few years of being locked up. So the bookings are very strong. The intake is strong. Even in the research at the price sensitive end of the market, we're seeing incredibly sustained strong demand for travel, both in the near term but also longer term across domestic and international. Jetstar for FY '24 is at 110% versus FY '19. So that is a strong amount of growth for Jetstar coming. We also have aircraft arriving this year. We've got 9 neos in Australia now. We'll have 18 by the end of next year. And that means we also have at the level that Qantas has because those neos are flying in domestic and international markets. So we will use them according to the demand but you see incredible growth in Jetstar that's cemented with our improved operational performance as well.

Jake, it might be useful if we can get Liv to talk about because she's got a very good perspective of what's happening in the research, what's happening around people's priorities and what's happening across the economy with loyalty. So I think it will be very informative if she says a few words.

Yes. And it really sort of wraps up, I think what both Markus and Steph have talked to. So we have been tracking intention of consumers and their intent to travel for some time, including during the COVID period and we've been talking to you about that. And what we're seeing in the latest data, it truly shows that there is a strong intention to travel both domestically and internationally and this is significantly up compared to pre-COVID and it is at a sustained level. When you have a look at international, for example, when we talk to our tiered members, our consumers and we say, what is your intent to travel, you've got over 31% of them indicating that in the next 6 months, they intend to travel internationally. We've never seen such strong intent. So that's one thing. Then when you have a look at it from a loyalty perspective and you think about our membership base and you think about the affluence that we have within the Qantas Frequent Flyer program, we have a disproportionate number of medium and higher affluent members within our base. And what we see from them, we know that they intend to travel more. They do in a normal time. But particularly now, they're spending more on travel. We've got over 35% of credit card spend in this market, which gives us a really good insight into how our members are spending and we can see this coming through. We can also see it in redemptions. Airline redemptions have doubled compared to pre-COVID. As Alan talked to, part of the driver for the loyalty result is the redemptions and activity in hotels and holidays. So when you wrap all this together, it shows strong intent, it shows strong intakes and it shows that there is a step change in consumers choosing to spend discretionary income on travel above every other category.

Your next question comes from Anthony Moulder with Jefferies.

I might follow on from that because we're seeing Virgin obviously reduce their capacity for first half '24 domestically. Obviously, did take those comments on the strength of leisure. We're seeing that in the growth in capacity at Jetstar. Are you sensing of a move away from Virgin to the Jetstar brand? Are you seeing any impacts from Qantas into Virgin, please?

Anthony, I think, first and foremost, I'd say we're just, both Qantas and Jetstar, we're focused on running our own race. So absolutely, I think our structural advantage in this market is that we have 2 ends of the market covered. So Virgin's proposition is a little more confusing, I would say and somewhat in the middle. Qantas absolutely covering the value premium customer, JetStar. As Alan said, we've had 9.2 million fares under $100. We've absolutely got the low end of the market covered and a very clear proposition for our customers when they're booking. They know what to expect with Jetstar. They know what to expect with Qantas. Operationally, I think it's really important to point out, Qantas has now beat Jetstar 11 out of 12 months, on track to beat them 12 -- Virgin, sorry. But actually for Jetstar, I want to trumpet my own team that in the last 2 months, we've beat Virgin operationally and we're on track to do that again. So we're doing that despite having fares that are 20% to 30% less than Virgin. So the proposition, I think, in the Australian market is very clear. And the 2 brands that we've got in this business have that market covered.

I think that's a good point, Anthony. I think the Virgin performance over this period of time, it's the longest period of time that we've beaten Virgin on [indiscernible] and cancellation levels and some of the gaps are the biggest gaps in the month that that's taken place. So I wouldn't be surprised if they're trying to focus on getting their operation back into stability or competitive against Qantas and they've got a long way to go in order to achieve that.

Your next question comes from Owen Birrell with RBC.

I just got a question around, I guess, the RASK/CASK spread. I think previously you'd indicated that RASK would be under pressure as capacity was coming on. Today, it's suggested that capacity is not coming on as quickly as you probably may be previously indicated and that the RASK is actually holding up very well. My question is, looking forward, with costs coming out, how should we think about your RASK/CASK spread? Are you looking to defend existing margins? Or ultimately grow margins by holding the RASK high and letting the costs come out?

Well, we've been pretty clear that we are targeting 18% margin for Qantas Domestic and 15% for Jetstar Domestic. And what we are seeing, as you have pointed out, we are seeing that yields are moderating. And that's a great thing for our customers and we're seeing that across both Qantas and Jetstar. And actually, the moderation in yields and RASK as you know, is a function of yields and seat factor. And so we're going to be focused on, obviously, ensuring that, that spread that you talk about between RASK and CASK is, that is going to actually widen. Hopefully, as capacity comes back, our cost we'll reduce, the $1 billion program that we've now completed, that is going to be very prevalent in our cost base next year. But also the transitionary costs that we've previously flagged are unwinding as capacity comes back. So if we look forward, we're very focused on making sure that in this current market that fuel price is actually covered through RASK. But the momentum that we've got with the demand that we see in the forecast is going to enable us to maintain that RASK momentum as well into the FY '24.

Your next question comes from Anthony Longo with JPMorgan.

Just a quick question for me on loyalty. When you look at -- those are clearly a very strong result. Can you perhaps run through the color as to how you're ultimately going to achieve that FY '24 target 6 months ahead of schedule, that's certainly a very strong result.

Yes, it's a great result. Liv?

Yes, sure. So what we are seeing and what we have seen, I guess, in the FY '23 results, including the second half, is that there is really strong momentum in the business. And when you look at what the key drivers are for the Loyalty business, it's really in 3 buckets. You've got membership and you've got growth and engagement of our members. We had a record, an additional 1 million members joining the program in the last -- in FY '23, which is a really strong result. And importantly, the engagement is also very high. From an overall perspective, the financial services part of our portfolio continues to be strong. We've got a strong acquisition of credit cards and spend on cards is at about 110% compared to pre-COVID. Importantly, our coalition business or the everyday earn continues to perform. So you've got really strong earn coming through across all verticals. From a burn perspective, from the redemption perspective, equally, I talked about before, we've seen record redemptions in our Airline business and also importantly, in our Hotels business. And so when you've got these 3 aspects, these 3 core drivers that drive the loyalty ecosystem, we have really strong momentum coming through, particularly in the second half. And we expect that, that will continue into the first half of FY '24, which gives us the confidence to say that we will hit that long-standing target of $500 million to $600 million, 6 months early. So it's all based on momentum. It's all based on the 3 core drivers that really drive the loyalty flywheel. And we're very focused on making sure that we can continue to grow this business as we now look out to FY '30.

Your next question comes from Sam Seow with Citi.

When I think about the international capacity guide and then in light of your fleet as well, it looks like you've got about 10% less mid-tier widebody plane. Now I appreciate that does take into consideration age but just wondering at a higher level with less widebodies, can Qantas get back to 100% before the Sunrise planes arrive? Or any color there on how we should think about that?

Do you want to have a go at that, Cam?

Thanks. Yes, we've got a lot of fleet flexibility. We're at about 91% capacity at the moment, 91% and we expect to get back to 100% by March of 2024. So we've got a lot of flexibility within the group, both in terms of our Domestic business as well as the International. We also have flexibility in terms of our short-haul operation being able to utilize the domestic fleet. So that's one of the sources of competitive advantage that we have in the Qantas Group. And as we look at incrementally starting up new markets, they have been very successful ahead of business case. So we're seeing, where we enter into new markets with partners, we're performing better than expectation and better than the business case. So we certainly want to get back to 100% flying as soon as practical.

And the one thing that I'd probably add to that, Sam, is that utilization and driving utilization is a big part of the way in which we're deploying our assets. And as Cam said, that we're deploying them across new markets. But also we've got leased capacity coming in with Finnair, which is both enabling us to continue to grow. But that's also enabling us to release additional lines of flying to be able to grow across our network as well. So that combined, you'll absolutely see that that's going to deliver us getting back to 100%.

Your next question comes from Cameron McDonald with E&P.

And look, just congratulations firstly, Alan, on the final result and to you and the team. Can I just ask sort of some further details around [ Project FISH ], if I can. Just so, how do we think about that aircraft renewal order? And where I'm heading with this is, one around the RASK and the one around the CASK. And then thinking about the number of seats on the A350-1000 versus the A380 and the A330 on balance. So are you actually going to maintain pressure on pricing because you're actually reducing the number of the capacity in that footprint. But then also thinking about -- you've highlighted a 20% improvement in fuel for the 787-9s and 25% for the 787-10s and then a 25% for the A350s. And as a very quick follow-on, I'm assuming these 12 A350s won't have the additional fuel tank capacity.

Yes. I can take a stab at that and then Alan will mop up anything, I think that I've forgotten. So the A350s and the 787s, which are both 787-9s and 787-10s, they will replace the flying early on in that process. So from FY '27, they'll replace the 330s, which are older at this point in time. They're going to be deployed across our Asian network but they've also got the capacity to be able to fly across the Pacific as well. So they're going to be a highly desirable aircraft and drive significant utilization. The 350s as well, when they come, they are also going to be deployed but more on the longer flight routes that we've got, particularly replacing ultimately the A380. And when you actually look at the difference in the configurations between those aircraft, clearly, the A380 is a larger aircraft and the 350s when they replace it, it won't be one for one. But the key part of our strategy going forward with these aircraft is going to be about opening up new routes, more point-to-point routes. That's a key part of our strategy for international that we outlined in Investor Day, that network diversification and flying more point-to-point with actually a higher premium mix as well, serves the Australian, particularly domestic market and our home market strength across that broader network. So it's going to be really hard to do a compare and compare analysis but we are going to and we have sufficient aircraft above the 24 firm orders to replace all the 330s and the A380s plus also the options and the rights that we have will enable us to grow with the international market. So we're not just thinking that it's going to be one for one. And we are seeing that the international market is going to continue to grow, particularly in the premium end of the market. And so we see that, that's going to be around about 3% year-on-year. But the flexibility that we also have in the order book with Airbus and Boeing is going to enable us to make sure that we keep that in balance and that we match our capacity with demand. But if I just take a step back in terms of these aircraft, they are a significant technology advancement. They're going to enable us to have the right seats on the right routes, particularly in terms of seat mix. But they're going to have a range in performance that will drive utilization, so that's going to be a more effective unit of asset to be able to deploy across our network. But then finally, the engines on these aircraft, again, are a step change. It's a 2-engine aircraft compared to a 4-engine aircraft on the A380. So it's going to be lowering our costs, lowering our fuel burn and really as well significantly step changing our emission footprint. Also, coupled with what apart that we achieved with [ Project FISH ] was, being able to access 500 million liters of SAF is significant. And it demonstrates that we are well on our pathway to hit our FY '30 targets and also from a jurisdiction which has got incredibly good pricing relative to other parts of the world.

That was a superb answer. The only thing I would add to what Vanessa has said is that we have said that the A380s are not going to be replaced till financial year '32, so that's a long time away. And what we have managed to negotiate is, early access, not only we take the 24 firm aircraft but we have options and purchase rights with set pricing and set dates that gives us flexibility on our side to be able to replace those aircraft when we want to. And Vanessa's point is the most valid one when it comes to the 380. When we originally bought the 380, they just had the range essentially to get to L.A. They just had the range to stop in Singapore to get to London. So we had a hub strategy of actually dispersing traffic, huge amount of connecting traffic from L.A. went onto the rest of the United States. With the aircraft we're now ordering, we're going to have more direct flights into the United States. So the need for those big aircraft is a lot less in the future. And you're absolutely right that our intent is not to have the 350-1000s with the rear center tank. They are going to be operating on shorter sectors than the ultra-long range and they're probably going to have a different configuration to make the advantage of that. But having an extra 12 A350s as a minimum on top of the 12 we've already ordered, gives you a critical fleet and size that gives you economies of scale because apart from that, it is the same aircraft and that's going to be a big advantage for us as well going forward. So I think you could see how many dimensions the team have thought about when they made this fleet order. And I think this is -- I've been CEO for 15 years. I don't -- this is always the fantasy that we're after, huge flexibility, availability of slots, availability of aircraft and the aircraft that have the range to overcome the tyranny of distance. That was always a problem for us. This is -- these fleet orders are game changer for Qantas. And I think -- I'm not sure the market has fully got there but for over the next few years, it will.

Your next question comes from Andre Fromyhr with UBS.

Just if you sort of sum up the outlook commentary that you've provided and based on what you've seen in FY '24 to date, how well are you tracking against the FY '24 targets that were updated in February and they've been sort of published again in the presentation today? I note that you specifically called out loyalty as being on track but how are the other ones tracking?

Well, we remain really committed to those targets. Qantas Domestic has achieved that target this year and Jetstar in the second half of this year that we've just closed has achieved a record result for Jetstar. And as Olivia mentioned, the Qantas Loyalty business is achieving the bottom part of that range 6 months earlier. So we're really excited that the business is performing the way it is. And the outlook that we've got demonstrates the confidence that we have heading into FY '24, that demand remains really strong. And also the International business as it continues to restore capacity is seeing ongoing demand and growth as well.

Your next question comes from Nathan Gee with Bank of America.

Can you just talk about what's driven the softer seat loads we've seen in the second half, both across Qantas Domestic and Qantas International, just noting that they've slipped below the '19 level? And then also, should we and can we assume that some of those loads start to bounce back into '24?

Yes. Okay. Andrew David for that answer.

Let me start with the end of the question. Will they bounce back? Yes. Let me just go to Qantas International first. Yes, you did see lower load factors in that second half, fourth quarter. And that simply was, we typically need a 12-month window to sell into for international routes. We launched Hong Kong and Japan in response to those markets opening up quite quickly. We didn't have the lead time that we would normally have and we're seeing in the FY '24 numbers that those load factors are returning to historical norms. And then on the Domestic, Markus largely explained that. What we saw in the fourth quarter of '23 where loads were lower and there are 2 reasons for that. One, we've continued to expand our regional footprint and regional flying will have a lower load factor than your mainline 737 flying. And that, particularly in the West, we've been growing the flying there. The second factor is the one Markus referred to. What we are seeing is revenue demand well ahead. We are seeing overall volume traffic demand ahead of what we forecast. That growth is in government, mining, construction. And what we've equally seen is that in professional services and the finance sector hasn't come back as quickly. So what we've done is adjusted our capacity on particular sectors like Sydney-Melbourne and we've moved them into flying like Sydney-Cairns. We've increased flying into Darwin. We put more flying Melbourne-Singapore. We've upgraded from [ 730 to 330 ] on Denpasar and what we've seen as a result, if we look at our July numbers, we have seen load factors bounce back.

Your next question comes from Matt Ryan with Barrenjoey.

I just had a question on the unearned revenue balance that you've shown and whether you think we're in a normal booking curve now? And maybe if you could just also comment on whether you think there's any permanent changes to sort of booking windows and what that might mean for your business?

So we have definitely seen our booking curves now for some time return to the typical profile that we had before COVID. And for international, that's around a 4- to 5-month forward booking. We now -- and for domestic across both Jetstar and Qantas, that's around a 4- to 6-week booking curve. And we've actually been there for some time. So I wouldn't expect that there is going to be any changes in those going forward. In terms of our revenue received in advance, we are still carrying approximately $400 million in COVID-related credits that relate predominantly to Australian-based credit. We're very much focused on making sure that we burn those credits between now and the end of the year. We're doing a significant effort to drive that, including -- we're e-mailing customers frequently. We are providing incentives for those credits to be burned. We are offering our customers the ability to refund if they want to refund rather than use their credits. We're making it easier for them to find their credits online and also we're providing dedicated concierge services to really support our customers through that process. So when we actually look forward in terms of the revenue received in advance, we think that there will be some normalization given that, that credit balance will come down as customers use that. But then looking forward, we're going to continue to grow. And the one thing that I think that you've got to be putting into your model going forward is that once that we get over this year and Project Sunrise comes in and then you're flying and the new growth that comes from all the new aircraft that are coming, our working capital will continue to grow, and Sunrise is all growth. And so therefore, there's not going to be a normalization of working capital because it's going to continue to grow as we grow going forward.

Your next line comes from Justin Barratt with CLSA.

Congrats on the great results. I just wanted to ask, I guess, keen for you to talk a little bit more to the strength in your balance sheet, where it sits right now. And within that and thinking about, I guess, you've used up a few of you carried forward tax losses in the year. How should we think about the potential reinstatement of the dividend into FY '24 or '25 or '26?

So I'll start with the last question first. We are forecasting that the group is going to return to a tax paying position in quarter 4 this year. So heading into FY '25, that will be the year that we are in a position if the Board decides to provide a return to cash dividends that will be in a franking position at that point in time. And on the balance sheet strength and being in the strongest position that we've been in our history, I think that there are a number of points that I would make in terms of what is that strength. I think first and foremost, our liquidity is incredibly strong. We've got approximately $10 billion of liquidity on the balance sheet at the moment. That's in cash and also undrawn facilities but also and more importantly, our unencumbered asset pool has returned to a higher level than it was pre-COVID. It's now over $5 billion. That has been a very deliberate strategy that we have had coming through COVID so that we have a higher mix of narrowbody aircraft as a part of that unencumbered asset base because we know and the learning that we had through COVID was that those aircraft, they hold their value longer and at a higher level. And that is what lenders prefer when you need to secure funding, if we were to be in a situation, again, where we needed to do that. The second thing that we focused on is our debt and our debt maturity profile. We have been prepaying debt to bring down our debt levels. Also, we have been making strategic decisions to repay our most expensive debt. And again, that is being focused on our leases. So we have bought back 7 leases across the group. We have now over 90 -- or around 90% of our fleet is now fully owned. And again, that's another incredible part of the strength of our balance sheet that we are in that position and that we've repaid what are very, very expensive forms of financing for aircraft. And then if we look at our financial framework and our net debt, we are in a very strong position. We are below our net debt now, $800 million below the net debt. That actually gives us, as we look forward, a lot of confidence that as we start to renew our fleet that, that position is starting from a very strong position. And that is -- that net debt position is also going to increase over time as we invest in our business and as our earnings continue to grow. And then finally, what I would like to call out has been a fantastic focus that our treasury team has had, which is on our debt profile. We have also been able to extend that debt profile and also lower the maturity of debt that we have in any 1 year, with a deliberate focus on absolutely minimizing that debt maturity profile during our Sunrise capital [indiscernible]. So once again, this is bringing flexibility, it's bringing headroom but it's also bringing resilience as we manage over the coming years and being able to confidently face any environment, demand environment or external environment that we may face.

Your next question comes from Scott Ryall with Rimor Equity Research.

I was hoping to just ask about the sustainable aviation fuel part of the Airbus, Boeing deal. And I apologize if you've answered my question already, I've come on late from a couple of other calls. But could you just -- I have seen in the footnote that you're getting [ 80 million ] which is from existing projects and the rest will come from investment in new projects. Is this something that is, that effectively Airbus and Boeing are helping you to source this or helping you, I guess, they delve into some of those new projects? And then could you just give us a bit of an update on how you're seeing the development in Australia, recognizing you said somewhere in one of the literature that you're frustrated about developments. But in terms of when you think you will see a facilitating regulatory environment in Australia, please?

Yes. Can I say great question and it hasn't been asked. So Andrew Parker has been champing at the bit to try and answer a question. And now he's got the stage. Don't take any more than 20 minutes to answer this question.

It's 20-25. Look, I think, blowing our trumpet to a degree, this is a really significant day not only for us but we think for sustainability in aviation. So as Alan and Vanessa articulated at the start, the efficiency that these new [ Project FISH ] aircraft will deliver is significant in the aircraft that they're replacing, particularly as we look into A380s and twin engines replacing 4-engine aircraft. But I think as you know from our Investor Day and certainly from our climate action plan, we are evangelical on sustainable aviation fuel. So you can't invest in multi-decade aircraft, particularly those that are orientated in medium- and long-haul operations without a serious SAF plan attached to them. So the challenging partnership with Boeing and Airbus and the propulsion manufacturers was partnering with us on SAF. And as Vanessa said, particularly in jurisdictions like the U.S., where we have price advantage and we have a certainty of projects that are underway, are projects that have already had deep due diligence and capital attached to it. So they were complex negotiations. And I would characterize it, as you said, a combination of projects where we have secured specific volumes as well as projects that we will jointly partner with Airbus and Boeing. So for the first time, we have a pathway to our 2030 target of 10% SAF where we're able to state that we will have up to 90% of those volumes captured by these new arrangements. And I'm certainly not aware of any other airline that can make that statement which is why I think it's such a significant day. And then I would just add quickly, so I don't hit the 20-minute mark, 2 other things. One is, these aircraft are orientated to medium- and long-haul end markets like the U.S. We have real faith that we understand those markets. You're seeing other jurisdictions in addition to California coming with additional incentives. So that market is showing real maturity in the long term in SAF development. The IRA of the Biden administration is one of the most significant economic measures we've seen in the rollout and influence on SAF. But it is a message to Australia that Alan touched on, which is, whilst we're finally starting to see some momentum of SAF in Australia, we are doubling down in terms of our commitment and efforts to try to replicate in Australia what is happening in international markets. We had the first meeting 2 weeks ago of the Jet Zero Council. There was very significant ambition in the room along with government. So I think you're beginning to see signs of not only government policy but we've got our first 2 projects attached to our Climate Fund for SAF in Australia out the door now. So that $400 million vehicle that we're investing in Australia and internationally is beginning to roll out into investments in projects.

Thanks, Andrew. And that was only 10 minutes, I think. Well done. I think we have time for -- we might do one more question and then we'll wrap up. So final question.

Your next question comes from Niraj Shah with Goldman Sachs.

I just wanted to ask about freight actually. It's moderated in '23 but remains resilient, as you guys say, with -- you called out strong yields in the fourth quarter. I guess, how are you guys thinking about that through fiscal '24. And I guess, what's the new normal for that in your minds?

Do you want to go? Yes, Cam. That was a combination, do you want to do a combination act? Come on, do it, both again.

It's always difficult to speak after Andrew Parker. I thought that was the end of it. Look, there's a couple of bits I'd say about freight and then I'll hand over to Andrew. One is that exceptional business in domestic. We've got 3 strategic customers and a outstanding market position, which is really resilient for the future. Then if we look at our international business, still producing much higher intakes than we saw in FY '19. And the underlying reason for that and some of the work that Liv has been doing is, we still lag most markets in terms of our e-commerce penetration. So we think there's significant amounts of incremental growth for e-commerce. E-commerce plays beautifully into airfreight because consumers more and more are wanting speed of delivery. So when they purchase online, they want to get the products and services to them as quick as possible, which plays into airfreight. And then I'd say for the future, we've got terminals of the future, which we think plays really well into automation, AI, machine learning, new terminals, new airports that we'll be able to deliver on. So huge opportunity, we think, still for the business and capacity to grow. I'll hand over to Andrew now, if you can reflect on the last quarter or the last year.

Look, just in summary, we expect the yields to normalize as [ pax belly ] comes back on the international side and that's exactly what they are doing and they are doing that in line with their expectations. The 3 things that set our freight business apart is the strength in our domestic market, the e-commerce growth in Australia and the investment we're making in fleet. And just like the passenger business, that comes with step change improvement in both capacity, RASK, not RASK performance in freight. We don't put passengers in airfreighters, unit cost performance and the overall revenue performance out of those aircraft.

Thanks, Andrew. I might wrap up. I wanted to finish by -- because obviously, this is my last investor briefing but it's also Andrew David's and John Gissing's. And I just want to say a few words about Andrew and John. Andrew and John, Andrew has worked with us for 10 years now and done a number of different roles for us and I think has been a superb executive. He's gotten a lot of experience in aviation around Australia. He worked for Air New Zealand, Tigerair, Virgin, Jetstar and then Qantas. He said he saved the best for the last. And I think he was right on that, boy, he has done a superb job, particularly during the COVID period, where he agreed to extend to help Qantas get through that tough period, even though his family was based in New Zealand. So a lot of personal investment in there. So can I thank Andrew, you've done a superb job, you'll be missed. There's great new management coming in, which I think will be superb but I want to wish him all the best for his retirement in New Zealand and thank you. And on behalf of everybody in Qantas, the shareholders, the customers and the employees on the amazing job that you've done. Can I also -- give him a round of applause. Can I also thank John Gissing. John and myself have worked together for a long time. We first met when we were setting up Jetstar, where I discovered that John couldn't tie a tie. He just had the knots kept open but he is the best safety professional in the country. He put in a safety management system, the Qantas management system that I think is the envy of the world. It's had an amazing payback in terms of the safety outcomes for this company. And John has done a phenomenal job in the regional operations, particularly in the purchase and takeover of Network Aviation, the growth of that business, which has been unbelievably good and helped us, again, get through COVID. And John has always been a steady hand, is somebody that is very passionate about the business, very passionate about the company, very passionate about Regional Australia. I think they've erected 20 statutes to him around the country for all the services that he has done out there. And again, John is retiring when I retire on the third of November and I think we wish John all the best for the future. He's working as a consultant of the company for another year. I think that will be great. But we wish John all the best for his future dwelling on his farm. He's a real country man at heart. Give him a big round of applause. Can I wrap up by saying, I think you can hear by the quality of the answers and the quality of the people here, how much [ gray hands ] -- safe hands the company is in, not only with Vanessa, who I think has been an amazing CFO, did an amazing job all the way through the last few years during COVID, which was the toughest period to be a CFO of an airline but also to the new management coming in, in the different roles. It's an exceptional team. The depth of the team is just amazing. I think Qantas is in a real safe pair of hands. So I congratulate everybody on their new roles and wish you all the best for the future and I know Qantas is in safe hands.

Before we do a round of applause, I would like to finish by recognizing you, Alan. I think that we have been truly blessed as an organization that you have been our leader through what has been probably some of the most challenging times that any global airline CEO has faced, particularly getting us through COVID has been absolutely an example of leadership at its best. I know that I wouldn't be in the role I am, I've learned so much from you. And I think that we are all a better organization. We are a stronger organization from having you as our leader but we are also a better organization because our culture over that period of time has just gone from night and day to where we are today. So thank you for your service and we all of them miss you. But we also know that you are only a phone call away. So good luck and take care and we will all be behind you.