Qantas Airways Limited (QAN) Earnings Call Transcript & Summary

Welcome to the Qantas Group First Half 2024 Investor and Analyst Briefing. My name is Filip Kidon, and I'm the Head of Investor Relations for the Qantas Group. I'd like to begin today by acknowledging the traditional owners of the land on which we meet, the Gadigal of the Eora Nation. I would also like to pay my respect to Elders past, present and emerging. I will now hand you over to Vanessa Hudson, our Chief Executive Officer, to take you through our results.

Thanks, Fil, and good morning to everyone in the room. We've got a room full of Qantas team here, and also good morning to those on the line. Thank you for joining us for this Qantas First Half 2024 Investor and Analyst Briefing. I am joined here by Rob Marcolina, our Chief Financial Officer; and I'm also joined here by our group leadership team. We have: Olivia Wirth, who is here as the CEO of Qantas Loyalty; Andrew Finch, who is our Legal Counsel. We have Catherine Walsh, joining us for the first time. She's been in the seat as our new Chief People Officer for 3 weeks. Welcome, Catherine. Stephanie Tully, who is our CEO of Jetstar; Andrew McGinnes, who is the head of our media and also government affairs team. We have Andrew Parker, our Chief Sustainability Officer; Cam Wallace, who is the CEO of Qantas International; Markus Svensson, who is the CEO of Qantas Domestic; Catriona Larritt, who is our Chief Customer Officer; and also Andrew Monaghan, who is our Chief Risk Officer. The materials lodged on the ASX earlier today will be taken as read. And I will take you through briefly some highlights, and then myself and the team will answer any of your questions. Earlier this morning, I spent time at one of our hangars at the Sydney jet base with our employees and the media, unveiling our new Airbus A220 aircraft. As we announced, the A220 will operate its first scheduled service in just over a week. It's 1 of 29 A220s that we have ordered coming over the future years. At the same event, we also showcased our Jetstar A321neo, and I spoke to one of our pilots who shared firsthand their experience of the incredible efficiencies that we are seeing. With 11 NEOs now in service, they are proving out our business case, delivering substantial benefits for our customers, reducing our emissions and improving our financial performance. The investment in these aircraft, along with others like the A350s and the A321XLRs underpins the future of the Qantas Group. And it's our continuing financial strength, which will support these investments. Shortly, we'll walk through the details of our first half results, but I wanted to begin with some important reflections on our renewed focus on our customers and our people. It's fair to say that, over the past 6 months, I've spent more time listening than I have spent time speaking. And we've also been acting with $230 million now allocated to new customer investments over this year. As customers, I hope many of you have started to see how things are changing. We're improving our on-time performance. We've invested in our customer product. We've hired and trained more people in our call centers, and we continue to improve the digital experience for our customers. And the early results are extremely encouraging. Our customer satisfaction scores have bounced back strongly since December, and we have more service and product improvements in the pipeline. So now turning to the results. For the first half, the Qantas Group reported a statutory profit before tax of $1.25 billion, a statutory profit after tax of $869 million and earnings per share of $0.52. Across our integrated portfolio, spend on travel remained strong. All of our flying businesses performed well with Jetstar Group standout as an underlying EBIT group -- grew by 85% to $325 million. Strong performance in Jetstar International, a return to profits in Jetstar Japan and unwind of disruption costs in Jetstar Domestic all contributed to this result. Our dual brand strategy in the domestic market continues to deliver with the group domestic margin of 16%. Qantas Domestic delivered another strong EBIT performance, with strength in resources and also SME business traffic offsetting shifts to leisure to international markets. Qantas Loyalty also had a very strong half with underlying EBIT of over $500 million for the calendar year and with points earned and burned up about 14%. Rewarding our customers is key to our customer proposition. In the half, we announced a number of initiatives around additional redemption seats and points plus pay campaigns, and there is more to come. Work is ongoing to look at delivering a substantial improvement to the value of our members, and we'll have more to say on this in the coming months. While overall portfolio earnings were strong, freight performance was not where we thought it would be. We always expected the record yield seen over the last few years to decline, but this has come off quicker than we expected driven by faster return of belly space and macroeconomic conditions. But the fundamentals of our freight business remains sound, underpinned by e-commerce growth, investment in new fleet and long-term contracts with domestic customers. With the group capacity 25% higher in the half, our unit costs reduced. And as our performance -- operational performance improved disruption cost unwound, putting downward pressure on fares. Both domestic and international fares were over 10% lower in real terms compared to peak seen in the second quarter of last financial year. All of our segments are focused on delivering value to customers, especially Jetstar, which has over 12 million fares under $100 last calendar year. And now I'll hand over to Rob to take you through our financial framework and outlook.

Thanks, Vanessa. Well, our financial framework is core to our financial strengths and has served us well since 2015. Post the recovery, we have reviewed its settings to ensure that they remain fit for purpose. And while the review concluded that they are appropriate, what we have recognized is that during the COVID period, it impacted our invested capital, which is now unusually lower. This has the potential to impact our optimal leverage targets. As such, we've decided to act to ensure we are not artificially constraining the business by staying under leveraged. Until our invested capital normalizes, which we expect to happen beyond FY '26, we will be targeting at or below the middle of the net debt range. As always, the range itself will be dynamic, and we will move up as invested capital rebuilds. For this particular period, our net debt ended at $4 billion, which is at the bottom of the target range of $4 billion to $5 billion for FY '24. And liquidity remains exceptionally strong at over $9 billion with various sources. The increase in net debt in the period included significant one-off impacts, approximately $300 million of treasury shares vested under our employee reward plan as well as the buyout of 12 operating leases. And our operating cash flow for the period was $1.3 billion. This included a return to normal seasonality with cash flow historically weighted to the second half as well as the continuing rundown of COVID credits with $184 million used or refunded during the first half. Accordingly, we expect our cash flow in the second half to materially step up. For shareholders, the Board has approved a further on-market share buyback of up to $400 million. And this is in addition to the $48 million of previously announced buybacks that we are still to complete. The buybacks are anticipated to commence during the second half once the planned improvements to our Frequent Flyer program are finalized and announced. So now turning to the outlook. The group is seeing second half travel demand remaining strong across the portfolio with intake trends also remaining strong. We expect the group RASK to continue to moderate versus the prior period as capacity returns and for net freight revenue in the second half to be largely in line with the first. We have seen an impact from industry costs and accordingly, have increased our target for transformation to about $400 million for the year. Capital expenditure is expected to be $3 billion to $3.2 billion for this year, and we're also announcing our initial investment plans for FY '25 with a guidance of $3.7 billion to $3.9 billion for next year. We are also expecting franking credits to become available from FY '25. Our investor slides include further information on the key financial assumptions. And I'll now pass back to Vanessa.

Thanks, Rob. And just concluding, the past 6 months have been particularly challenging as we faced into rebuilding trust and restoring confidence in Qantas and the organization. But there is also a lot to be really proud of. The way our people have responded and continue to deliver for our customers is second to none; the improving customer sentiment and the conversations that I've had with so many customers who've increasingly shared their great experiences with me; and of course, the ongoing support of you, our shareholders. Across the group, we're relentlessly focused on getting back to our best and then beyond. Thank you, and we will now take your questions. I hope there are some.

We have a question from Jakob Cakarnis from Jarden.

Can I just highlight some of the commentary in the pack about returning to historical earnings, which typically in the pre-COVID period, that would mean the first half is around 60% of the full year PBT. If we think about 2 of the key swing factors into the second half, it sounds like the yield environment you're anticipating maybe gets a little bit worse given that there's no change to that capacity guidance. But more importantly, can you just focus on cost because it seems as though that some of those ramp-up costs still that need to come out in greater quantum in the second half? And then it looks as though fuel costs might be trending a little bit lower where you expected. Can you just talk to those items, please?

Yes. So I'll take that. So you're right. We do expect that we are getting back now post COVID to the seasonality that we saw prior to COVID. So what you asserted is correct. In terms of costs, I think it's important to recognize that, in the first half, we have had a number of costs that have hit the business and probably most significantly has been some of the industry costs and also some of the CPI costs in the first half. So transformation has lagged in the first half. But we expect that for the full year, the transformation will catch up. So you are correct. As we discussed before, there will be continuing RASK decline, as we've said, across the group level. But we're very confident that given the cost focus and the transformation program that we have focused for the second half that, that we'll be able to recover.

Your next question comes from Andre Fromyhr from UBS.

Maybe just following up on the role of costs on your margin and momentum into the second half. I note on your outlook slide, you say management remains committed to the performance targets. And at least on what we can see today, Qantas Domestic, Qantas International, tracking a bit below those targets as they were sort of reiterated last year. So is there anything driving the margin into the second half that would give us confidence that those targets are achievable?

So I think a couple of points, and I might then pass to the CEOs to have a chat on what they're seeing in their business. A couple of things that we are -- as we said, we're very committed to the margin targets, and they remain a focus for us. We still feel very confident about the domestic market structure. And also, we're still very confident around the transformation work that we have done during COVID and the ongoing transformation work that the business is committed to, to offset cost inflation through our business. And Rob will talk about how we're focusing on transformation going forward. There are a couple of call outs that, I think, that are impacting the margin targets this year. And one of those call outs is we've seen a move and a mix in capacity to our regional flying. And that's because we haven't seen the business market, particularly on the Triangle same-day business market come back as fast as that we thought. But we're still very confident that it is still in the recovery phase. And that, with the addition of the new aircraft that are coming in, makes us feel very confident that the pathway to those margin targets are very believable. We've provided a case study on Jetstar in terms of what we're seeing that when you get to scale with the new aircraft, just what benefits that you're seeing from both the cost performance but also the route benefits that come from the additional flying that comes from the capacity and the capability of those aircraft. So I might break the question into 3 at the moment. One, I might get Steph to talk about what she's seeing with the new aircraft; and then Markus, the business market. And then Rob can just conclude with the focus on transformation and offsetting the costs that we are seeing coming through the business.

Thanks, Vanessa, and good morning, everyone. Jetstar's result is a record first half result for the Jetstar Group, so the Jetstar team is really proud of today's result. I think what we're seeing, we're seeing international meet the margin target, which is fantastic. Domestic, we're absolutely committed to the 15% target. I think just to remind everyone that, that 15% is based on Jetstar being 1 of the leading low-cost carriers in the world. Ryanair, we understand, is at 15%. Jetstar is second in line in the world, which I think given our size and the airport structure that we work on in Australia is an outstanding result for Jetstar. But there's 4, I think, things that we're focused on to get to that margin target. First one, you'll see the case study on the NEOs in the pack. The NEOs are delivering cost benefit domestically, but also contribute to Jetstar's excellent best ever international result; CASK benefit, scale benefit, obviously, fuel and sustainability benefit as well. So the NEOs are doing what we plan them to do and more, I would say. Secondly, I think for Jetstar this half compared to the half before, you're seeing incredible improvement in operational performance. So international, Jetstar's had a nearly 30% increase in on-time performance, domestically 10%. We've halved our cancellations. And that, for Jetstar, we think, can only get better. It's incredibly important focus, and that's removed a lot of the temporary costs out of the business, and it's better for our customers' reliability as well. So it's good news around. Jetstar has to, to deliver what we want to do, which is we delivered, as Vanessa said, 12.2 million fares under $100 last year. We have to stay low cost. So there's a unrelenting focus from the Jetstar team on both cost and revenue transformation, and that's delivering and meeting. As Rob said, you've got cases like in New Zealand where you've got incredibly high industry costs that we need to cover to stay profitable. And the last thing for Jetstar, you're continuing to see ancillary revenue performing at very elevated levels versus pre-COVID, 36% for domestic. So all of those things mean it's great to report for the first time in a while that all the Jetstar segments are profitable, including Jetstar Japan, which took a little bit longer to recover from COVID, but the Jetstar team, absolutely committed to the margin targets. I'll hand over to Markus.

Thanks, Steph. So let us talk a little bit about the demand in particular for Qantas Domestic to give a bit more flavor on -- and building on Vanessa's point around what we're see in corporate demand, SME demand as well as leisure demand. So a couple of things when we look at corporate demand. So if you look at corporate demand overall, it's back pre-COVID levels, but the mix has changed. So what we've seen is resource continue to grow, and that's both RPT as well as charter. And charter, you do not see in our RASK numbers. That has continued to grow. We see that market continue being strong. We are investing in that market. We're bringing more A320s, 319s into the West to deliver to that growth. When you look at nonresource, it is recovering. It's gradually recovering. But there is some demand still missing, particularly on same-day travel on the Triangle. That is demand -- it used to be 10% of our travel on the Triangle pre-COVID. Now it's about 5%. So as that demand gradually coming back, we see corporate demand being well above north of 100% as it was pre-COVID. SME -- and maybe one more point, sorry, on corporate as well. We are maintaining our share over 80%, 81%, so we are absolutely keeping our share in the corporate segment. When we look at the SMEs, so small, medium enterprise, that market is well above 100 as well pre-COVID. It's coming back very strongly, and we're seeing gaining share. So we used to be below 50% in market share pre-COVID, and now we're at 54%. So overall, business travel is strong. The mix has changed. The -- on just on premium leisure, it's come off a little bit, but what we're seeing as well is some of that has actually shifted international. And if you look at our ASK mix as well, we actually redirected some of that domestic capacity, particularly 330s to fly international to meet that demand. So that's where we're at in demand side.

Thanks, Markus. And maybe, Rob, just commitment to transformation is a key part of our confidence in margins going forward.

Absolutely. And I think the -- obviously, as Steph's just said, transformation is part of our DNA. And so we've done it for a number of years, and we'll have a relentless focus around transformation. We outlined in Investor Day last year the way we think about transformation, so the 3 categories we talked about: fleet, network, digitization and then, obviously, an ongoing focus on efficiency. And I think from what we've discussed today and the case study that we've provided, the new fleet is a huge enabler of transformation and not only from cost transformation, but we've talked also about the benefits it has to our customers as well as to -- our people love working in these new aircraft and obviously, the sustainability benefits that come with them as well. So we have 11 of the NEOs in now, which is fantastic. We're at scale. We've now got 2 of the A220s and obviously the XLRs to come for Qantas. So we're really excited about the role that fleet can play. And obviously, from a network perspective, these fleet have more seat count, and they can get greater utilization and they can go for longer ranges. So we're really excited around the role that fleet can play, and it will be significant. In terms of digitization, there's many examples around the company whether we're talking about revenue management, preventative maintenance, and our engineering facilities is very focused on this. And then efficiencies will come all over the organization. And I think it's really important also just to call out the role of AI because that's kind of the topic du jour. And we are actively looking at where AI can play a role in our business, which will create win-wins. Win-win for our people, and win-win in terms of the transformation as well.

Thanks, Rob. Next question?

Your next question comes from Anthony Moulder from Jefferies.

Just on -- if I can start with international, [ first one to ] international intake obviously remaining strong, which I guess justifies the competitors' increase in activity in the [indiscernible] the Australian market. Are you expecting that capacity to remain here? Or you're expecting it to over time move into other regions as the intake profile softens here in Australia?

Thanks, Anthony. I'll get Cam to answer that one.

Thanks for the question. Yes, we've seen some elevated competitive forces primarily into L.A. So that's where United and Delta have deployed some capacity, which is only actually seasonal capacity, and some of it actually has been withdrawn from the market earlier than anticipated. We're really confident about the network structure we have, driven by a couple of things, the aircraft type, which allows us to fly ultra-long haul but also the diversified nature of where we fly. So America is a good example. We now serve places like JFK, Dallas where the American Airlines is a really cohesive partner in that market. So we have a network, which is well designed to deal with competitive forces. But our market structure is solid, and we're very confident about the future in both the Americas, Europe, New Zealand and our [ broader ] Asian ports.

I think I'd just add to that. Thanks, Cam. That's a good summary. The one thing that was a key highlight for the international performance was the demand that we're seeing on Perth-London continues to perform incredibly well. It continues to perform actually as the best across the network. And it's also right on the assumptions that we used from that as an example to support the Project Sunrise case. So we're feeling, as Cam said, that our strategy, our network strategy, which is more flying point to point with more premium configured aircraft, is a winning strategy. And I think the proof is in how we're seeing that Perth-London service continue. But also Perth-Rome is showing very similar signs, and Perth-Paris is doing incredibly well in the early phases as well.

Your next question comes from Anthony Longo from JPMorgan.

Just had a quick question on cash conversion. I mean looking at this year, I mean, looking at kind of the low -- in the low to mid-60s, sorry, versus probably 120% in the PCP. I mean take your comments on the revenue received and advanced balance and how that's sort of tapering off, returning to normal seasonality as you highlighted earlier. But how should we be thinking about cash conversion going forward in the context of the cost, the booking windows and all those items?

Rob, I think you can take that.

Yes. So it was a bit hard to understand and I think you're asking about cash. So in terms of the cash position in the first half, obviously we have seen a reduction in our operating cash flow. And I think we've been -- we've talked about the [ real ] seasonality. We've also talked about some of the one-offs with regards to the payment of the employee bonuses as well as the buying out of the leases. And we've also talked about the COVID credits and the refunds in usage. But in terms of your question, which is the cash going forward, as I said in the opening remarks, we're really confident about the operating cash flow going into the second half and beyond. As we think about the seasonality, we also -- those one-off costs would be rolling off and also just the underlying growth of the business. We've talked about the capacity growth that we'll see in international as well as in Jetstar specifically going forward. And so as we think about the second half, I mean, more importantly, as we think about the operating cash flow going forward, I go back to the new aircraft and just the opportunity that they are going to give us with regards to the impact on not only the CASK but the opportunity from a revenue perspective with upgrading flying quite a lot greater. So yes, we have had to catch it in the first half. It was expected, and we're absolutely committed and see the pathway going forward for the second half and beyond.

And the other couple of points that I'd add to that is that we're not seeing any change to our booking window across both Qantas and Jetstar. So there's no change to, I suppose, that conversion point that you are asking. And then the second point that I think is really important as we look beyond this year and into the coming years is that our flexibility and the commitment to managing and striking the right balance through any kind of different cycles that we might face is key to our commitment to the financial framework, and it's key to the -- managing cash, managing -- reinvesting in our business and also obviously the way we think about surplus and distributions to shareholders. So it is all about making sure that every year that we strike that right balance, and that is absolutely the focus of the leadership team.

Your next question comes from Justin Barratt from CLSA.

Just noted that you aren't going to recommend the buyback the next few months by the sounds per your leading remarks. And that's not until you make the announcement of the planned improvements of the Frequent Flyer program. So I was just wondering, could you provide any snippets as to what those Frequent Flyer improvements could entail? Sorry. And with that, should we expect the $400 million buyback to be completed in the second half? Or could that sort of leak into FY '25?

So I might pass to Liv on the thought that we've put in, in terms of delivering better value for customers through points. And then Rob will follow up with the final point.

Thanks for the question. In relation to the Frequent Flyer program, obviously we spend a considerable amount of time talking to our members to understand how they want to use their points, and be no surprise that the overwhelming driver really is redemptions on flights. And Classic Rewards continues to be a phenomenal way for our customers to use their points. In fact, in the last 12 months, there's been a 37% increase in the number of points that our members have used on Classic Rewards compared to calendar year '19, so a significant uplift in the number of points. We've had over 2 million Classic Rewards seats redeemed as well, so significant demand there. However, equally, one of the pain points is that -- our members tell us is that the seats aren't always available when they want to travel, particularly, in premium cabins on premium routes internationally. And that's the problem that we've been really looking at over the last 12 months of how do we solve this, how do we ensure that we keep our member engagement high, how do we encourage this drive effect in our program so that we can see more members continue to earn and burn. And this is what we've been trying to solve. And today, we've indicated that there will be an announcement a few weeks down the track, which will help to solve this pain point and introduce a new flight rewards product. We're not releasing any more details at this stage. However, we have said that there is no changes to the Classic Reward program that this is in addition to that. So it's a wait and see. We do expect that this will be well met by our members, and this is also very much linked to the business strategy. So this will solve for our member but importantly, also solve for our business. And it solves for our business because we know that the most engaged members are the ones that redeem, and this drives the ecosystem and the flywheel. We really need to hit ongoing redemption and ongoing earn. We have ambitions to grow this business beyond the $500 million that we reached. We do have ambitions to -- I mean, FY '30 to reach $800 million to $1 billion, and that is why we're going to make this investment because it will underpin the growth in this business. It will ensure that we can continue to attract more members. And importantly, it will ensure that those members continue to be engaged. So we think it's a win-win-win. We look forward to releasing this in the weeks to come, and we'll leave it at that.

Thanks. Liv. Fantastic answer. And buyback?

Yes. So I -- yes, very excited about the new product, but we are working through, obviously, the implications more broadly on the financials at the moment, enhance the buyback timing. But just to the question specifically, we are committed -- so the $400 million that we've announced today, we are committed to that as a buyback. And I think what demonstrates that is the end of last year because of certain reasons, liquidity being one of them that we weren't able to finish the $500 million, so we still got $48 million to go on that. That is a commitment that we have, is to finish the $48 million, and the commitment is to finish the $400 million as well. So there are a number of variables as to the timing and the duration to finish that, mainly around the liquidity in the market, but that's our expectation.

Your next question comes from Sam Seow from Citi.

Sam, we can't hear you if you can hear us. We'll go to the next question to keep it moving and then come back to Sam.

Your next question comes from Owen Birrell from RBC.

Just a quick question. Looking at Slide 30, where you've got your new aircraft deliveries, the schedule there. And I noticed that there's aircraft that were due in FY '26 that have been, I believe, delayed from the OEMs. I'm just wondering a couple of things. Firstly, has this -- or was this expected? And/or has it changed your plans for your network rollout through that time period? And just also just referring to the FY '25 CapEx guidance of $3.7 billion to $3.9 billion. I'm just wondering, does that exclude the prepayments for these 6 aircraft? Or are you prepaying for these aircraft, even though they're not coming on time?

I'll answer the first part of the question, Owen, and then pass to Rob. I think you can -- fair to say that we -- it wasn't well received by us in terms of the delay in aircraft. We don't want to see delays in aircraft. If we talk specifically, we know that our aircraft manufacturers are still having challenges in terms of supply chain and meeting production rates for their commitments. And the one thing that I can say is that we know that working with Airbus, in particular, that we have received the minimum level of delays versus other airlines. And so I think that we can say that, that is a key part of the strategic relationship that we benefit from. And as we manage those delays, obviously, it results in us keeping aircraft for longer. So the 717s, we've kept for longer. But this is also about just managing flexibly. And it comes back to the power of the network and the fleet that we have, particularly the fleet, that we are able to absorb these changes over time. Airbus have heard very clearly from us that we want to avoid any further changes of delivery schedule because, clearly, we are managing to a very large renewal program in terms of bringing resources on, in terms of training resources and also in terms of where we're going to deploy those aircraft. So we want them to schedule, but clearly, we are working with Airbus to make sure that, that is minimized.

Yes. And on your question, I mean, the prepayments are lined up with the arrival of the aircraft. So they are flexible in terms of when they do. But as you can see from that slide that you referenced, just as some aircraft are moving out, some aircraft are moving in and the flexibility we have with Airbus, as Vanessa just referenced, is great. And so we do have an ability to move aircraft around to make sure that we're able to serve the network that we need to play.

Your next question comes from Sam Seow from Citi.

Look, just appreciate your comments regarding the margin targets before. And I just want to clarify, you are reconfirming the domestic and international margin targets. In terms of timing, is FY '24 still in play? Or are you pushing that into FY '25?

So we are confirming that we are committed to the margin targets and the presentation in terms of long-term margin targets. But I think the presentation highlights particularly for international with the faster deterioration in freight revenue that is going to impact the margin target for international this year.

I guess, previously, you've also talked to $4.5 billion structurally higher EBITDA. Is that still valid? And I guess within that, I guess, following on from Owen on the CapEx profile, just want to confirm that's 100% supply issues, and we should imply [ any view ] of future EBITDA from that. I guess you've got CapEx at $3.9 billion or high 3s in FY '25 and tax coming back, et cetera. So just want to confirm that that's all supply issues and not beyond EBITDA [ in out years ].

Yes. Well, maybe just let me address the EBITDA point because I think that's an important one. The source of EBITDA growth that we've talked about before is still valid. So we talked about the domestic and international EBIT increase from the new aircraft and I think as demonstrated by the NEO case example we put in there, so that source still remains. Obviously, the timing of that will be dependent on when the new aircraft arrive. The second source was with regards to domestic freight. And I think the arrival of the freighters into the domestic freight business will unlock for the freight business the incremental $100 million that we talked about. So it's the second one. The third one is loyalty. And I think Liv just gave sort of a summary of where the loyalty business is at. There's great momentum in the business, and I think the announcement, the new product will continue to put us on a pathway towards that 2030 target. So that is the third one. And then the fourth one, of course, is Sunrise, and we're really excited about Sunrise. And so we have talked before about the $400 million of incremental earnings and $400 million of incremental working capital, and that remains the case. So it will be dependent on the timing when those aircraft arrive, but very committed to the EBITDA bridge that we've given previously.

Your next question comes from Matt Ryan from Barrenjoey.

I had a question on the direct spend that you've made or you're making on the customers. So back in September, I think that you talked about the $230 million and it doesn't sound like that's changed. So I guess, two-part question. Number one, how do you feel about that number? How do you feel like the spend or how effective do you think the spend has been so far? And then just any thoughts on how permanent do you think that spend might be moving forward?

Yes. Great question. And I'll call Catriona up in a minute to give you more flavor in terms of where we're spending that investment and how we're seeing that improve. But you can actually see from the investor presentation that we are getting good response to the investments that we're making in terms of on-time performance, but that is also in addition to the incredible experience that is being delivered by our people. And our customer satisfaction and our NPS is responding directly. If I give you a bit of a breakdown in terms of where we're spending the $230 million it actually breaks down into a number of categories. First of all, we are spending $50 million on improving food and beverage across Qantas Domestic and also International. That is actually progressively being rolled out, but we are hearing really good things about that. The other component of that $50 million is that we are investing in digital experiences across both Qantas and Jetstar. We think this is not just unlocking a better customer experience, but it's also going to unlock transformation and efficiency benefits going forward. And another $50 million is on loyalty. We know that, as Liv said, that in advance of us bringing the new product and initiatives to market that we've been investing in increasing our customers' access to redemptions both in terms of Points Plus Pay discounts but more access, particularly for Qantas International. That's an investment. Clearly, that is a key part of the $230 million. And then the further amount around the $80 million incremental spend that we announced last half has a couple of points. One is that a focus on investing in our call centers. We've got more resources in our call centers. We've invested in operational resilience. We've had more engineers. We have allocated more spares, but we are also investing more in recovery. So when things don't go to plan, we want our customers to see and to trust Qantas that we recover better when things don't go to plan. We already provide customers a lot of recovery in those moments, but we've improved that, particularly higher ex gratia payments when customers face really significant disruptions. We have actually flagged last time that of the $230 million that there were some nonrecurring costs as a part of this full year, but we are now saying that we believe that the $230 million including the investment that's coming in Qantas Frequent Flyer will be ongoing within that envelope, ongoing across the future years. But I might pass to Catriona to just give a sense of what are we hearing from customers and what are we seeing in terms of feedback for that investment.

Thanks, Vanessa. So we are, actually all in the investments we make, are underpinned either through experience, through recovery or loyalty. And each one of them is really informed by the voice of the people, voice of our people and voice of customers. So we're actually doing a lot of work to understand both customer pain points, what we're seeing through focus groups, through some of the NPS metrics and the direct voice of the customer but also from our teams because our teams onboard in the aircraft and also in the airport hear from customers every day about what's working and what's not. And so if we think about just a couple of the categories Vanessa mentioned, food and beverage and digital, we have a new international menu, which we'll release on the first of March, which really takes into account a lot of the feedback we've received over the last couple of months. And that will be across all routes and all cabins and really reflects both different recipes but also different quantities, really trying to get to what people want to see onboard. And then in digital, we obviously released a new app in November. We've released bag tracking. And now as we look forward to 2024, we'll continue to build out those features so that we really give customers the right experience that they want to interact with over the course of their traveling experience. And then the other one is just bag tracking. Obviously, it's been a lot in the news lately, and we've got a whole range of different things that we'll do for when people travel and how they need to sort of see their bag as well. So there's a lot of exciting things to come, but each one of it is underpinned by what we're hearing from our teams and what we're hearing from our customers.

Thanks, Catriona.

Your next question from Nathan Gee from Bank of America.

Maybe just a question on freight. So look, I think your revenue guidance is the second half freight revenue flat on first half. So is the guide that cargo yields have bottomed? Now the reason I'm asking, I think your cargo yields are still more than 50% above pre-COVID, and Asian peers are more about 30% above. So just help me understand that and the yield guide going forward.

Sure, I'll get Cam to answer that.

Yes, thanks for the question. And if you look at our freight business, there's 2 material pieces to that. The first is the domestic business. The domestic business is structurally very, very strong, underpinned by 3 long-term strategic partnerships with a very, very sound market position. And that actually has performed very well and to expectations. The parts of the business, which have moderated quicker than we had previously expected or forecast, are the belly space component of freight, the international freighters but also our international freight business, so belly space and the freighters have moderated quicker. It still remains over 150% of pre-COVID, and we see early signs of it settling at that rate. So we've got a lot of efficiency gains, too, as we bring in the A321 and the A330 fleet into the freight business. So we're pretty confident about the pathway forward for freight, both in terms of our cost dividend that we can bring to the business but also our market position.

Thanks, Cam.

Your next question comes from Cameron McDonald from Evans & Partners.

Just wanted to circle back on sort of the buyback, the capital structure and then the comments made earlier around the generation of franking credits. So how do we think about this in the context of returns to shareholders, noting that you're sort of guiding that the capital structure framework will top you out for the foreseeable future in the midpoint, which with the additional buyback sort of gets you there? And then you've got tax payments that you're going to have to start thinking about and then the dividend payout. So through that transition, how do we think about the mix between buyback and dividend, please?

Yes. So there's a lot of things in that question. I won't repeat what I said earlier in terms of the financial framework and the IC being artificially low. And so we don't want to constrain -- artificially constrain the business, which is why we're moving to at or below the middle of the range. In terms of franking credits, we know how valuable they are to Australian shareholders. We will be in a taxpaying position in the fourth quarter, and so we will then start to get franking credits and be in a position in FY '25 to be able to have access to franking credits. But in terms of the way -- the size of the distribution and in terms of the mix of the distribution, that will be a decision for the Board at that point in time. But all I can say today is that it's more value with our franking credits in your hands than it is in ours. The one thing I'd just reemphasize, you mentioned CapEx and you mentioned distribution to shareholders. I think it's really, really important just to go back to the operating cash flow point that we are extremely confident in the cash generation of this business. And so that's why we see the financial framework being able to do both, which is both invest in the business given the operating cash levels that will be coming in, invest in the business through new aircraft as well as being able to distribute to shareholders.

Thanks, Rob. Great answer.

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

I have a question on Slide 8 and just on the domestic on-time performance, please, which obviously is showing a fair pickup just in the last couple of months. Earlier this year, the AFR carried an article suggesting that you've used both BCG and McKinsey to -- on this issue, particularly in that McKinsey was doing some work around implementation. I guess my question is -- I get why Boards use consultants, tick a box and all that sort of stuff. But when it comes to operational issues, I would have thought you would have the in-house capability to improve on your on-time performance. So I guess I'm just wondering, firstly, what's the value that they add to what you pay them? And secondly, how confident are you that you've done everything to keep on-time performance at this current January or, I guess, February levels, in particular, given that's quite a differentiator in the Australian market at the moment?

So while Markus is coming up to give more flavor, I will make a few comments. I think, firstly, we are absolutely confident that we have some of the best operational minds in aviation, and we have spent and worked incredibly hard to get our operational performance across both Jetstar and also Qantas up materially. And we can see the value that, that then translates to our customers when we are on time. The one thing, though, in addition to that, that we know that when we are on time and we are on schedule, that is the best cost outcome for us and the efficiencies that we drive from that are absolutely material and it is something that is a key part of what we're going to focus on going forward. The reason why we sometimes look external to get other minds and other insights from consultants, and McKinsey, particularly have worked with other airlines that are doing some pretty amazing things with technology and AI and the use of data and predictive analytics to actually help us get to what is the most optimal schedule and operational performance that we can. And as shareholders, I would hope that you would also value that we look outside our own organization to get the very best global examples of who is leading in this space. So that is what we've done. We're always going to be an organization that doesn't think from one perspective, which is an internal perspective, and always challenge ourselves to be the very best across the globe on these matters because it does matter. And it matters to not just our customers. It matters to our people, and it also matters very much to our bottom line. But Markus, maybe a bit more flavor.

Yes. No, thanks, Vanessa. I think it's a very good answer and very comprehensive. I'd just stress the point, first of all, just around OTP, Obviously, we'd love to be 100% OTP and 0 cancellations. That is the best way to run operations. Obviously, you have weather. You have air services. So absolutely where we were is not good enough, and we want to become better. Yes, we are improving. We're absolutely seeing great green shoots of the things we are doing around first wave, around aircraft availability, making sure we have enough spares and you have spares at the right time at the right place during the day, so a massive piece of program. And we have a very, very competent team here at Qantas. So bringing someone in outside is not about saying the team is not good enough. That's the opposite. But -- and as Vanessa mentioned, it's really, really important to not be [ only as to ] look at Australia. You got to look outside what are other carriers doing globally that gets them to improve their performance and what can we learn from that. And I think that's just good business, to bring that capability in to help you end of the day. We've got to deliver it. But looking outside, it is -- never hurts. So that's really -- I think, definitely, we'll get the good return for it.

Thanks, Markus.

Your final question comes from Niraj Shah from Goldman Sachs.

Just a quick one for me following on Slide 8. Can you just remind us for both the domestic OTP and the NPS Scores, actually, what did they -- what were they? What levels were they at pre-COVID?

So a couple of things. One is pre-COVID OTP, the best OTP period that we had, I think it was around 2018 at around 80% for Qantas and similar for Jetstar. And when we saw that, we had higher NPS than what we are achieving in those slides. So we're still not back to our best but our focus is to lift our on-time performance, reduce our cancellations. We know that's what drives best outcomes for customers. But we're not going to stop from driving not just back to our best but better than that. And so that is everything that is occurring across the operational teams, customer teams to achieve that. I don't think there's any more questions online, so thank you for everyone online. We do really appreciate it. We look forward to having more conversations with you over the coming week. The one thing before I sign off, I wanted to pay my thanks to Olivia and Andrew, who -- this will be their last results for Qantas. I just wanted to say thank you to both of you for an incredible contribution over many, many years, and we wish you the best in your next step. So thank you very much. And I know all investors would say the same. So thank you, everyone, and that's the end of the call.