Qantas chief executive Alan Joyce says consideration of what aircraft will replace the airline’s domestic fleet will occur once it completes its evaluation of types to operate ultra long-haul flights as part of Project Sunrise.
Currently, the airline has 67 737-800s and 28 Airbus A330-200/300s that operate on domestic and international routes. There are also eight New Zealand-registered 737-800s that are flown on trans-Tasman services by Qantas’s Jetconnect subsidiary.
The first of those 737-800s was delivered in 2002, making them 15 years old. At the other end of the scale, the newest 737-800 – Retro Roo I – arrived in the fleet in November 2014.
The 18 A330-200s and 10 A330-300s have a similar age profile, with the oldest aircraft rolling out of the Airbus final assembly line in 2003 and the most recent in 2012. Some of the A330-200s have also spent time operating in the Jetstar fleet.
Joyce told shareholders at the Qantas annual general meeting (AGM) in Melbourne on Friday the 737 fleet was still performing exceptionally well and generating good returns.
However, attention would soon turn to a replacement aircraft, with Boeing’s 737 MAX family and the Airbus A320neo (new engine option) lineup the two leading contenders.
Joyce said Qantas determining the best aircraft to replace the 737-800s was expected to occur after it completes its evaluation for its Project Sunrise challenge to Airbus and Boeing to come up with a suitable airframe to mount ultra long-haul nonstop flights from Australia’s east coast to cities such as London and New York. Service entry is planned for 2022.
Further, Boeing’s proposed new mid-sized airplane (NMA) project for a small widebodied airliner would also be examined for Qantas’s domestic network, with Joyce telling shareholders it could be a great domestic aircraft.
“We’re hopeful that after we finish Project Sunrise that we can start doing a competition for what’s the right aircraft domestically,” Joyce said in response to a shareholder question at the AGM.
Project Sunrise – the name is a nod to the “Double Sunrise” flights Qantas operated between Perth and Sri Lanka using Catalinas in WW2 – pits Boeing’s 777-8X against the A350-900ULR from Airbus in a two-horse race.
Separately, Boeing’s NMA study was focused on a 250-270 seat, 5,000nm range widebody aircraft that would sit in its product portfolio between the 737 MAX 10 and 787-8. It would feature a composite wing and fuselage. While the proposed NMA aircraft is still be evaluated, Boeing indicated at the Paris Airshow earlier in 2017 it could fly in 2023 and enter service in 2025.
Joyce told reporters in Seattle recently the proposed NMA would be useful as a way of providing domestic capacity growth into an increasingly slot-constrained Sydney Airport and the perfect vehicle for transcontinental routes between Perth and Australia’s east coast.
While Qantas has no more narrowbody orders, the airline group has 99 A320neo family aircraft on firm order from Airbus, comprising 54 A320neos and 45 of the larger A321neo.
The aircraft are ostensibly destined for its low-cost carrier unit Jetstar as older A320s are paid off and to cover growth. First delivery was scheduled for the 2018/19 financial year.
Joyce said future aircraft orders – Qantas will have eight 787-9s in the fleet by November 2018 and holds 45 options and purchase rights for the type – would be guided by the company’s financial targets.
“We do have a commitment that we do pace our capital expenditure,” Joyce said.
“For us that capital expenditure has to fit in to the returns the business is making, has to be managed.”
Meanwhile, Qantas chairman Leigh Clifford expressed a positive outlook for the Australian economy.
“Our balanced portfolio of businesses and brands showed its value in a complex market,” Clifford said.
“Global conditions reflect the rapid change in technology, geopolitics and demography – but Australia’s economic fundamentals remain strong.”
On future returns to shareholders, Clifford it could be up to two years before the company was able to offer a fully franked dividend.
In 2015/16, Qantas delivered a dividend to shareholders for the first time since 2009 at seven cents per share fully franked.
There was a partially franked interim dividend for the 2016/17 first half, while the final dividend was seven cents per share, unfranked.
Qantas has been unable to offer franking credits, where a company offsets its tax liability against the dividends it pays to shareholders, given the losses it has accumulated in previous years.
“The reality is we had limited franking credits,” Clifford said in response to a question.
“And unfortunately, it’ll be probably, I’m not sure whether it is be 18 months or two years, before we expect to be able to fully frank the dividend.
“At the moment though the dividend is unfranked and we would very much rather that be not the situation but because of our lack of franking credits we’re not able to fully frank.”
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