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Qantas orders more 787's to replace 747's

Qantas orders more 787's to replace 747's

2018 05 02

2018 05 02

The Sydney Morning Herald - End of an era: Qantas orders $2b worth of Dreamliners to replace 747s

 

Qantas Airways has ordered six Boeing 787 Dreamliners, worth more than $2 billion, to replace the last of its iconic but ageing fleet of 747 jumbo jets.

The airline said on Wednesday the order would bring its fleet of long-haul 787-9s to 14 aircraft by the end of calendar 2020, and see it withdraw from service the final six of its 747-400s not already slated for retirement. Investors cheered the news lifting Qantas shares by 8.1 per cent on Wednesday.

Qantas announced it would retire the five oldest of its 11 jumbo jets when it placed it first order of eight Dreamliners in 2015.

Chief executive Alan Joyce said the airline's strong financial performance in recent years had made it possible to order more Dreamliners,  which are more fuel efficient than 747s and would give customers a better on-board experience while also opening up new network options.

Retiring the last of its 747s will mark the end of an era for Qantas, which has been flying the "Queen of the skies" since 1971.

While the original jumbo jet shaped global aviation for a generation, the fuel-hungry four-engine aircraft are becoming a rarer as airlines adopt lighter, smaller and more efficient aircraft.

Mr Joyce said Qantas had the option of refurbishing its 747s to bring them up to sratch with its existing Dreamliners and other long-haul aircraft, but that the ecconomics fell in the favour of phasing them out.

"We made the choice to go for brand new aircraft and the business case works with either lower fuel than it is today, and certainly if fuel is higher it really really works, so that made the business case even stronger,” Mr Joyce said.

Qantas revealed on Wednesday that rising oil prices would see its fuel bill - its single biggest expense - for the this finanical year to be $200 million higher than last year.

Mr Joyce left investors guessing as to whether Qantas would pay in cash or take on debt when the first of the new aircraft are delivered in 2019.

"We have the lowest level of debt that we’ve ever had in our history and actually the last few aircrafts we’ve bought with cash - the company is generating so much cash we can buy them outright," Mr Joyce said.

Qantas' Dreamliners carry 236 passengers vesus 364 aboard its 747s. But Mr Joyce said the Dreamliners could fly more often, meaning Qantas' overall international capacity would only drop 2 per cent by swaping out the aircraft.

Qantas' first four Dreamliners are being used to fly from Australia's east-coast to Los Angeles, as well as for its new non-stop service from Perth to London.

Boeing's list price for its 787-9s is US$281 million, putting the value of Wednesday's order at US$1.7 billion ($2.2 billion). However, airlines are usually able to negotiate lower prices for bulk orders and rarely pay the list price for new aircraft.

Despite the higher fuel bill, Mr Joyce said Qantas was on track to report a record underlying before-tax profit this year of between $1.55 billion and $1.6 billion. That compares to a $1.4 billion profit last year.

Revenue for the third quarter was up 7.5 per cent compared to the same period last year, driven by an 8 per cent jump in ticket revenue from its domestic Qantas and Jetstar operations off the back of strong demand.

Citi analyst Jakob Cakarnis said Qantas International - which has been its weakest unit in recent years - had shown "surprising strenght" with 5 per cent growth in revenue per seat flown.

However Mr Cakarnis said earnings were supported by "rational" competitive behaviour by both Qantas and local rival Virgin Australia, which would likely continue as fuel costs increased.

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