Sydney, 04 May 2012

Macquarie Australia Conference
Sheraton on the Park - 4 May 2012
Address by Qantas CEO Alan Joyce
A Strong, Sustainable Future

Good morning everyone.

And thanks again to Macquarie for this opportunity.

Today I'd like to provide an update on Qantas Group strategy and explain how we are driving value creation for our shareholders.

We have consciously aligned our business to three of the most powerful growth engines of the aviation industry in the 21st century:

- Australia's underlying economic strength, particularly for corporate travel and the resources sector;
- low cost travel; and
- the rise of Asia.

By the end of this year our fleet renewal will be substantially completed, giving us one of the world's best 21st century fleets - and unlocking significant flexibility in our forward fleet commitments and reducing our maintenance costs.

Our disciplined approach to capital management will continue to serve us well.

It gives us real flexibility to manage our business, make timely choices, and strengthen our investment grade credit rating.

There are some key messages I want to deliver this morning.

- Our fleet renewal is substantially completed, with significant fleet flexibility retained;

- We are making further major capital expenditure reductions, with an additional $400 million decrease in financial year 2013 to $1.9 billion; on top of our announcements at half year.

- Our strategy of maintaining our profit-maximising 65% market share will continue to guide our domestic plans, and we will be making some capacity enhancements to strengthen our customer offerings;

- We are now beginning to quantify and realise the cost savings and benefits from our Qantas international transformation initiatives - with over $300 million in benefits identified today;

- We have continued to deliver targeted, value-driven investments for Jetstar in Asia, with our new capital-efficient joint ventures in Japan and Hong Kong leveraging Jetstar's strong brand; and

- We remain focussed on reinforcing customer loyalty and engagement, through our superior end-to-end travel experience and leading Frequent Flyer program.

What drives us every day is our aim to deliver sustainable returns to our shareholders.

Tough as this industry is, the Qantas Group has consistently outperformed its peers and we are in the process of transforming to continue to get it right for the future.

We have made it clear that we must change to get the best for our shareholders and today you will see that we are well on track.

Building on our strong domestic business:

So let me begin with the domestic market.

The domestic market has matured, completely liberalised and become very competitive.

Our commitment to a profit-maximising 65% share of the domestic market, across Qantas and Jetstar, means we can offer sufficient choice of frequencies and fares across a range of travel categories, both business and leisure, to retain customer loyalty and generate consistent revenues.

We can cater to both high-yielding, non-price-sensitive business travellers who book a Sydney-Perth flight at the last minute, and leisure passengers who want to book Sydney-Gold Coast three months in advance - plus everyone in between.

The Group is focused on delivering the best network, frequency and service in every part of the market.

It isn't a stretch to argue that Qantas Domestic is the world's best domestic travel experience.

It is best because we have invested in the networks, the frequencies, the terminals and lounges, the loyalty program, and the regional and international connections.

Not to mention our safety.

Together it's a unique and exceptional package.

But success always lies in the details.

Our current research tells us that our customers have:

- The most consistent levels of high satisfaction on the domestic network seen since 2004; and

- The highest ever seen proportion of flyers on Qantas Domestic who say they will "Advocate" Qantas since we started measuring this in 2007.

The drivers of these consistent high satisfaction levels are:

- The strength of our on-time performance, the number one driver of customer choice - having outperformed our major competitor 12 out of the last 15 months, and often by significant margins;

- The effectiveness of our Faster Smarter check-in in delivering an efficient check-in experience;

- The courtesy, helpfulness and availability of our in-air and on-ground staff;

- Some of the best value perceptions levels we have seen in the past two years; and

- Increasing satisfaction with key in-air product areas such as aircraft facilities and inflight entertainment.

Qantas is undoubtedly the clear choice for the business traveller.

At the half year we reported that we had materially maintained our domestic revenue share with double digit corporate travel revenue growth.

We have a clear definition of a corporate account: approximately $1 million or more in revenues to Qantas, with a commitment to a substantial share of wallet, including a domestic share of 85% or above.

During the first half, we signed 45 new accounts, renewed 160, with only two not renewed.

Since then we have not lost any accounts, and have recently won a major account with Fortescue Metals Group.

We have the number one and two most profitable brands in the domestic market.

We have achieved this position through years of investment and effort.

But, we absolutely do not take our leadership position for granted.

We continue to invest in our Boeing 737 fleet, and in the product and service upgrades that will ensure we retain our leading market position.

Qantas domestic customers, for example, have been the first in the world to experience Q-Streaming, our trial of inflight WIFI technology.

And today I can announce that we will increase capacity on domestic Qantas, Jetstar and QantasLink routes during financial year 2013.

This will strengthen our leading position in the Australian business and leisure travel markets.

A range of changes, including aircraft upgrades and additional frequencies, provide greater customer choice and convenience.

- Qantas will add extra services during peak times on core east coast business routes between Sydney, Melbourne and Brisbane;

- The reintroduction of Boeing 747 services on the Sydney-Perth route and more Airbus A330 services on the Melbourne-Perth route will increase capacity in the east-west market and give more customers access to the award-winning Skybed product in business class;

- Jetstar will increase capacity on routes between east coast capitals and major leisure destinations; and

- QantasLink will increase capacity across Queensland, introducing jets onto services between Brisbane and Emerald and redeploy Q400 aircraft onto other routes.

As I said at the half year results, QantasLink goes from strength to strength.

It was named 2012 Regional Airline of the Year by Air Transport World.

It continues to contribute to, and benefit from, the resources boom - with rapid growth into key regional centres in Western Australia and Queensland, the expansion of the fly-in-fly-out market through Network Aviation, and the securing of three large corporate contracts.

Growing and enhancing Qantas Frequent Flyer

The glue that binds our businesses together, and our customers to Qantas, is Qantas Frequent Flyer.

Qantas Frequent Flyer is Australia's premier loyalty program and a major strategic asset for the Qantas Group, driving customer loyalty and retention.

The program now has 8.5 million members and over 500 partners.

Billings for the financial year to March are up 16% and rewards redeemed up 15%.

Our loyalty program has the deepest consumer knowledge in the market, and is only really at the beginning of a long term agenda to engage customers through their special interests - such as epiQure by Qantas Frequent Flyer for food and wine.

These communities of interest will develop further and be of major interest to our customers and partners over time.

Qantas Frequent Flyer also continues to increase the aspirational appeal of the Qantas brand through innovations such as Platinum One.

This is a huge success with our key flyers because it offers unique experiences, special services and 24/7 care and attention.

It truly rewards those customers who are most valuable and loyal to us.

The business is well positioned as the market leader in loyalty in Australia.

Ours is the only all-inclusive program with a comprehensive airline offering and a retail offering.

The others are split.

So despite Flybuys and Velocity's recent relaunches, Qantas Frequent Flyer remains the program of choice.

The program offers members more ways to earn and more desirable rewards.

When combined, this provides better value and greater choice, even at the supermarket checkout, and definitely for people who fly.

Qantas Frequent Flyer is continually being refined to generate more ways to both earn and redeem points.

The central appeal of Qantas flights and air travel more generally is being boosted through an even better network and more destinations through continued growing partnerships.

This is a high performing business with further potential for growth through a continued focus on member engagement, value and innovation.

Transforming Qantas International: Over $300 million annual benefits identified

Last year I announced our five year plan to transform Qantas International, with two targets to return to profitability in three years and in five years to sustainably exceed the cost of capital for the combined Qantas domestic and international flying businesses.

Today I announce detail on the timing and expected benefits from executing key initiatives in this plan.

Several of these initiatives will start to see benefits flow during the current 2012 financial year.

- Improving fleet economics through selective fleet renewal and the reconfiguration and modernisation of our A380 and 747 fleet.

- This will deliver benefits of between $70 and $90 million through access to new technologies and products, improved competitiveness and a lower cost base.

- Deepening and broadening of our alliance relationships with British Airways, American Airlines and LAN.

- This is expected to bring between $20 and $30 million in benefits, enabling fleet rationalisation and maximising revenues.

- The exit of significant non-core, loss making routes including London-Bangkok, London-Hong Kong - which have already taken effect from the last week of March - as well as Auckland-Los Angeles and Singapore-Mumbai - which will take effect after tomorrow.

- These will bring additional benefits of between $100 and $120 million, with the majority to be realised in financial year 2013.

A key part of bridging the earnings gap is to improve our cost competitiveness and productivity.

That is the reason for recent announcements regarding the modernising our catering operations, streamlining heavy maintenance, introducing new engineering processes, and consolidating our airport operations.

As you will be aware, Qantas is in the process of finalising our review of heavy maintenance.

We recently concluded our consultation with unions and employees and are assessing options.

We will make an announcement in mid-May.

The bottom line is we will consolidate our facilities for a more efficient engineering operation that reflects new technologies and processes and results in a reduction in staff.

In modernising our catering practices, our state-of-the-art Brisbane facility is under construction and will open later this year.

We are working on the potential sale opportunities for Cairns and Riverside in Sydney, and are in consultation on the future options for Adelaide post the redevelopment of Adelaide Airport.

These catering initiatives, combined with our airport operation changes, are expected to bring between $20 and $25 million in benefits.

Transforming Qantas International: Delivering exceptional customer experiences

Turning to our Qantas International offering.

In the air, we have 12 Airbus A380s and 25 Boeing 747s, nine of which are in the process of being fitted with our award winning A380 kit and six of which are soon entering retirement.

We have 14 A330s with an average age of six years, and eight 738s for the trans-Tasman with a very young average fleet age of less than two years.

On the ground, flagship International First Lounges were opened in Sydney and Melbourne in 2007, setting a new standard in luxury and comfort and generating fantastic customer feedback.

As part of our continued commitment to our high value customers, we are investing $15 million in new First Lounges in Singapore (to open by the end of 2012) and Hong Kong (to open early 2013).

These lounges will incorporate regional influences through design, dining experience and key elements of the flagship onshore experience.

In Los Angeles we are investing in new lounges, with the first opening next year.

These targeted investments will deliver the Qantas premium experience, featuring:

- Bigger Marc Newson spaces;
- Neil Perry dining;
- Luxury amenities;
- Sofitel service; and
- Apple iMacs.

We are using the latest in leading-edge technology, with inflight-WIFI now on six of our A380s - and we will progressively roll this out across the rest of the fleet.

Growing Jetstar in Asia: Capitalising on attractive growth opportunities

Now let me turn to Jetstar.

The Asia-Pacific is the largest and fastest growing region in the world aviation market.

The region's rising middle class and readiness to spend on travel
is driving this significant growth.

While the Asia Pacific market has seen 33% growth in the low cost carrier segment over the past 10 years, it still remains under-penetrated compared to other regions globally.

This is an exciting opportunity for us and our Jetstar brand.

Jetstar is now the largest low cost carrier in Asia Pacific with a combined operating fleet of 86 aircraft servicing 57 destinations on a network of 119 routes in 17 countries.

Jetstar's world class ancillary revenues, operational efficiency and consistently low fares have enabled it to build an integrated Pan Asian network in just seven years.

The Group now has a strong established brand, and has developed a model that will facilitate scalable and capital efficient growth in the region.

Growing Jetstar in Asia: Jetstar Japan on track

Jetstar Japan is on track to commence its Tokyo based services in early July, ahead of schedule.

It is an alliance with strong local partners: Japan Airlines, Mitsubishi Corporation and most recently Century Tokyo Leasing Corporation.

The response to our search for a fourth shareholder was extremely strong, with more than 100 companies - including very well-credential firms - interested in investing in the Jetstar brand.

That meant we were able to select the absolute best fit for Jetstar Japan, which is Century Tokyo Leasing.

The response to building our crew was equally impressive - with around 10,000 expressions of interest received to join the new carrier.

Jetstar Japan was awarded its Air Operators' Certificate in April.

And the first of three new A320s that make up the carrier's fleet at launch has arrived on the ground.

Fares also went on sale in April, with tens of thousands of seats sold in the first 24 hours, including many priced as low as one yen.

At our peak, we were selling over 4,000 seats per hour.

Thousands of tickets were also sold through our new feature phone channel - an example of our ability to adapt quickly to local markets and innovative trends.

The Jetstar-branded Asian airlines benefit from having access to the Qantas Group's aircraft order book, enhancing their purchasing power and facilitating early mover advantages in new markets.

In return, this provides the Qantas Group with opportunities to reduce overall capital commitments.

Lessor mandates have already been issued for 24 of our aircraft to be allocated to Jetstar Japan. Once removed from our capital commitments, there will be no recourse to the Qantas Group.

Growing Jetstar in Asia: Establishing Jetstar Hong Kong

Turning to the recently announced Jetstar Hong Kong.

In March, Qantas and China Eastern Airlines announced a strategic alliance to establish the first low-fares airline based in Hong Kong, providing a gateway into China.

China Eastern is China's second largest carrier and a top ten global airline company by passenger numbers.

It also has a long-standing partnership with Qantas.

Subject to regulatory approvals, Jetstar Hong Kong's services will start in 2013 with a fleet of three Airbus A320s, growing to 18 in 2015.

Jetstar Hong Kong will combine each partner's local knowledge, networks and successful low cost carrier model to service short haul routes including Greater China, Japan, South Korea and South East Asia.

The partnership is an excellent way for the Qantas Group to pursue growth opportunities in a capital-efficient manner with an investment of US$99 million over three years.

In terms of our balance sheet, this venture will see up to 18 A320s on back-order move out of our capital commitments for use by the new airline.

Fleet Investment: Demonstrating further fleet flexibility

Turning now to our fleet investment.

With the bulk of our fleet renewal program substantially achieved, we now have significant flexibility in our capital expenditure program and how we manage our fleet program over the medium term.

At the half year, we announced a $700 million reduction in capital expenditure over financial year 2012 and financial year 2013.

Today, I can confirm we will further reduce financial year 2013 capex by $400 million to $1.9 billion.

Our financial year 2014 capex will be at most $1.9 billion, with substantial flexibility retained, as we move beyond the peak of our fleet renewal program.

The reduction in financial year 2013 expenditure will be achieved through changes to the Group's fleet plan, including the rescheduling of two Airbus A380s scheduled to be delivered in early 2013.

These aircraft will now be delivered in financial year 2017.

The remaining six A380s will arrive from financial year 2019.

Further to this, we retain significant additional optionality.

We have the flexibility to reduce our $15 billion in total future capex commitments by $6 billion, or almost 40%, through optional growth capex (due to manufacturer delays) and through Jetstar's Pan-Asian growth (whereby aircraft can move out of our total capital commitments with no recourse to the Group, following aircraft delivery to the affiliate).

Our investment program has delivered a young and sustainable aircraft fleet profile, with our average fleet age now at 8.3 years.

This is a significant improvement from 9.3 years in 2008, and is at the lower end of our 8 to 10 year target range.

It puts our airline group up with the world's best.

We remain focused on stringently managing our capital and improving our fleet profile.

We will only allocate growth capital where rigorous return metrics are met.

Replacement capital will also be restricted if it is not incremental to shareholder value.

Summary

In summary, we believe the Qantas Group is making the right moves to succeed and prevail.

- We have the number one and two most profitable domestic carriers at home;

- We have aggressively invested to secure our position as best-for-business in Australia and to become the major aviation partner for Australia's booming resources industry;

- We have one of the world's best loyalty programs;

- We have been at the forefront of the aviation growth opportunity in Asia with our low cost carrier Jetstar; and

- And we are taking the hard but necessary steps to turn around our Qantas International business.

We have taken decisive action to respond to change and build returns for our shareholders.

The Group is rigorous about maintaining our disciplined approach to capital allocation and cost control, and retaining our flexibility to manage capacity growth according to market conditions.

We believe we have positioned ourselves well for strong, sustainable growth.

Issued by Qantas Corporate Communication (0412a)
Email: qantasmedia@qantas.com.au

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