Qantas Airways Earnings Call: Domestic Strength, Rising Costs

Qantas Airways ((QABSY)) has held its Q2 earnings call. Read on for the main highlights of the call.

Qantas Airways’ latest earnings call struck an upbeat tone, with management emphasizing resilient domestic demand, rising earnings per share and strong cash generation that is funding both aggressive fleet renewal and enhanced capital returns. While cost inflation, international earnings pressure and regulatory wage changes were flagged as real headwinds, the overall message was one of solid momentum in core businesses and confidence in the long-term value of current investments.

Profit Growth and Margin Resilience

Qantas reported underlying profit before tax of $1.46 billion for the half, up 5% year on year, with underlying earnings per share rising 7% to $0.68. The group delivered a solid 12.3% operating margin, underscoring resilient pricing power and tight cost control in the face of mounting operational and wage pressures.

Cash Generation Fuels Capital Returns

Operating cash flow came in at $1.8 billion for the half, giving the board room to step up shareholder returns via an interim distribution of up to $450 million. This includes a fully franked base dividend of $300 million, up $50 million, alongside an on-market share buyback of up to $150 million, with $400 million of dividends already returned in the period.

Fleet Renewal Steps Up

The group invested $1.8 billion in fleet and projects during the half, adding 18 aircraft, nine of which were new, as it accelerates renewal across brands. Net capital expenditure is projected to climb sharply to $4.1–$4.3 billion in FY26 and $5.1–$5.4 billion in FY27, reflecting major fleet modernization including the first Project Sunrise aircraft.

Jetstar Gains From New Narrowbodies

Jetstar Domestic delivered a standout performance, with earnings up 38% and an EBIT margin of 22%, above its target range and highlighting the payoff from newer jets. The A321LR and A320neo aircraft are now at scale, and management said the A321LRs alone contributed about 60% of Jetstar’s earnings uplift through better fuel efficiency and higher utilization.

Domestic Network Drives Group Performance

Group Domestic EBIT topped $1 billion, up 14% year on year, with a robust 18% EBIT margin that shows the strength of the home market. Capacity grew 5% and revenue per available seat kilometer increased 3%, supported by solid demand from both leisure travelers and business-purpose trips across the domestic network.

Loyalty Business Extends Its Growth Run

Qantas Loyalty continued to deliver high-margin growth, posting underlying EBIT of $286 million, up 12% from a year earlier, as customer engagement deepened. Points earned rose about 10%, redemptions climbed 17%, membership surpassed 18 million and more members are now earning in at least two categories thanks to new program features.

Customer Metrics and Operations Improve

Customer satisfaction showed clear progress, with Qantas’ Net Promoter Score up five points and Jetstar’s up four, reflecting service and reliability gains. On-time performance reached 70% for Qantas and 71% for Jetstar, while a 4% increase in frontline staff and investments in lounges, WiFi and cabin refreshes aim to lock in these improvements.

Balance Sheet Supports Investment and Returns

Net debt ended the half at $5.6 billion, sitting at the bottom of the FY26 target range of $5.6–$7.0 billion, giving the airline room to maneuver. This leverage position supports both heavy future capex and ongoing capital returns while maintaining the group’s commitment to a conservative financial framework and liquidity buffer.

International Segment Under Earnings Pressure

Group International, excluding Jetstar Asia and Jetstar Japan, saw underlying EBIT fall 6% year on year as costs rose faster than revenue. Higher engineering expenses, wage inflation and the training and entry-into-service costs for new aircraft weighed on profitability, and management also noted softer outbound leisure demand in some markets.

Inflation and Currency Weigh on Costs

Cost inflation and currency movements are clearly eroding some of the profit gains, with depreciation and amortization up $89 million due to faster fleet renewal. Industry-related charges climbed as airport security and navigation fees rose above inflation, and unfavorable foreign exchange on non-fuel costs knocked about $76 million off profit in the half.

Entry-Into-Service and Transition Cost Burden

Entry-into-service and fleet transition costs also moved higher, with EIS expenses alone increasing by $10 million during the period as new aircraft joined the fleet. Management expects these combined costs to rise by roughly $20 million versus H2 of the prior year, reflecting elevated pilot training and operational ramp-up for the expanded fleet.

Same Job Same Pay Adds Wage Headwinds

The Same Job Same Pay reforms are creating a meaningful short-term drag, with the gross impact now expected to reach about $95 million in FY26, up $15 million from earlier indications. Qantas acknowledged this as a material wage cost headwind but indicated it plans to offset the impact over time through productivity measures and broader transformation efforts.

Statutory Profit Flat Amid Softer International Demand

Statutory profit after tax held steady at $925 million compared with the prior first half, reflecting the tug-of-war between strong domestic and loyalty results and weaker international margins. Management flagged softer ex-Australia leisure demand in some international markets, while capacity on the Australia–U.S. corridor remains around 88% of pre-pandemic levels, limiting revenue upside.

Jetstar Asia Exit and Japan Adjustments

The group is reshaping its portfolio, with the closure of Jetstar Asia in July and the handling of Jetstar Japan lease liabilities impacting reported results. Restructuring and closure costs are being recognized as Qantas reallocates capacity to higher-return opportunities and simplifies its international low-cost footprint across Asia.

Seat Factors Normalize as Operations Stabilize

Load factors softened across both domestic and international networks, but management framed this as a byproduct of more reliable operations rather than weak demand. Fewer same-day cancellations reduced the need to consolidate flights, while a higher mix of resource-market flying and the use of larger A380 aircraft on some routes naturally lowered average seat factors.

Guidance Highlights Ongoing Growth and Investment

Looking ahead, Qantas expects Group RASK to rise about 3% in the second half, with international RASK up 1%–3%, and maintains a full-year transformation target of around $400 million weighted to H2. Net capex is forecast at $4.1–$4.3 billion in FY26 and $5.1–$5.4 billion in FY27, Loyalty EBIT is guided to grow 10%–12% in FY26, freight revenue should track in line with last year and seasonal earnings are expected to skew roughly 60% to the second half.

Qantas’ earnings call painted a picture of a carrier leaning into growth and renewal, backed by strong domestic demand, a booming loyalty franchise and disciplined capital management. While international and cost headwinds remain, management’s confidence in fleet-driven efficiencies, rising customer satisfaction and continued cash generation suggests the medium-term outlook for shareholders stays firmly positive.