Delivering A Financially Sustainable Future
To respond to the challenges of the current operating environment, this financial plan ensures we continue to fund our critical and essential services during the recovery period and transform our costs and investments to match demand as the aviation industry returns.
At this time there is still significant uncertainty about the industry's economic path to recovery and it is likely that the rates of traffic and revenue growth in the coming years will be volatile. Ongoing government support in excess of $830 million, short-term cost savings of $100 million and being able to access the debt market has helped us navigate the significant cash flow impact of the pandemic.
To address our medium-term financial performance, we will accelerate some strategic business initiatives and reform our operating model. This will deliver a lower and more flexible cost base to support forecast changes in industry demand and restore healthy financial performance.
This plan reprioritises our investment in key strategic programs and will fund $959 million in capital expenditure. Noting that these financial outcomes are underpinned by the continued relaxation of domestic state borders by December 2020 and the roll out of COVID-19 vaccinations by late 2021.
Pricing
We set our prices in consultation with our customers for core airways services under Long Term Pricing Agreements. Under the provisions of the Competition and Consumer Act 2010 any increase in prices must be communicated to the Australian Competition and Consumer Commission for its review.
Under these arrangements, we last increased our prices on 1 July 2015, which allowed us to recover all reasonably incurred costs relating to the delivery of services (including a return on capital employed). On 1 July 2019 we passed on a price reduction of 2 per cent to customers.
This plan aims to maintain the current charges, despite the significant reduction in revenues, through a combination of government assistance, increasing debt and generating sustainable cost savings. We will continue to work within our business and with the government and our customers to support the recovery of aviation in Australia. Any future pricing changes will be subject to review in future plans.
Operating Performance
Our customers have experienced a significant financial impact as a result of COVID-19, which in turn has severely affected our operating performance. Revenues have experienced drops of up to 80 per cent and government financial support has been required through 2019–20 and 2020–21 to fund the delivery of ongoing critical aviation services.
This plan incorporates a number of key programs that will strengthen our financial position and sustainability over the longer term. However, in the short-term our financial performance will be depend largely on the easing of domestic and international travel restrictions and the rate at which our customers will recover and respond.
This plan forecasts a gradual industry recovery path over the next 3 years. Revenues and traffic are projected to rebalance at 80 per cent of pre-COVID levels by 2023–24, preceded by periods of financial loss up until 2022–23.
To respond to anticipated changes in customer demand, this plan incorporates key programs and restructuring activities to build a more flexible and efficient cost base that is better tailored to the service needs of customers. Savings will be realised as we transform the way we deliver our services, including increased automation and digitalisation.
The roll out of these key programs will be accelerated during industry recovery and will deliver costs savings of 15 per cent by 2023–24 to help drive financial performance, sustainability and foster industry growth.
Table 2: Operating Projections and Performance Measures.
Financial outcomes reflect the current volatile operating environment caused by the COVID-19 pandemic. The revenues reflect below-normal levels of demand while costs reflect the services delivery arrangements required to ensure business continuity and ongoing provision of safety critical services through the recovery phase. Planned financial outcomes are subject to high level of volatility and are dependent on ongoing relaxation of domestic state borders by December 2020 and the successful roll out of COVID-19 vaccinations and opening of international borders by late 2021.
| Description | 2019-20 Actual ($ million) | 2020-21 Plan ($ million) | 2021-22 Plan ($ million) | 2022-23 Plan ($ million) | 2023-24 Plan ($ million) | 2024-25 Plan ($ million) |
|---|---|---|---|---|---|---|
| Domestic Airways Revenue* | 299.4 | 128.4 | 419.2 | 470.0 | 522.2 | 537.9 |
| International Airways Revenues | 446.3 | 149.5 | 196.9 | 395.3 | 497.0 | 512.1 |
| Government Grant | 250.0 | 581.8 | - | - | - | - |
| Airways Revenue | 995.7 | 859.7 | 616.1 | 865.3 | 1,019.2 | 1,050.0 |
| Other Revenue | 25.8 | 25.4 | 25.6 | 25.7 | 25.8 | 26.0 |
| Total Revenue | 1,021.5 | 885.2 | 641.7 | 891.0 | 1,045.0 | 1,076.0 |
| Staff Costs | 642.1 | 774.6 | 702.4 | 616.5 | 605.8 | 570.2 |
| Supplier Costs | 218.5 | 173.1 | 182.3 | 219.0 | 247.2 | 276.4 |
| Depreciation | 152.4 | 144.4 | 140.6 | 145.2 | 157.8 | 169.8 |
| Total Expenses before interest and Tax | 1,013.1 | 1,092.1 | 1,025.3 | 980.6 | 1,010.8 | 1,016.4 |
| Earnings Before Interest & Tax (EBIT) | (17.8) | (209.4) | (386.2) | (92.1) | 31.8 | 57.1 |
*Domestic revenues for 2020 and 2021 are net of fee waivers provided under the Government's COVID-19 Airline Financial Relief Package
| Performance | 2019-20 Actual ($ million) | 2020-21 Plan ($ million) | 2021-22 Plan ($ million) | 2022-23 Plan ($ million) | 2023-24 Plan ($ million) | 2024-25 Plan ($ million) |
|---|---|---|---|---|---|---|
| EBIT/Revenue | (1.7%) | (24.1%) | (60.4%) | (10.4%) | 3.1% | 5.3% |
| Return on Assets | 0.4% | (12.3%) | (21.0%) | (4.8%) | 1.4% | 2.7% |
| Net profit after tax | (25.0) | (160.6) | (282.8) | (78.8) | 5.9 | 23.4 |
| Return on Equity after tax | (3.9%) | (34.4%) | (49.6%) | (11.0%) | 0.9% | 3.4% |
| Gearing | 53.7% | 69.0% | 53.9% | 61.9% | 61.6% | 58.1% |
| Returns | ||||||
| Dividends | 5.4 | - | - | - | - | 8.8 |
Capital Expenditure
This plan invests $959 million in capital expenditure over the next 5 years. Our previous investment plan has been reprioritised to allow for the continued delivery of key strategic and enabling programs while pausing some activities, which can be reactivated as demand returns.
Table 3: Capital Investment Projections
| Program | 2020-21 Plan ($ million) | 2021-22 Plan ($ million) | 2022-23 Plan ($ million) | 2023-24 Plan ($ million) | 2024-25 Plan ($ million) | TOTAL 5 Years ($ million) |
|---|---|---|---|---|---|---|
| Strategic | 176.9 | 181.5 | 140.2 | 132.9 | 84.1 | 715.6 |
| Sustainment | 44.1 | 68.6 | 72.4 | 24.6 | 15.7 | 225.4 |
| New and Enhanced Services | 4.9 | 1.0 | 1.0 | 4.7 | 6.7 | 18.3 |
| Total Program | 225.9 | 251.1 | 213.6 | 162.2 | 106.5 | 959.3 |
The OneSKY Program, which will replace our current air traffic management system and modernise our air traffic services centres, is still central to this plan and is our key investment priority. It accounts for 68 per cent of the total five-year spend. This plan also funds work required to modernise our data and communications network infrastructure and continues to support our customers through investment in modern technologies such as digital aerodromes, space-based capabilities to deliver safer and enhanced services, reduce significant future capital expenditure, and deliver productivity benefits.
Returns, Dividends and Gearing
The five-year returns, dividends and gearing projections have been heavily impacted by the COVID-19 industry downturn and are forecast below normal target levels. See Table 2.
- This plan projects losses over the first 3 years with profitability forecast to return over 2023–24 and 2024–25 in line with improvements in economic conditions.
- No dividends have been forecast, until sufficient levels of profitability return in 2024–25.
- Debt levels and gearing are projected to increase, due to reductions in operating cash flows. By 2024–25, gearing is projected to return to target levels when trading conditions and operating cash flows are forecast to improve.